The Mississippi Legislature had authority to raid an insurance fund in 2004 to balance the state budget, the 5th U.S. Circuit Court of Appeals has ruled.
The Mississippi Surplus Lines Association sued the state after the Legislature took $2 million from its surplus. Lawmakers raided several small, fee-funded agencies to pay for large budget items such as schools, roads and prisons.
The MSLA claimed it was a private entity and not subject to legislative appropriation or control by the state.
U.S. District Judge Tom S. Lee ruled for the state in 2006. The MSLA appealed to the 5th Circuit, which on Tuesday sided with Lee.
Surplus line associations represent out-of-state insurance companies that specialize in high-risk coverage.
According to the court record, MSLA was created in 1997 by private individuals. From 1997 through 2005, MSLA collected about $5.2 million in examination fees while spending only $1.6 million, resulting in an excess of $3.6 million.
The MSLA argued it was not a state agency, citing a 2004 opinion from state Attorney General Jim Hood. The group also said its money was not subject to legislative action.
Under state law, the Mississippi Insurance Department regulates insurance companies and agents, including in-state and out-of-state companies, and eligible non-admitted insurers, also known as surplus lines insurers, that do business in the state.
State law also says the Insurance Department can rely upon the advice and assistance of an association of surplus lines agents – in this case, the MSLA – in carrying out regulations. In return, the MSLA can collect an examination fee of 1 percent of premiums charged insurers in return for helping the Insurance Department.
Lee, in his ruling, said if the Insurance Department’s duties weren’t done by MSLA, the insurance commissioner himself would do them or hand them off to another group.
The 5th Circuit agreed.
“Both MSLA and its funds exist at the whim of the Mississippi Legislature and are public in nature,” the appeals court said.
The 5th Circuit dismissed MSLA’s claims that it is a private agency.
MSLA “exists wholly to serve the state and operates under conditions imposed by state law. The state’s legislation appropriating the funds is not a taking of private property because the funds, once they reached the association, were never private,” the court said.
The court said although Mississippi did not initially declare the funds as public property, MSLA received the funds solely because a state statute permitted the collection of the 1 percent fee to fund the operation of the state’s surplus line insurance activities.
“The fees were meant only to fund the operating costs expended by the association in fulfilling its duties to the commissioner,” the court said.
Tuesday’s ruling was issued by a panel of three 5th Circuit judges – Patrick E. Higginbotham, Jerry E. Smith and Priscilla R. Owen.
On the Net:
5th U.S. Circuit Court of Appeals: http://www.ca5.uscourts.gov
MSLA: http://www.msla.org
Mississippi Department of Insurance: http://www.doi.state.ms.us
Topics USA Legislation Excess Surplus Mississippi
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