HealthyCT went into rehabilitation in November 2016 and the Superior Court ordered its liquidation on December 9, 2016. As a result of these actions, broker claims for approximately $1.3 million in commissions remain outstanding and unpaid at this time. Brokers have recently received a notice regarding a proposed transaction with Juris Capital LLC which could affect the payment of commission claims.

Click here to view the notice Docket No. HHD-CV-16-6072516-S

The recent notice has spurred several inquiries from the broker community concerning the likelihood and timing of payment of commission claims. Here are the facts:

• When HealthyCT was placed into rehabilitation, producer commissions for October 2016 premiums, which were scheduled to be paid in mid-November, were withheld due to the co-op’s uncertain financial condition and the Rehabilitation Order.
• Despite what had been believed about reserves adequacy earlier in the fall, in fact the available HealthyCT assets fell short of the funding needed to pay all claims under the insurance policies. By November 30th, HealthyCT’s financial condition had deteriorated significantly enough that it became clear that projected health care claims would exceed available cash and premium income to pay those claims. As a result, on December 9, 2016, HCT was declared insolvent and was ordered to be liquidated by the Superior Court effective at year end.
• Liquidation activated the Connecticut Life and Health Insurance Guaranty Association (CLHIGA) to provide coverage to HealthyCT’s remaining group insureds until January 31, 2017 and also to pay all of the co-op’s covered claims pursuant to its governing statute. This required CLHIGA to assess and collect from its members $20 million to fund the payment of HealthyCT’s claims.
• By statute, any part of that assessment which remains unreimbursed to CLHIGA represents the highest priority claim against any funds in the liquidation estate (other than claims of insureds under policies and administrative expenses of the estate).
• Due to the statutory priority of CLHIGA’s claim, the likelihood of any payment on any of the lower priority creditor claims (including commission claims) is extremely low absent a significant recovery on claims against the federal government which will be litigated. If not for the Juris Capital transaction (described below), the availability of any excess funding to pay non-CLHIGA creditors would depend entirely on a positive outcome of the legal claim which HealthyCT will pursue against the federal government for amounts due from the Health and Human Services Department under the ACA.
• The outcome of any litigation is, by definition, unknowable and subject to significant risk. Here, very similar claims by other states’ co-ops and commercial insurance companies against the federal government have gone both ways at trial, and there is currently no reliable way to predict how appeals courts or the U.S. Supreme Court will ultimately rule on the ACA claims. For this reason, the Commissioner in her role as HealthyCT’s Liquidator has, in consultation with her Special Liquidator and counsel, determined that the preferable course here is one which transfers much of the litigation risk to a third party, Juris Capital, in return for a substantial cash payment to the HealthyCT estate.
• The amount that Juris Capital has agreed to pay the HealthyCT estate, $10.5 million, is substantial, but that amount would not allow the estate to pay CLHIGA’s claim in full and would not ordinarily provide funding for the lower priority claims.
• However, the Special Liquidator has negotiated terms in the Juris Capital transaction and proposed Court approval documents for the benefit of lower priority claimants. If the Juris Capital transaction is approved by the Court, the proceeds will provide a fund of $760,000 for lower priority creditors than CLHIGA, most of which are projected to be allocated to broker claims. Such allocated funds will not suffice to pay the full amount of existing commission claims, which are approximately $1.3 million. But the fund would permit the Special Liquidator to pay out a material percentage against those claims, once the conditions for such payment have been fulfilled.

The Commissioner and her Special Liquidator understand that HealthyCT’s brokers may have continued to hope for full reimbursement of the outstanding commission claims. However, as the liquidation estate’s insurance claims developed in December and early 2017, it became increasingly likely that there would be an unpaid remainder due to CLHIGA, which would block any payment to lower-priority claimants unless litigation against the federal government was successful. IT may take years for that litigation to play out, with the U.S. Supreme Court possibly making the final determination. The federal government is contesting the claims vigorously and, as noted before, there is considerable risk involved. The Juris Capital transaction is being pursued because, under the circumstances, it offers the best option to reduce the existing litigation risk, freeing up at least some funds for both CLHIGA and broker claims.