Malpractice insurer in Virginia loses control to regulators

RICHMOND, Va. -- Virginia insurance regulators took over a financially ailing medical malpractice insurer Wednesday after a last-ditch effort to raise capital fell short.

A Richmond Circuit Court judge named the State Corporation Commission as receiver for Glen Allen-based Reciprocal of America. The SCC sought the ruling after its Bureau of Insurance determined that the company was "in a hazardous financial condition," the SCC said in a statement.

The court named state insurance commissioner Alfred W. Gross deputy receiver for Reciprocal. Gross will oversee the state's efforts to shore up the company's finances and will manage the company's operations while it is in receivership.

The SCC said Reciprocal "will continue to pay all claims arising under ROA's policies of insurance." However, the agency has placed a moratorium on payments of non-insurance claims, and the company will not issue any new insurance policies, nor will it renew policies that expire.

A Reciprocal spokesman said he could not comment and referred calls to the SCC.

Reciprocal, which manages pools of money set up to provide malpractice coverage for hospitals and physicians, had issued a call to its members last month seeking up to $100 million to help shore up its finances.

A memo that accompanied the cash call was published by the Virginia Lawyers Weekly earlier this month. In it, Reciprocal's acting president, Thomas K. Smith, warned: "In the worst-case scenario, we could be taken over by the regulators and put into run off, which management expects could have a dramatic adverse effect for you in both the short term and long term."

The capital call was the Reciprocal's second in less than a year. The company raised $53.5 million from its members last summer.

Reciprocal has been struggling financially for the past two years. The company's main line of business is medical malpractice coverage, which represents nearly half of its revenue, according to a profile of the company by debt-rating agency Standard & Poor's.

The company also provides legal malpractice insurance through a subsidiary, American National Lawyers Insurance Reciprocal.

Reciprocal is licensed to operate in 40 states and the District of Columbia. Most of its business is concentrated in Alabama, Virginia, Mississippi, Kentucky and Missouri.

Many of the states where Reciprocal provides coverage have seen other providers leave because of rising malpractice claims. As a result, Reciprocal's troubles have left doctors and hospitals in those states scrambling to find alternative coverage.

In Mississippi, for example, Reciprocal covers more than 500 physicians and 46 hospitals.

Mississippi Hospital Association President Sam Cameron said Tuesday that his group's members "are looking for alternatives that we can put together to provide coverage for hospitals and physicians.

"We are desperately searching -- as is the commissioner of insurance -- for companies out of state that are currently not doing business in the state to see if they would be able to come in and write. There has not been a positive response."

In Virginia, about 20 health care facilities are Reciprocal policyholders.

According to Reciprocal's financial statements filed with the Bureau of Insurance, the company lost $12 million in 2000 and $88 million in 2001. Through the first nine months of 2002, the company reported net income of $1.4 million.