Insurance trust ordered to release information
June 26, 2011
A judge has ordered the American Psychological Association Insurance Trust (APAIT) to turn over financial information to the board of the American Psychological Association (APA), including material APAIT contended is proprietary information that could damage its competitive standing if it falls into the wrong hands.
Judge Anita Josey-Herring of the Superior Court of the District of Columbia issued the order April 18, eliminating the need for a trial in a suit APA attorneys filed more than two years ago. she gave APAIT, also known as The Trust, 120 days to comply.
The ruling stems from a suit filed Dec. 17, 2008, in which APA sought detailed financial information, including the number of insured The Trust covers, audited financial statements, tax returns, budgets, expense-to-premium ratios, loss-to-premium ratios and solvency ratings of insurance providers.
The APA board had been seeking the information for some time before taking the matter to court, but officials of The Trust refused, saying because of the regular turnover of members on the APA board, full disclosure could reveal proprietary information to some APA members with close connections to competing insurance providers.
The Trust must provide all information requested for the years 2008 to 2010.
Rhea Farberman, APA’s executive director for member and public communications, said that from the beginning the association’s board of directors believed it had the right and responsibility to review The Trust’s financial records to fulfill its fiduciary responsibilities.
“The court has now agreed that APA has those duties and needs access to The Trust’s business performance information in order to review them,” Farberman said. Concerning confidentiality, Farberman said, “The APA board will also have, as it always has, procedures in place to protect confidential information as appropriate.”
She said details of any changes in the relationship of APA and The Trust will be worked out in coming weeks.
“Obviously the ruling is only a few days old and both boards need time to discuss how to proceed,” she said. “APA’s goal for the way forward is to create mechanisms that allow the APA board the access to information it needs to fulfill its obligations and allow the APAIT board to continue to manage an insurance program which offers an extremely valuable set of products and services to APA members.”
APA created APAIT in 1962 primarily to provide reasonably priced malpractice insurance for psychologists. The Trust also offers other insurance products, such as general liability and life insurance, and sells its products to non-members as well as APA members.
In filing the suit, APA contended the information is needed for APA to exercise oversight of The Trust. Prior to the court ruling, The Trust said APAIT was organized separately to protect APA’s tax-exempt status and APA had no oversight authority.
The judge found that under provisions of the agreement creating The Trust, APA retains the power to approve and remove APAIT trustees and to amend the trust agreement or to terminate it. As such, Josey-Herring said, APA has fiduciary duties to APAIT and its beneficiaries and is itself a contingent beneficiary of The Trust.
The judge’s order came just three days before a pre-trial hearing was expected in the case. In anticipation of that, APAIT filed a flurry of motions in March asking Josey-Herring not to allow testimony from some witnesses APA proposed to call, to strike from the record information presented by APA as “expert witness” testimony and to consider “highly confidential exhibits” only in her chambers and not in open court.
The judge’s order closes the case, but the material remains under a court-ordered seal, including details of the judge’s full 16-page order that found the information APA seeks is “reasonable and necessary” to discharge its duties in relation to The Trust.
Even without a trial it is likely that both sides fully presented their positions in motions and countermotions that swelled the case file with more than 300 entries while the matter was under consideration.
The near-incestuous nature of the two organizations means that in great part APA members paid court costs and legal fees on both sides, either through dues or insurance premiums.
Even before the judge’s ruling some APA officers were privy to much of The Trust’s financial information. Norman B. Anderson, APA’s CEO, is a member of The Trust’s board of trustees, and psychologists, including many who have held high office in APA, hold eight more of the 11 seats on the board. The remaining two members come from the insurance industry. All members are sworn to secrecy concerning proprietary information.
Jana Martin, Ph.D., CEO for The Trust, said, “The Trust has always had as its foremost concern the protection of information that, we believe, protects our policyholders, and we will continue to strive toward that end. The Trust will also continue to provide professional liability and financial security programs for the members of APA and other affiliated individuals as well as risk management and other consultative services related to the Trust Insurance Programs. Recent events will not interfere with or interrupt the coverage or services we provide to APA members.”
Martin said she foresees no difficulty in working with APA.
“Since becoming CEO of The Trust in December, I have been working closely with APA, and I do not anticipate that will change. APA has chosen The Trust to provide insurance benefits to its members, and so we share in offering services to a common group of individuals. It benefits everyone for The Trust and APA to have a collaborative relationship as we support psychologists.”
In an unrelated case, lawyers for APA filed an extensive motion March 2 in hopes of avoiding a trial in a suit by some practitioner members challenging the legality of dues assessments practicing members are charged in addition to regular APA dues. That suit was brought against APA on behalf of practitioner members and is pending in the U.S. District Court for the District of Columbia.
Plaintiffs contend they were misled to believe that paying an assessment to fund advocacy efforts on behalf of practitioners, including lobbying, was required to retain APA membership.
The assessments began as a $50 “special assessment” in 1985 to pursue practice goals, such as seeking higher payment rates from Medicare and managed care organizations. As lobbying efforts expanded, APA formed the Practice Organization in 2001 and the assessment was relabeled as “the Practice Assessment.” The annual assessment has regularly increased and currently is $140.
The revelation last year that paying the assessment is not required for maintaining APA membership prompted two lawsuits. Both suits were filed as class actions. The suits were later combined but there has been no ruling on whether the court will recognize the suit as a class action.
Plaintiffs contend they were misled by dues billings that labeled the assessments as “required” or “mandatory” and as a result APA and APAPO were “unjustly enriched.” The plaintiffs seek reimbursement and “other relief.”
APA and APAPO lawyers filed a 44-page motion with the court on March 2 seeking to have the suit dismissed or at least to deny plaintiffs’ request for a jury trial.
The motion is couched in legal terms that do not concede that any the plaintiffs’ complaint has credence but contends that even if everything alleged in the complaint were true there are no grounds for legal action.
Citing precedents including decisions in the District of Columbia Court of Appeals and the U.S. Supreme Court, the motion contends plaintiffs are wrong in concluding that because not paying the assessment did not lead to ouster from APA, the assessments were “purely voluntary.”
The motion says court precedents show that members of an association are governed by a contractual relationship spelled out in the organization’s rules and bylaws and have no legal standing to seek relief under consumer protection statutes.
It also notes that court rulings have established that an association can charge members an assessment that is “mandatory” for certain members to meet their professional responsibilities without such payments being required to maintain membership in the association.
“It is simply not misleading to describe a professional obligation as ‘required’ or something that ‘must’ be done, even if expulsion is not the consequence of failing to fulfill it,” the motion reads.
The issue of “unjust enrichment” is unfounded, according to the motion, because practicing members receive the benefits of advocacy efforts and neither APA nor APAPO retain money from the assessments that is not used for such purposes.
The motion also noted that once the suits were consolidated into a single action the allegation that APA actions constituted fraud was dropped. The motion further states that neither the D.C. statute nor a California law cited by some plaintiffs would allow punitive damages and therefore plaintiffs have no right to request a jury trial.
Lawyers for the suing members responded with a motion that said APA is engaging in meaningless “word-play” to try to explain how the assessment can be mandatory and voluntary at the same time.
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