Missouri Hospital Plan seeks repayment from insolvent insurer

posted on:
January 30, 2004

author:
Lola Butcher

category:
Fraud

Kansas City-area doctors left holding the bag because a medical malpractice insurer went out of business may not be entirely out of luck.

Despite the fact that Reciprocal of America and its affiliates have been declared insolvent and are being liquidated by insurance officials in Virginia and Tennessee, lawsuits from throughout the country are being pursued because the plaintiffs think some deep pockets, including Berkshire Hathaway Inc. and General Reinsurance Corp., will be held responsible for paying millions of dollars in claims.

The situation is important locally because dozens of Kansas City doctors were insured by The Reciprocal Alliance, one of the ROA affiliates that went into receivership last year. In Kansas, 22 malpractice claims have been filed against physicians and hospitals covered by The Reciprocal Alliance, including 14 in the metro area. In Missouri, the number of claims is not known, but sources said TRA covered at least 80 area obstetrician-gynecologists, as well as Heartland Regional Medical Center in St. Joseph.

Beyond that, Missouri Hospital Plan, which provides malpractice insurance coverage to about 70 hospitals in Missouri, is seeking to recover $10 million that it loaned to ROA in 2000.

“We’re in line with everybody else,” said Mike Delaney, president of Missouri Hospital Plan.

The Reciprocal companies were in good standing with insurance regulators and the A.M. Best rating agency when the Kansas City physicians bought malpractice coverage and when the Missouri Hospital Plan entered into a business combination agreement with ROA.

W. Daniel Miles III, a lawyer with Beasley Allen Crow Methvin Portis & Miles PC in Montgomery, Ala., said that good standing reflected ROA’s misrepresentation that it had more reinsurance coverage — essentially, financial depth that it had purchased to cover losses — than it actually had.

“The thrust of everybody’s claim is something called a side letter,” Miles said, referring to what he called a secret agreement between Reciprocal executives and General Reinsurance Corp., a major reinsurance company affiliated with Berkshire Hathaway.

This agreement, Miles alleges, limited Gen Re’s reinsurance coverage of Reciprocal losses much more than Reciprocal and Gen Re led insurance regulators to believe.

MHP’s lawsuit against Reciprocal of America and other defendants, originally filed in Cole County Circuit Court in May, is being moved to U.S. District Court in Memphis as part of a multidistrict litigation order.

MHP’s lawsuit stems from an agreement between the hospital plan and ROA to combine their businesses beginning Jan. 1, 2001. In early 2002, MHP backed out of the arrangement, but it did not receive repayment of its money.

“We were able to pull out of the business combination and resume operations pretty much as we had been,” he said. “We’re still in good shape.”

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