2012-729, Appeal of the Local Government Center, Inc. & a .

APPEAL OF THE LOCAL GOVERNMENT CENTER, INC. & a.

No. 2012-729 Bureau of Securities Regulation

Howard & Ruoff, P.L.L.C., of Manchester (Mark E. Howard on the brief), ___________________________

Local Government Center Real Estate, Inc., Local Government Center Health LYNN, J. The respondents, The Local Government Center, Inc. (LGC),

page is: http://www.courts.state.nh.us/supreme. for Harold J. Pumford, as amicus curiae. a.m. on the morning of their release. The direct address of the court's home reporter@courts.state.nh.us. Opinions are available on the Internet by 9:00

brief), for the respondents. brief, and Ramsdell Law Firm, PLLC, of Concord (Michael D. Ramsdell on the on the brief, and Mr. Saturley orally), David I. Frydman, of Concord, on the Preti Flaherty, PLLP, of Concord (William C. Saturley and Brian M. Quirk

Christopher G. Aslin on the brief, and Mr. Volinsky orally), for the petitioner. Nelson, P.A., of Manchester (Andru H. Volinsky, Roy W. Tilsley, Jr., and to press. Errors may be reported by E-mail at the following address: assistant attorney general, on the brief), and Bernstein, Shur, Sawyer, & Ann M. Rice, deputy attorney general (Suzanne M. Gorman, senior

editorial errors in order that corrections may be made before the opinion goes Hampshire, One Charles Doe Drive, Concord, New Hampshire 03301, of any Readers are requested to notify the Reporter, Supreme Court of New

well as formal revision before publication in the New Hampshire Reports. NOTICE: This opinion is subject to motions for rehearing under Rule 22 as risk management programs. See RSA ch. 5-B (2013). HealthTrust is the

p. 2 HealthTrust, P-L Trust, and Workers’ Compensation Trust are pooled

Trust. It became a separate trust in 2000.

4,000 buildings and their contents with a value of nearly four billion dollars in

When it was first established, it was “housed” in NHMA Property Liability

respondents, P-L Trust provides property liability insurance that “covers over

Compensation Trust is the successor to a similar program created by NHMA. to NHMA Property Liability Trust, which NHMA created in 1986. Workers’ Insurance Trust, which NHMA created in 1985, and P-L Trust is the successor

handles approximately $360 million in claims each year.” According to the retirees, with 36 medical plans and 25 prescription drug plans. HealthTrust to “more than 70,000 individual public employees, their dependents, and

to certain affiliated associations. HealthTrust is the successor to NHMA Health

“Workers’ Compensation Trust.” collectively, as “P-L Trust,” and any entity with “Workers’ Compensation Trust” in its name as

(governing how such hearings must be conducted). secretary of state has delegated authority to preside over administrative hearing), :26-a (2006) appeals to this court); RSA 421-B:2, XVI-b (2006) (defining “presiding officer” as person to whom According to the respondents, HealthTrust provides health insurance benefits 2 See RSA 5-B:4-a (2013) (regarding hearings for violations of RSA chapter 5-B and providing for

its members (comprised of various municipalities) and administrative support collectively, as “HealthTrust,” the entities with “Property Liability Trust” in their names, 1 For the purposes of this appeal, we refer to the entities with “Health Trust” in their names,

$10,254,000, and Workers’ Compensation Trust had revenues of $6,517,000. and P-L Trust to transfer $17.1 million to HealthTrust 2010, HealthTrust had revenues of $392,244,000, P-L Trust had revenues of. $33.2 million to its members, P-L Trust to return $3.1 million to its members, Hampshire corporation that provided lobbying, legal counsel and training for largest pooled risk management program operated by LGC. As of December 31, Hampshire Municipal Association, Inc. (NHMA), which was a non-profit New certified record, or they are undisputed. LGC is the successor to the New Trust, LLC, Inc., LGC-HT, LLC, and Local Government Center Workers’ Compensation

RSA 5-B:5, I(c) (2013) and requiring, among other things, HealthTrust to return

The following facts are derived from the presiding officer’s report or the

A. LGC and Related Entities Trust, Inc., New Hampshire Municipal Association Property-Liability Trust, Trust, LLC, Local Government Center Property-Liability Trust, LLC, Health I. Background

vacate in part, and remand.

Hampshire Bureau of Securities Regulation (Bureau), finding that they violated

1 appeal a final order of a presiding officer of the petitioner, the New member of P-L Trust.

p. 3 subdivision that was a member of HealthTrust was not necessarily also a members of each organization were not identical; thus, for example, a political

– had its own corporate by-laws and its own board of directors. In addition, the

organization – HealthTrust, P-L Trust, Workers’ Compensation Trust, and LGC operated as organizations separate from each other and from LGC. Each Until 2003, HealthTrust, P-L Trust, and Workers’ Compensation Trust

level expressed as ($992,000) in 2009, and net assets of $177,000 in 2010.

Compensation Trust had net assets of $829,000 in 2008, a negative net asset 2008, $10,838,000 in 2009, and $10,225,000 in 2010. The Workers’ 2009, and $86,782,000 in 2010. P-L Trust had net assets of $10,093,000 in

report that HealthTrust had net assets of $92,687,000 in 2008, $79,481,000 in

program’s members). The year-end statements for years 2008 through 2010 (consisting of income from investments and combined premiums paid by the by subtracting certain expenditures from the program’s total revenue

surplus of each trust are determined annually at the end of the coverage year

program considered the property of its respective members. Earnings and operate similarly to a mutual insurance company with the net assets of each Generally, HealthTrust, P-L Trust, and Workers’ Compensation Trust

Blue Cross/Blue Shield, handles any claims.

then collects the premiums, and a third party administrator, such as Anthem upon the political subdivision’s fiscal year or requested coverage year. LGC assigned to either a January or a July pool of program members, depending

the coverage year, the political subdivision is assigned a premium rate and

evaluation and rating. Upon approval of the requested insurance coverage for Information about the group of individuals to be insured is then submitted for subdivisions apply to be members of a pooled risk management program.

from, for instance, . . . [H]ealth [T]rust[,] would appear quite basic.” Political

After 2003, a single board of directors governed LGC, HealthTrust, P-L Trust, involved in the acquisition of insurance coverage by a political subdivision eliminated the separate boards that previously had governed those entities. coverage and risk management. As the presiding officer found, “The steps or “pool” so that they are considered as one customer for purposes of insurance

members of HealthTrust were not also members of Workers’ Compensation Trust. 3 At oral argument, counsel for the Bureau represented that as many as two-thirds of the

P-L Trust, and Workers’ Compensation Trust. Sometime thereafter, LGC political subdivisions such as cities, counties, and school districts, to combine 3 In 2003, LGC took control of the assets of HealthTrust,

employer insurance programs. A pooled risk management program allows Pooled risk management programs are alternatives to traditional, single

Workers’ Compensation risk pool.” its Property-Liability risk pool, and also covers 26,000 public employees in its subdivisions in the state.” Id. Pursuant to RSA chapter 5-B, “pooled risk

p. 4 establishment of costs predicated solely on the actual experience of political See Laws 2010, 149:3 (codified as RSA 5-B:4-a). RSA 5-B:5, I, sets forth the administrative actions and imposing penalties for violations of its provisions.

B. RSA chapter 5-B dividend earnings which may be returned to the public benefit and “focused public sector loss prevention programs, accrual of interest and that office with the authority to enforce RSA chapter 5-B by bringing “pooled risk management is an essential government function” that provides

office. RSA 5-B:4. However, it was not until 2010 that the legislature vested the state.” RSA 5-B:1. In its declaration of purpose, the legislature stated that management programs to file certain information with the secretary of state’s From its inception, RSA chapter 5-B has required pooled risk standards of organization and operation. Each program shall: Each pooled risk management program shall meet the following

board voted to execute a promissory note for approximately $17.1 million Compensation Trust. After the Bureau investigated this practice, the LGC transferred approximately $18.3 million from HealthTrust to Workers’ status of such programs established for the benefit of political subdivisions of the establishment of pooled risk management programs and to affirm the profit organizations. The stated purpose of RSA chapter 5-B “is to provide for are “not subject to insurance regulation and taxation by the state.” Id.; see comply with RSA chapter 5-B: following standards that pooled risk management programs must meet to

Trust to Workers’ Compensation Trust. Between 2003 and 2010, LGC RSA 5-B:6. specific laws addressing pooled risk management programs operated by nonmanagement programs which meet the standards established” by that chapter

with the 2003 reorganization, LGC transferred funds from HealthTrust and P-L insurance premiums to cover its costs. To remedy this problem, beginning Historically, Workers’ Compensation Trust has collected insufficient Until the legislature enacted RSA chapter 5-B in 1987, there were no

and Workers’ Compensation Trust. See Prof’l Firefighters of N.H. v. Local Gov’t

Trust with P-L Trust. Compensation Trust. See id. In 2007, LGC merged Workers’ Compensation became the “parent” to its “subsidiaries,” HealthTrust, P-L Trust, and Workers’ Ctr., 159 N.H. 699, 701 (2010). In effect, after the 2003 reorganization, LGC p. 5 C. Procedural History

(Emphasis added.)

rate setting for each calendar year. members regarding the return of surplus, at least 10 days prior to reasons for projected rate increases, and to solicit comments from

hearings for the purpose of advising of potential rate increases, the (g) Provide notice to all participants of and conduct 2 public

pooled risk management program.

the department, and shall be distributed to participants of each

qualified in the coverage area being evaluated, shall be filed with

performed by a member of the American Academy of Actuaries needs of the plan. The annual actuarial evaluation shall be incurred and incurred but not reported claims and other projected

the reserves necessary to be maintained to meet expenses of all

adequacy of contributions required to fund any such program and risk management program. The evaluation shall assess the (f) Provide for an annual actuarial evaluation of the pooled

shall be filed with the department. program's operation. Bylaws and any subsequent amendments governance of the program and other matters necessary to the

terms of eligibility for participation by political subdivisions, the (e) Be governed by written bylaws which shall detail the

(c) Return all earnings and surplus in excess of any amounts

may be reimbursed for mileage and other reasonable expenses.

pooled risk management program. filed with the department and distributed to participants of each

employees. Board members shall not receive compensation but

an independent certified public accountant. The audit shall be (d) Provide for an annual audit of financial transactions by

composed of elected or appointed public officials, officers, or (b) Be governed by a board the majority of which is

law. (a) Exist as a legal entity organized under New Hampshire excess insurance to the participating political subdivisions. required for administration, claims, reserves, and purchase of p. 6 2. Findings Regarding Return of Excess

correctly decided. of the presiding officer’s decision, we assume, without deciding, that they were

Inasmuch as the respondents have not appealed the above-described portions

related to other subsidiary business entities all governed by the one board.” subject to other influences and interests within the LGC . . . conglomerate be limited to considerations of a single program and its members [became]

pooled risk management program.” “The influences and interests that would

with conflicts of interest adverse to the required standards for operation of each statute. The post-2003 reorganization “result[ed] in a conglomerate imbued of the governance previously maintained for their benefit,” as required by

subdivision members of each pooled risk management program were deprived 1. Findings Regarding Organizational Structure

management program be governed by its own board of directors and by its own

respective board and substituting the LGC . . . board of directors, the political

respondents were found to have violated three provisions of RSA 5-B:5, I, see I(b) and (e). He construed those provisions to require that each pooled risk RSA chapter 421-B, those claims are not at issue in this appeal. Although the

The presiding officer explained that “[b]y abolishing each program’s our discussion. previously governed such programs, violated those provisions.

The presiding officer first found that the respondents violated RSA 5-B:5, on August 16, 2012. Because the presiding officer dismissed the claims under

other findings of the presiding officer where necessary to provide context for participating political subdivisions.” RSA 5-B:5, I(c). Nonetheless, we reference management programs to itself and abolishing the separate boards that had presiding officer for that proceeding. See RSA 421-B:26-a, V (2006). From administration, claims, reserves, and purchase of excess insurance to the reorganization, which resulted in LGC transferring the assets of its pooled risk state issued an order commencing an adjudicative proceeding and appointed a chapter 5-B and RSA chapter 421-B. On September 2, 2011, the secretary of

May 11, 2012. The presiding officer issued an eighty-one page narrative order topics. The final evidentiary hearing was conducted from April 30, 2012, to approximately fifty prehearing and preliminary orders addressing various

return “all earnings and surplus in excess of any amounts required for RSA 5-B:5, I(b), (c), (e), they have appealed only the finding that they failed to amended by Bureau staff alleging that the respondents violated both RSA The underlying matter arises from a petition submitted and later

September 2, 2011, through April 30, 2012, the presiding officer issued a. Retention of Funds

p. 7 RBC ratio, the insurer’s total adjusted capital is divided by the ACL. See RSA intended to reflect the insurer’s exposure to all types of risks. To calculate the

the political subdivision members.

arrangements, reinsurance arrangements, and types of assets. The ACL is

and purchase of excess insurance”; and (3) failing to return the excess funds to the excess funds for purposes unrelated to “administration, claims, reserves, “administration, claims, reserves, and purchase of excess insurance”; (2) using

complex formula, based upon an insurer’s product mix, provider

RSA 5-B:5, I(c) by: (1) retaining more funds than were required for

known as the “Authorized Control Level” or “ACL.” The ACL is determined by a quantifies an insurer’s reserve strength as the ratio of assets to a risk measure Hampshire, to measure the solvency of insurance entities. The RBC method

the violations of RSA 5-B:5, I(c). He concluded that the respondents violated “parent/subsidiary” organizational structure of the respondents contributed to excess insurance.’” The presiding officer found that the post-2003

Actuaries and is used by most state insurance regulators, including New

the amounts required for ‘administration, claims, reserves, and purchase of

Insurance Commissioners in conjunction with the American Academy of 7 RSA 5-B:5, I(c). The RBC method was developed by the National Association of pay for “administration, claims, reserves, and purchase of excess insurance.”

ratios. return to its members “any amount of earnings and surplus . . . that exceeds cite provisions within RSA chapter 404-F solely to help the reader understand the concept of RBC interpreted RSA 5-B:5, I(c) to require a pooled risk management program to reinsurance) = Amount returned to member political subdivisions.” He

accounting applicable to the annual financial statements required to be filed”).

capital (RBC) method to compute the amount of funds they should retain to [RSA chapter 5-B] should not be subject to insurance regulation and taxation by the state.”). We See RSA 5-B:1 (“[P]ooled risk management programs which meet the standards established by subject to RSA chapter 404-F and related statutory provisions governing insurance companies. 4 We recognize that the respondents are not regulated by the insurance department and are not

Surplus – (costs of administration + costs of claims + reserves + cost of For example, as of March 2010, HealthTrust’s total adjusted capital was $71.3

404-F:1, XIII(a) (2006) (defining “total adjusted capital” as “[a]n insurer’s

The presiding officer found that the respondents used the risk-based

described the requirements of RSA 5-B:5, I(c) as a formula: “Earnings + insurance to the participating political subdivisions.” The presiding officer amounts required for administration, claims, reserves, and purchase of excess

I(c) because they failed to “[r]eturn all earnings and surplus in excess of any The presiding officer next found that the respondents violated RSA 5-B:5, was preparing to be responsible “rang[ed] from a World War I type pandemic,

p. 8 presiding officer observed that the kinds of catastrophes for which HealthTrust

[an] extraordinarily large combined number of individual claims.” The aggregate reinsurance to cover an extraordinarily large individual claim loss or that in 2010 it abandoned the practice of purchasing either individual claim or

in 2010. He found that HealthTrust “built up its net assets to such a high level

HealthTrust’s net assets increased from $23.9 million in 2003 to $86.8 million The presiding officer found that, since the 2003 reorganization,

insurance.” RSA 5-B:5, I(c).

were required for “administration, claims, reserves, and purchase of excess concluded that the respondents accumulated and retained more funds than assign[ed] risk percentages,” which affected the RBC ratios. Thus, he

Additionally, the presiding officer found that the LGC board “arbitrar[ily]

its actual RBC ratio was 6.0; and in 2007, its actual RBC ratio was 6.7.

RBC ratio was 4.2, in 2005, HealthTrust’s actual RBC ratio was 4.5; in 2006, exceeded the self-imposed target RBC ratio. For instance, although the target The presiding officer further found that the respondents regularly

assets.” would support [the board’s] rationale for accumulating an excessive amount of the target RBC ratio was not a “pure RBC ratio,” but was “an RBC ratio that

cover what in most entities are planned budgeted expenditures.” In this way,

of an RBC ratio and is an improper inflation of even its own target RBC 4.2 to bump of an arbitrary sum the board referred to as RBC 0.5 is an erroneous use supposed to be the result of a risk based analytical formula. An after-the-fact

. . . 0.5 for future expenses.” The presiding officer explained: “The RBC ratio is

arbitrarily bump” the target RBC ratio “by an additional factor of approximately

certain regulatory interventions by the insurance department. See RSA 404twice the previous year’s net assets.” Additionally, the LGC board decided “to so. Rather, the board arbitrarily “set [the target] at RBC 4.2, approximately board purported to use the RBC method to set the target, in fact, it did not do

level. When an insurer’s RBC ratio falls below 2.0, the insurer is subject to

between 4.2 and 4.75. The presiding officer found that although the LGC

ratio compares the insurer’s actual capital level to the hypothetical minimum In essence, the ACL is a hypothetical minimum level of capital. The RBC

an RBC ratio. Since 2003, the target for HealthTrust has been an RBC ratio of respondents have set a desired “target” level of retained capital, expressed as The presiding officer found that, since the 2003 reorganization, the

department must take control of the insurer. See RSA 404-F:1, X(d), :6, II.

16.5). million. Its ACL was $16.5 million. Its RBC ratio was 4.3 (71.3 divided by

F:1, X, :4-:6 (2006). If an insurer has an RBC ratio below .7, the insurance c. Return of Funds

p. 9 been returned to political subdivision members.

permitted to be retained by the statute,” and, therefore, were required to have

Workers’ Compensation Trust did not “reasonably qualify as costs and reserves subsidize Workers’ Compensation Trust. He found that amounts transferred to Trust made it difficult to discern that the money was, in fact, being used to

the undesignated line item for HealthTrust for the years 2003 to 2008: “undesignated.” The following chart shows the amount of funds that were in

b. Use of Funds “contributions to parent” on the financial statements of HealthTrust and P-L the purpose and standards of RSA [chapter] 5-B.”

funds that were in excess of the target RBC ratio in a line item entitled

presiding officer found that LGC’s manner of reporting the transfers as policy that . . . govern[ed] transfers within the LGC and its entities.” The addressed the issue of reinsurance is an example of its operative disregard of subsidize another program were done in violation of a specific inter-entity loan

RBC ratio in a line item entitled “board designated” and that they reported officer explained that the respondents reported the funds that met the target accumulated funds that were in excess of the target RBC ratio. The presiding

As he stated: “The manner by which the LGC, Inc.-controlled health trust “[t]hese periodic transfers out of the health and property liability accounts to necessary level of reserves or net assets and is a violation of RSA 5-B:5, I(c).” way, instead of the purchase of reinsurance clearly inflates a reasonable and

The presiding officer found that the respondents did not return the

P-L Trust to LGC for the same purpose. According to the presiding officer, earnings and surplus to build sufficient reserves to handle whatever comes our

subsidize Workers’ Compensation Trust. A lesser amount was transferred from approximately $18.3 million was transferred from HealthTrust to LGC to reinsurance in place.” He explained that “[s]ubstituting the higher retention of The presiding officer found that after the 2003 reorganization, substantially higher level of reserves than otherwise would be necessary with of this magnitude “evidence[d] [its] desire and practice . . . to retain a

failure.” He concluded that the fact that HealthTrust was preparing for events where 700,000 people died in this country, to a Seabrook Nuclear Power Plant p. 10 Trust held approximately $3.1 million in excess funds. The presiding officer relied upon the testimony of LGC’s chief financial officer that, as of 2010, P-L

To calculate the excess funds held by P-L Trust, the presiding officer

ordered immediately.” the practice of purchasing reinsurance by . . . Health Trust which practice is so

the return of the $33.2 million “shall not be affected by the cost of returning to

returned to political subdivision members. The presiding officer ordered that

held in net assets in 2010, $33,200,000 constituted excess funds that must be claims.” Thus, the presiding officer found that of the $86,781,781 HealthTrust reserve, in addition to its costs of administration and claims, equal to 15% of

3. Remedy calculated the excess funds held by HealthTrust for 2010 by limiting it “to a

political subdivision members by September 1, 2013. The presiding officer HealthTrust and P-L Trust to return excess funds from 2010 to their respective To remedy the violation of RSA 5-B:5, I(c), the presiding officer ordered

calculation of risk factors by the LGC . . . actuary or staff.”

item] was accomplished by an inexplicable increase within that year’s the funds that ordinarily would have been assigned to [the undesignated line . . . LGC.” The presiding officer further found “that the essential elimination of the fall of 2013. The respondents complied with this portion of the presiding officer’s decision in each program with an independent board and its own set of written bylaws.”

million” and by “transferring approximately $4.4 million [from HealthTrust] to

ordered LGC to organize HealthTrust and P-L Trust “into a form that provides

what [LGC] reported as additional claims losses . . . of [approximately] $8.8 the undesignated line item “account,” in part, by using those funds “to fund The presiding officer also found that in 2009, LGC “essentially depleted” To remedy the violations of RSA 5-B:5, I(b) and (e), the presiding officer

Year Amount in Undesignated Line Item subdivision members.

“undesignated” should have been, but were not, returned to political The presiding officer found that the amounts that were reported as

2008 $25,723,000 2007 $25,047,000 2006 $16,248,000 2005 $56,303,000 2004 $24,873,000 2003 $23,944,000 p. 11 II. Discussion

HealthTrust.

order. We stayed only the requirement that P-L Trust transfer $17.1 million to

respondents requested that we stay various portions of the presiding officer’s rehearing. This appeal followed. While this appeal was pending, the The presiding officer denied the respondents’ subsequent motion for

and are ordered to pay same.” proceedings, including reasonable attorney fees, pursuant to RSA 5-B:4-a, V liable for the costs in the investigation of this matter, and all related

further ruled that LGC, HealthTrust, and P-L Trust were “jointly and severally

annually “in the form of cash, dividends or similar cash equivalents.” He HealthTrust and P-L Trust to return excess funds to their respective members “required net assets.” Additionally, the presiding officer required both

accepted actuarial analysis,” approved by the Bureau, to determine P-L Trust’s

the [Bureau], whichever is less.” He required P-L Trust to use a “generally

equivalent of fifteen percent (15%) of claims or an RBC 3.0 as determined by “reasonable amount of earnings and surplus,” which he defined as “the Specifically, he ordered that, in future years, HealthTrust may retain only a

claims, reserves, and purchase of excess insurance.” RSA 5-B:5, I(c).

of funds that the respondents may retain in the future for “administration, excess funds for purposes unrelated to “administration, claims, reserves, and The presiding officer also ordered prospective relief related to the amount

“administration, claims, reserves, and purchase of excess insurance”; (2) using commercially reasonable terms.”

violated RSA 5-B:5, I(c) by: (1) retaining more funds than were necessary for The respondents first challenge the presiding officer’s findings that they funds to make this re-payment may be borrowed from an independent entity at returned to [HealthTrust’s] members.” The presiding officer specified that “[t]he and surplus of the . . . HealthTrust risk pool management program . . . shall be

such order is unjust or unreasonable. See Appeal of Basani, 149 N.H. 259, law, unless we are satisfied, by a clear preponderance of the evidence, that

lawful and reasonable. Id.; see RSA 541:13 (2007); RSA 5-B:4-a, VIII. 261 (2003). The presiding officer’s findings of fact are deemed prima facie of the subsidy, “to the extent they constitute amounts in excess of the earnings

We will not set aside the presiding officer’s decision except for errors of

presiding officer ordered that the funds received by HealthTrust in repayment HealthTrust provided Workers’ Compensation Trust over the years. The transferring $17.1 million to HealthTrust, as repayment for the subsidy

satisfy the previously executed promissory note, by December 1, 2013, by ordered P-L Trust (of which Workers’ Compensation Trust is now a part) to interpretation. State Employees’ Assoc. of N.H. v. State of N.H., 161 N.H. 730, p. 12 Resolving many of these issues requires us to engage in statutory

each of the respondents’ arguments in turn.

“business judgment rule,” 12

presiding officer’s award of attorney’s fees and costs was improper. We address presiding officer erred by failing to recuse himself. Finally, they argue that the Trust to repay $17.1 million to HealthTrust. They also contend that the

3A W. Fletcher, Fletcher Cyclopedia of the Law of Corporations § 1036, at 42-43 (perm. ed. rev. Accordingly, they contend, the presiding officer violated the statute, the but also protects the decision itself.” Id. at 43, 45, 47. In New Hampshire, the “business best interests of the company. . . . The rule not only protects the decision makers from liability, acted on an informed basis, in good faith, and in the honest belief that the action taken was in the . . establishes a presumption that in making a business decision, the directors of a corporation a. Level of Reserves directors in the exercise of their broad discretion in making corporate decisions. . . .[T]he . . . rule . vol. 2011). “The rule refers to the judicial policy of deferring to the business judgment of corporate 1. Improper Retention of Funds wide latitude conferred on a board of directors in handling the affairs of the corporate enterprise.” A. Violations of RSA 5-B:5, I(c) 5 “The business judgment rule is a common-law standard of judicial review designed to protect the million to its members; (3) HealthTrust to purchase reinsurance; and (4) P-L

purpose sought to be advanced by the statutory scheme. Id. at 738-39. 5 and their right to “due process and fair notice”

levels to the business judgment of a risk pool’s board of directors.” The respondents argue that RSA 5-B:5, I(c) “leaves the setting of reserve

not see fit to include. Id. We construe all parts of a statute together to what the legislature might have said or add language that the legislature did

a whole. Id. We first look to the language of the statute itself, and, if possible, RBC of 3.0 as determined by the [Bureau]”; (2) HealthTrust to return $33.2 and surplus,” defined as “the equivalent of fifteen percent (15%) of claims or an legislature’s intent and to interpret statutory language in light of the policy or requiring: (1) HealthTrust to maintain only a “reasonable amount of earnings the context of the statute as a whole. Id. This enables us to better discern the Moreover, we do not consider words and phrases in isolation, but rather within effectuate its overall purpose and avoid an absurd or unjust result. Id.

interpret legislative intent from the statute as written and will not consider construe that language according to its plain and ordinary meaning. Id. We

intent of the legislature as expressed in the words of the statute considered as novo. Id. In matters of statutory interpretation, we are the final arbiter of the 738 (2011). Statutory interpretation is a question of law, which we review de subdivision members. They next challenge the presiding officer’s order purchase of excess insurance”; and (3) failing to return such funds to political p. 13 RSA 5-B:5, I(c) allows a pooled risk management program to retain only

program may retain only those amounts that are “required for administration, Pursuant to the plain meaning of the statute, a pooled risk management cost of reinsurance) = Amount returned to member political subdivisions.”

“Earnings + Surplus – (costs of administration + costs of claims + reserves +

large claims loss.” responsibility for meeting catastrophes that would result in extraordinarily increase its net assets to, in his words, “take on the sole and complete

As the presiding officer noted, RSA 5-B:5, I(c) sets forth a formula:

chapter 5-B by deciding not to purchase reinsurance and choosing, instead, to

authority. scheme simply does not support the respondents’ claim for unregulated 13

presiding officer did not err when he ruled that HealthTrust violated RSA reinsurance for HealthTrust violated RSA 5-B:5, I(c). We conclude that the the 2010 decision to cease purchasing individual claim or aggregate claims

regarding the amount of funds such a program may retain. The statutory office in compliance with this section.”). any action taken as a director, or any failure to take any action, if he performed the duties of his judgment rule” is codified at RSA 293-A:8.30(d) (2010) (amended 2013) (“A director is not liable for The respondents contend that the presiding officer erroneously ruled that those amounts that are “required for administration, claims, reserves, and b. Reinsurance

statutory mandates. See RSA 5-B:4-a.

See id. RSA chapter 5-B further circumscribes the exercise of discretion by a explicit guidance to a pooled risk management program’s board of directors amounts must be returned to the program’s political subdivision members. program may retain. This assumption is mistaken. RSA 5-B:5, I(c) provides program the unfettered discretion to determine the amount of funds such a

secretary of state to bring enforcement actions against programs that violate pooled risk management program’s board of directors by authorizing the them for failing to retain a specific level of reserves (e.g., an RBC ratio of 3.0), B:5, I(c). They also argue that, to the extent that the presiding officer faulted

claims, reserves, and purchase of excess insurance.” RSA 5-B:5, I(c). All other

B:5, I(c) confers upon the board of directors of a pooled risk management

“administration, claims, reserves, and purchase of excess insurance.” RSA 5when he found that they had accumulated more funds than were required for

All of these arguments proceed from the same assumption - that RSA 5-

rulemaking.” action itself violated their due process rights because it resulted in “ad hoc he exceeded his administrative authority. Further, they argue, the enforcement here. Here, three pooled risk management programs shared a single board of

p. 14 RSA 5-B:3 does not sanction what the presiding officer found occurred

coverage for workers’ compensation claims. subdivisions may provide” various kinds of insurance coverage, including

“[p]ooled risk management programs established for the benefit of political

against the members of such association.” RSA 5-B:3, III provides that

insurance, or reinsurance; and processing, paying and defending claims distributing, sharing, and pooling risks; acquiring insurance, excess loss as its purposes reducing the risks of its members; safety engineering; 2. Improper Expenditure of Excess Funds

that benefitted other political subdivisions. Under those circumstances, we members were instead used to subsidize a pooled risk management program that otherwise would have been returned to some political subdivision

association . . . to develop and administer a risk management program having

insure against catastrophic claims.

despite the fact that the three programs had different members. Thus, funds

RSA 5-B:3, I, authorizes “2 or more political subdivisions” to “form an 14

deciding not to purchase reinsurance, but instead to accumulate assets to self- management program to subsidize another such program. presiding officer erred in finding that HealthTrust violated RSA chapter 5-B by transfers from HealthTrust and P-L Trust to Worker’s Compensation Trust funds to members. Under these circumstances, we cannot conclude that the

board. Two of those programs then transferred funds to the third program,

upon RSA 5-B:3, they contend that RSA chapter 5-B allows one pooled risk cannot conclude that the presiding officer’s finding that the post-2003 selected target RBC ratio and retaining excess funds instead of returning those

directors, even though RSA 5-B:5, I(b) requires each program to have its own

Trust to Workers’ Compensation Trust after the 2003 reorganization. Relying they violated RSA 5-B:5, I(c) by transferring funds from HealthTrust and P-L viewed in the context of its practice of retaining capital to meet an arbitrarily The respondents assert that the presiding officer erroneously found that HealthTrust’s 2010 decision to cease purchasing reinsurance must be

a. Subsidizing Workers’ Compensation Trust political subdivision members of such programs. RSA 5-B:1.

purchase of excess insurance.” RSA 5-B:5, I(c). All other funds must be

stated purpose of pooled risk management programs, which is to “benefit” the catastrophic losses is antithetical to that purpose. It is also contrary to the such a program to amass extraordinary levels of reserves to self-insure against returned to the program’s political subdivision members. See id. Allowing costs and expenses incurred.” Webster’s Third New International Dictionary

p. 15 balance of revenue for a specific period that remains after deducting related

participating political subdivisions.” In this context, “[e]arnings” are “the administration, claims, reserves, and purchase of excess insurance to the “[r]eturn all earnings and surplus in excess of any amounts required for

RSA 5-B:5, I(c) commands a pooled risk management program to

to acquire insurance through LGC, Inc. for that extended period.” over multiple years into the future for those political subdivisions that choose

rate crediting process, surplus is not credited just for the following year, but

rebate for future participating years. . . . Consequently, when employing the

director supports and which we adopt: “[A] rate credit . . . is . . . analogous to a testimony of the former executive director of LGC and its current chief financial the presiding officer gave the following description of the practice, which the The respondents do not define “rate stabilization” in their brief. However,

amount that remains when use or need is satisfied,” or “an excess of receipts

their equivalents in the future. by directing them to return such funds to their members in cash, dividends, or

purchase of excess insurance.” The word “surplus” similarly refers to “the

funds “via rate stabilization” violated the statute. They also argue that he erred

incurred” are “any amounts required for administration, claims, reserves, and

it dismantled, we decline to hold that he erred by considering its existence. See the presiding officer did not rule that the plan was unlawful and did not order equivalents, the presiding officer erred when he found that returning excess B:5, I(c) does not specify that excess funds must be returned in cash or cash funds to their respective members “via rate stabilization,” and because RSA 5- 714 (unabridged ed. 2002). In RSA 5-B:5, I(c), the “related costs and expenses

retirement plan was required for administration of its risk pools.” Given that

required by RSA 5-B:5, I(c). They assert that because they returned excess

failed to defer to the business judgment of LGC’s Board of Directors that the employees. The respondents argue that the “Presiding Officer erred when he the decision of the LGC board to offer a fixed benefit retirement plan to its they failed to return excess funds to their political subdivision members, as The respondents argue that the presiding officer erroneously found that

3. Return of Excess Funds

id. violated RSA chapter 5-B was unlawful, unjust, or unreasonable. See Appeal

The respondents argue that the presiding officer improperly considered

b. Other Expenditures

of Basani, 149 N.H. at 261. lose . . . .

p. 16 members lose, or some subdivisions win and some subdivisions you can reduce rates over time, and some members win and some supposed to go back to the political subdivisions. It doesn’t say

language of the statute says that, if you have a surplus, it is

shared risk within an insurance pool. The issue is the plain

an insurance pool or not, or what shared risk, the concept of The issue here is not whether [rate reduction] is a good way to run

enforce RSA chapter 5-B:

legislation that, when passed, vested the secretary of state with the authority to I(c). As then-Senator Hassan explained in 2010 at a public hearing on the Those considerations, however, do not affect the plain meaning of RSA 5-B:5,

stabilization” is “consistent with risk pool practices around the country.”

“members has been for rate stabilization, not cash refunds,” and that “rate The respondents also observe that the “clear preference” of their

surplus. That phrase does not alter the mandate of RSA 5-B:5, I(c).

management program must consult with its members about the return of

for each calendar year” merely describes the time within which a pooled risk reduction.” We disagree. In context, the phrase “10 days prior to rate setting setting,” authorized them to return surplus “over multiple years via rate

members “via rate stabilization,” instead of in cash or cash equivalents. We

purported to return “all earnings and surplus” to their political subdivision

least 10 days prior to rate setting for each calendar year.” They infer that RSA Member, Senate Comm. on Commerce, Labor and Consumer Protection). things, “solicit comments from members regarding the return of surplus, at and Consumer Protection, 93-94 (May 4, 2010) (statement of Senator Margaret Wood Hassan, 5-B:5, I(g), which requires a pooled risk management program to, among other Management Programs: Hearing on H.B. 1393 Before the Senate Comm. on Commerce, Labor 6 See Relative to the Treatment of New Hampshire Investment Trusts and Relative to Pooled Risk

officer’s determination that the respondents violated RSA 5-B:5, I(c) when they In light of our construction of RSA 5-B:5, I(c), we find no error in the presiding

6

In arguing for a different interpretation, the respondents rely upon RSA

administration, claims, reserves, and purchase of excess insurance.” pooled risk management program’s total revenue those amounts “required for

over disbursements.” Id. at 2301. “[M]ore than or above the usual or specified

subdivisions the amount of money that remains after deducting from the pooled risk management program to give back to participating political Id. at 1941. Therefore, pursuant to its plain meaning, RSA 5-B:5, I(c) directs a “give back” the “earnings and surplus” to participating political subdivisions. amount . . . constitutes an excess.” Id. at 792. To “return” in this context is to p. 17 Moreover, as the presiding officer concluded, the May 2010 study did not

is categorically improper to consider such assets in calculating reserves.

Massachusetts 27 (2010). This equivocal statement does not establish that it Care Fin. & Policy, Study of the Reserves and Surpluses of Health Insurers in or be available at a fraction of the non-admitted amount.” Mass. Div. of Health

financial resources, the value represented by these assets may not be available 2. Return of $33.2 Million

“[I]t is important to recognize that, in the event of a significant call on company reserves and surpluses held by Massachusetts insurers, which merely states: provide for their argument is a single page from a May 2010 study of the

equivalents” to its political subdivision members. claims, reserves and reinsurance in “cash, dividends or similar cash certain equity investments’ – should not be considered.” The only support they that it return amounts in excess of the amount needed for administration,

equipment, software development costs, most deferred income tax assets, and necessary reserves in accordance with an actuarily sound methodology and assets that would not be available to pay claims, such as ‘furniture and evaluating reserve levels for insurance-like entities, ‘non-admitted’ assets –

requirement that HealthTrust (and the other pooled risk trusts) establish presiding officer’s order. As we explained previously, we do not vacate the capital assets.’” They argue that “[t]he evidence at the hearing was that in methodology for calculating reserves. Therefore, we vacate this portion of the

million in reserves, the Presiding Officer included $2,237,390 ‘invested in I(c), which does not require either a particular level of reserves or a particular

authority. “An agency may not add to, change, or modify the statute by ratio of 3.0. We agree that, in so ruling, the presiding officer exceeded his action, maintain net assets equivalent to fifteen percent of claims or an RBC

The respondents contend that “[i]n ordering HealthTrust to return $33.2 or an RBC ratio of 3.0, the presiding officer impermissibly modified RSA 5-B:5,

mandated that HealthTrust, in the future, absent regulatory or legislative

as reserves a specific level of net assets equivalent to fifteen percent of claims B. Prospective Relief

subdivision members in “cash, dividends or similar cash equivalents.”

The respondents contend that the presiding officer erred when he

1. Setting Future RBC Ratio

N.H. 191, 194 (1986). By imposing a requirement that HealthTrust maintain 118 N.H. 445, 448 (1978); see also Appeal of Monsieur Henri Wines, Ltd., 128

respondents shall return “all earnings and surplus” to their political also find no error in the presiding officer’s directive that, in the future, the p. 18 “Retrospective laws are highly injurious, oppressive, and unjust. No such laws, Part I, Article 23 of the New Hampshire Constitution provides:

were executed before the Bureau had any power to regulate them.” because LGC has been ordered to undo transfers between its risk pools that

4. Transfer of $17.1 Million that the presiding officer’s order “creates new obligations and duties . . . subdivision members.

subsidize Workers’ Compensation Trust before 2010. The respondents argue reserves in “cash, dividends or similar cash equivalents” to its political $17.1 million represents amounts that HealthTrust transferred to LGC to “retroactive exercise of power” in violation of Part I, Article 23 because the

consistent with the mandate that HealthTrust return amounts in excess of its actuarial analysis.” Moreover, any decision about reinsurance must be According to the respondents, the presiding officer’s decision constituted a HealthTrust to retain must be made pursuant to a “generally accepted

the presiding officer in violation of Part I, Article 23 of the State Constitution. As the presiding officer recognized, calculation of the reserves necessary for HealthTrust $17.1 million constituted an unconstitutional exercise of power by authority until 2010, the presiding officer’s order that P-L Trust repay

3. Purchase of Reinsurance

HealthTrust’s members.

may accumulate excessive reserves as it was found to have done in the past. However, this ruling should not be interpreted to mean that HealthTrust again The respondents argue that because the Bureau lacked regulatory Accordingly, we also vacate this portion of the presiding officer’s order.

that the presiding officer miscalculated the funds to be returned to risk management program may retain assets, however, it also lists the “purchase of excess insurance” as one of the purposes for which a pooled

in the future, the presiding officer impermissibly modified RSA 5-B:5, I(c).

scant authority the respondents offer for their argument, we are not persuaded administration, claims, reserves and purchase of reinsurance.” In light of the a risk pool management program purchase reinsurance. RSA 5-B:5, I(c) lists mandates a return of funds to political subdivisions in excess of the costs of

program may retain assets. By requiring HealthTrust to purchase reinsurance “administration” and “claims” as two of the other purposes for which such a

HealthTrust to purchase it. We agree. RSA chapter 5-B does not mandate that no evidence that Massachusetts entities “are subject to a statute like ours that that they purchase reinsurance, the presiding officer erred by requiring distinguish between for-profit and non-profit insurance entities, and there was The respondents argue that because there is no statutory requirement p. 19 Constitution and rely upon federal law only to aid in our analysis. State v.

We first address the respondents’ arguments under the State

C. Recusal of Presiding Officer

monies retained in violation of the plain language of the statute.

dismiss. proceedings unnecessarily by, for instance, denying their prehearing motion to

protect vested rights. The respondents could not have had any vested right in

demonstration or any connection with the parties in interest as would likely presiding officer was paid bi-weekly, he had an incentive to prolong the

this case. See Appeal of City of Keene, 141 N.H. 797, 801 (1997). A conflict of Further, the constitutional prohibition against retrospective laws exists to

outcome of the proceedings that is immediate, definite, and capable of bi-weekly, and was not paid a flat rate. They contend that, because the

This provision applies to quasi-judicial officers, such as the presiding officer in was merely enforcing an existing statute, not creating any new standards. reinsurance. By requiring the $17.1 million to be repaid, the presiding officer expenditures for administration, claims, reserves, and the purchase of

interest exists if an official has a direct pecuniary or personal interest in the that he had a direct, pecuniary interest in the proceedings because he was paid require them to pay the Bureau’s attorney’s fees and costs. They also argue temporarily employed by the secretary of state and had statutory authority to mandates that all judges “be as impartial as the lot of humanity will admit.” Ball, 124 N.H. 226, 231-33 (1983). Part I, Article 35 of the State Constitution himself. See N.H. CONST. pt. I, art. 35; U.S. CONST. amend. XIV. They argue their political subdivision members “all earnings and surplus” in excess of and federal constitutional rights to due process when he declined to recuse The respondents contend that the presiding officer violated their state

that he had an incentive to rule in the Bureau’s favor because he was Maplevale Builders v. Town of Danville, 165 N.H. 99, 107 (2013). “Every the legal significance of their actions taken prior to the enactment of a law.” prevent the legislature from interfering with the expectations of persons as to B:5, I(c) has always required pooled risk management programs to return to the Bureau lacked the authority to enforce RSA chapter 5-B until 2010, RSA 5- Here, the presiding officer’s order creates no “new obligations.” Although

deemed a retrospective law.” Id. at 107-08 (quotation omitted). disability, in respect to transactions or considerations already past must be laws, or creates a new obligation, imposes a new duty, or attaches a new

punishment of offenses.” “The underlying purpose of this prohibition is to therefore, should be made, either for the decision of civil causes, or the

statute, which takes away or impairs vested rights, acquired under existing minute as a [litigation] tactic.” Demoulas v. Demoulas Super Markets, Inc., p. 20 movants to make a strong showing that they were not waiting until the last

“In these circumstances, there is an obligation on the part of the

concluded. pursue their request until May 11, 2012, the day the evidentiary hearing

received a response. The certified record shows that the respondents did not

information about the presiding officer’s potential conflicts, but had not yet

that conference, the respondents had submitted a request for additional $400.00 a day” for his services, which he received in $5,000 increments. As of might be asked to continue as hearing officer; and (3) he was paid “over

December 22, 2011, but, if the proceedings were not concluded by then, he

these proceedings pursuant to a vendor contract; (2) his contract expired on State employee, but was retained by the State to be the presiding officer in not have a conflict of interest, but volunteered that: (1) he was no longer a

officer had any conflict of interest. The presiding officer explained that he did

pre-hearing conference, the respondents questioned whether the presiding not a last-minute attempt to avoid an adverse decision. See Demoulas, 703 before they moved to disqualify the presiding officer. At an October 4, 2011 upon which the respondents relied was available to them in October 2011, long

failed to demonstrate that their motion to disqualify the presiding officer was disqualify to determine if motion is “purely pretextual”). The respondents have certified record establishes that most, if not all, of the relevant information Supp. 2d 353, 358 (D. P.R. 2008) (court will scrutinize timeliness of motion to “makes it inherently suspect.” Id.; see United States v. De Castro-Font, 587 F. 703 N.E.2d 1141, 1146 (Mass. 1998). The timing of the respondents’ motion

already issued approximately fifty prehearing and preliminary orders. The

after the Bureau initiated these proceedings, and after the presiding officer had officer until the last day of a ten-day evidentiary hearing, fully eight months In this case, the respondents did not move to disqualify the presiding

Hutchinson v. Railway, 73 N.H. 271, 276-77 (1905). Matter of Welfare of Carpenter, 587 P.2d 588, 592 (Wash. Ct. App. 1978); see improperly influence his or her judgment. Appeal of Hurst, 139 N.H. 702, 704 his objection and cannot challenge the court’s qualifications on appeal.” litigant who proceeds to trial knowing of potential bias by the trial court waives United Shoe Machinery Corporation, 276 F.2d 77, 79 (1st Cir. 1960). “[A] wait and decide whether he likes subsequent treatment he receives.” In re knowing of a ground for requesting disqualification, can not be permitted to Hernandez v. Miranda-Velez, 132 F.3d 848, 857 (1st Cir. 1998). “[A] party, moment that a litigant becomes cognizant of the purported bias.” Rodriguez- However, “claims of judicial partiality must be raised at the earliest

(1995). because the presiding officer awarded the Bureau all of its fees and costs, even p. 21 The respondents urge us to vacate the award of fees and costs in this case

provided for under this chapter.

reasonable attorney’s fees, in addition to any other penalty the investigation, and any related proceedings, including state, the secretary of state shall be entitled to recover the costs of

default, or pursuant to a consent order issued by the secretary of

decision, we also vacate his award of attorney’s fees and costs to allow the Nonetheless, because we have vacated portions of the presiding officer’s include fees for those claims on which the Bureau did not prevail.” do under the State Constitution. See, e.g., Rodriguez-Hernandez, 132 F.3d at

on unsuccessful claims.” Van der Stok v. Van Voorhees, 151 N.H. 679, 685 analytically severable, any fee award should be reduced to exclude time spent hearing, or the person charged with the violation being found in under this chapter, upon the secretary of state’s prevailing at violated or is about to violate this chapter or any rule or order

respondents do not dispute, that “the costs submitted by the Bureau did not (2005) (quotation omitted). However, the Bureau contends, and the circumstances, we reach the same result under the Federal Constitution as we

claims and not others, and the successful and unsuccessful claims are though it prevailed on only some of its claims. “Where a party prevails on some In any investigation to determine whether any person has

attorney’s fees pursuant to RSA 5-B:4-a, V, which provides: The respondents concede that the presiding officer had authority to order

protection than Part I, Article 35 of the State Constitution under these As the Federal Due Process Clause affords the respondents no greater fees.” Shelton v. Tamposi, 164 N.H. 490, 501 (2013). We review an award of

extent clearly unreasonable to the prejudice of the objecting party. Id. discretion must have been exercised for reasons clearly untenable or to an deference to the fact finder’s decision. See id. To be reversible on appeal, the attorney’s fees under our unsustainable exercise of discretion standard, giving

statutorily or judicially created exceptions, parties pay their own attorney's grounds of bias as waived. “New Hampshire generally follows the American Rule; that is, absent N.E.2d at 1146. Thus, we treat their objection to the presiding officer on the

D. Attorney’s Fees

857. p. 22 22

Affirmed in part; vacated in

affected the amount of fees to which the Bureau is entitled. parties an opportunity to litigate the extent to which, if any, our decision has

DALIANIS, C.J.