Gen. 117] 117

HEALTH OCCUPATIONS

MALPRACTICE INSURANCE – INTERPRETATION OF STATUTE

CREATING TEMPORARY STATE SUBSIDY FOR MALPRACTICE

INSURANCE PREMIUMS

September 6, 2005

Mr. Alfred W. Redmer, Jr.

Commissioner

Maryland Insurance Administration

You have asked for our interpretation of a recently-enacted law

that establishes a formula for a State subsidy of physician

malpractice insurance premiums over a four-year period. In

particular, you ask whether a subsidy should be paid if an insurer

decides not to alter its premium rate for 2006.

The statutory language that defines the subsidy formula, if

applied literally, would result in no subsidy being paid in 2006 if an

insurer’s premium rate does not change; by contrast, it could result

in a very substantial subsidy in a subsequent year if even a small rate

increase became effective. This appears to be attributable to an

oversight in the drafting of the statute. The statute as a whole

demonstrates a legislative intent to subsidize physician malpractice

premiums for a limited period at a gradually declining rate. The

legislative history confirms that intent. Accordingly, it is our

opinion that you should disregard the portion of the statute that

reflects the drafting oversight and apply the subsidy formula to

achieve the legislative purpose even if an insurer does not alter its

premium rate for 2006.

I

Background

A. Emergency Legislation at 2004 Special Session

During its special session in late 2004 and early 2005, the

General Assembly passed emergency legislation entitled the

Maryland Patients’ Access to Quality Health Care Act of 2004.
118 [90 Op. Att’y

 The bill was vetoed by the Governor on January 10, 2005, but the 1

General Assembly overrode the veto the next day.

A legislative report noted that the State’s largest medical

2

malpractice insurer had obtained approval of rate increases of 28% and

33% in those years for calendar years 2004 and 2005, respectively. See

Recommendations of the Senate Special Commission on Medical

Malpractice Liability Insurance (December 2004), pp. 1-2. The

Governor’s executive order convening the special session likewise alluded

to the rising cost of malpractice premiums as part of a health care crisis to

be addressed in the special session. See Executive Order 01.01.2004.70.

 The emergency legislation passed during the 2004 special session 3

contained virtually identical language. See IN §19-104.1(c)(1) as enacted

in Chapter 1, Laws of Maryland 2004 (Special Session).

Chapter 5, Laws of Maryland 2004 (Special Session). That law was 1

designed to respond to a dramatic increase in medical malpractice

insurance premiums in 2003 and 2004. To reduce malpractice 2

claims and liability in the long run, the law made a number of

changes in tort law and in laws regulating physician discipline,

insurers, tort claims, and patient safety, among others. To limit the

increase in malpractice insurance premiums in the short run, it

created the Maryland Medical Professional Liability Insurance Rate

Stabilization Fund which would support a reinsurance mechanism to

cap premiums. 

B. Creation of New Subsidy Mechanism at 2005 Session

Shortly after it enacted the emergency legislation and before

the new fund had collected or paid out any money, the Legislature

convened in its 2005 regular session and enacted legislation to

change the mechanism for limiting malpractice insurance premiums.

Chapter 1, Laws of Maryland 2005. That law repealed the

provisions establishing a special fund and reinsurance mechanism.

In its place, it created the Maryland Health Care Provider Rate

Stabilization Fund (“Fund”) and set forth a method for using moneys

from the Fund to directly subsidize malpractice insurance premiums

of physicians and nurse midwives. Those provisions were codified

at Annotated Code of Maryland, Insurance Article (“IN”), §19-801

et seq. As with the emergency legislation, one of the key purposes

of the law was “to retain health care providers in [Maryland] by

allowing [malpractice insurers] to collect rates that are less than the

[approved rates].” IN §19-802(b)(1).3
Gen. 117] 119

 In addition to the Rate Stabilization Account that is described in 4

the text, the Fund is also comprised of a Medical Assistance Program

Account, from which disbursements related to the Medicaid program are

to be made, and an “unallocated balance.” See Letter of Assistant

Attorney General Robert N. McDonald to Commissioner Alfred W.

Redmer, Jr. (May 10, 2005).

 During Fiscal Year 2006, $52 million is allocated to the RS 5

Account to fund subsidies premium subsidies for calendar year 2005.

During Fiscal Year 2007, $45 million is allocated to the RS Account to

pay subsidies for calendar year 2006. During Fiscal Year 2008, $35

million is allocated to the RS Account for subsidies in calendar year 2007.

Finally, during Fiscal Year 2009, $25 million is allocated to the RS

Account for subsidies in calendar year 2008. 

1. Maryland Health Care Provider Rate Stabilization

Fund 

The Fund consists primarily of revenue generated by a

premium tax imposed on health maintenance organizations (HMOs)

and managed care organizations (MCOs). IN §§6-102, 19-802(c).

The Fund is a special, non-lapsing fund that is not subject to the

requirement that unspent balances revert to the General Fund. IN

§19-802(d).

Moneys in the Fund are to be devoted to several purposes:

subsidizing malpractice insurance premiums for physicians and

nurse midwives for several years; increasing fee-for-service rates

paid to providers by the Medicaid program, as well as payments to

MCOs that serve that program; paying for the administration of the

Fund by the Insurance Commissioner during the years that

malpractice insurance premiums are subsidized. IN §19-802(b). 

The Fund is essentially divided into three subfunds. The

pertinent subfund, for purposes of this opinion, is known as the Rate

Stabilization Account (“RS Account”). IN §19-802(g)(1). Funds 4

in this account are to be used to subsidize malpractice insurance

premiums. The statute allocates a declining portion of the Fund to

the RS Account over a period of four years to pay for subsidies

during 2005 through 2008. IN §19-803(b)(3). The disbursements 5

from the RS Account are to be used only to pay the subsidy as

determined by the statutory formula. IN §19-804(b), (c)(2). Funds

that are allocated to the RS Account in one of those years, but not

spent on subsidies, remain in the account for subsequent years until
120 [90 Op. Att’y

 After June 30, 2009 – i.e., the end of Fiscal Year 2009 – the RS 6

Account essentially disappears and all the money in the Fund will be

directed to other purposes specified by the statute. See IN §19-

803(b)(3)(vi).

 We use the term “policyholders” throughout the remainder of this

7

opinion to refer to the physicians and nurse midwives who are the

beneficiaries of the subsidy under the statute.

 A policyholder who opts out would, of course, be required to pay 8

the full amount of the premium billed by the insurer. IN §19-805(d).

the subsidy ends in 2009. IN §19-804(c). If there are insufficient 6

funds in the RS Account to pay the full amount of the subsidy under

the statutory formula, the subsidy is to be reduced pro rata. IN §19-

804(d). If a new insurer enters the State to sell malpractice

insurance policies, the Commissioner may reserve up to 5% of the

RS Account to provide subsidies for its policyholders. IN §19- 7

803(d).

2. Subsidy Mechanism

The statute does not require an insurer or its insureds to

participate in the subsidy program; rather, participation is voluntary.

IN §19-805(a). If an insurer decides to participate and seek

reimbursement from the Fund, it must annually provide each of its

policyholders with an estimate of the policyholder’s subsidy and

give the policyholder an opportunity to opt out of the benefit. Id.8

To obtain reimbursement from the RS Account on behalf of its

policyholders, an insurer must apply to the Insurance Commissioner,

who is charged with administration of the Fund, according to

procedures that the Commissioner adopts. IN §19-805(e). The

insurer must provide the Commissioner with information concerning

the number of policyholders, their classifications, the approved

premium rate with respect to those policyholders, the actual

premiums charged by the insurer, and the total reimbursement

sought, among other things. Id. That information is subject to an

annual audit by the Commissioner. IN §19-805(i). 
Gen. 117] 121

 Under certain circumstances, the amounts to be disbursed to the 9

Medical Mutual Liability Insurance Society of Maryland (“Medical

Mutual”), the largest malpractice insurer in the State, and to mutual

insurance companies generally are limited. IN §19-805(h) (payments to

mutual insurers to be reduced by the amount of any dividend; Medical

Mutual not to receive disbursement if Commissioner determines that its

surplus is “excessive”). 

The Commissioner is to disburse funds from the RS Account

to insurers on a quarterly basis. IN §19-805(f). Those amounts are 9

to be used by the insurer to reduce rates, provide a credit, or issue a

refund, to a policyholder depending on the particular circumstances

of the policyholder. IN §19-805(g).

3. Formula for Premium Subsidy

The amount of the subsidy paid each year is determined by a

formula. The statute defines the formula for the subsidy as follows:

...the subsidy provided to each policyholder

shall:

(1) For medical professional liability

insurance policies subject to rates that were

approved for an initial effective date on or

after January 1, 2005, but prior to January 1,

2006, the amount of a premium increase that

is greater than 5% of the approved rates in

effect 1 year prior to the effective date of the

policy; and 

(2) For medical professional liability

insurance policies subject to rates that were

approved for an initial effective date on or

after January 1, 2006, a percentage of the

policyholder’s premium for the prior year that

equals the quotient, measured as a percentage

of the balance of the rate stabilization account

for the current calendar year divided by the

aggregate amount of premiums for medical

professional liability insurance that would

have been paid by health care providers at the

approved rate during the prior calendar year.
122 [90 Op. Att’y

 The subsidy may be reduced from the amount determined by the 10

formula if the balance in the RS Account is insufficient to pay the

subsidies. IN §19-804(d). Also, the statute contains a proviso that the

computation of the subsidy is not to include the portion of a rate increase

resulting from a premium surcharge or the loss of a discount due to a

health care provider’s loss experience. IN §19-805(c). 

 The Commissioner is also to report by December 1 to the 11

Legislative Policy Committee the subsidy factor for the following year, the

money available to each insurer, and the number of health care providers

eligible for the subsidy. IN §19-806(b)(2). The Commissioner must also

make annual reports to the Legislative PolicyCommittee in March of each

year providing information about the prior year’s subsidies. IN §19-

808(c).

IN §19-805(b). The subsidy described for the years 2006 through 10

2008 is also referred to as the “subsidy factor.” See also IN §19-

801(g) (defining “subsidy factor” in language identical to IN §19-

805(b)(2)).

The Commissioner is to determine the subsidy factor by

November 1 each year and notify insurers by December 1 of that

figure. IN §19-806(a), (b)(1). 11

II

Analysis

In your request for this opinion you asked that we assume that

an insurer sought and obtained a premium rate increase that first

became effective during 2005 and that eligible policyholders who

had malpractice policies with this insurer received subsidies from the

RS Account for 2005 pursuant to IN §19-805(b)(1). You also ask us

to assume that the same insurer has elected not to alter its premium

rates for 2006, but rather to continue its 2005 rates. You ask

whether the eligible policyholders insured by this company would be

entitled to a subsidy of their 2006 premiums from the RS Account.

A. Literal Application of Statute

1. Hypothetical Situation - No Rate Increase in 2006

Under the facts you hypothesize, the insurer has an approved

rate for 2005 that exceeds the insurer’s premium rate for 2004. The

approved rate necessarily had an initial effective date prior to
Gen. 117] 123

 This generalization is, of course, subject to various qualifications 12

related to the individual circumstances of the policyholder and the insurer.

For example, the policyholder would not be protected from an increase in

the premium due to loss experience, and the subsidy would be reduced by

the amount of any dividend issued if the insurer were a mutual insurance

company.

January 1, 2006. Thus, the formula for the subsidy in 2005 would

be determined by reference to IN §19-805(b)(1). If the increase

were greater than 5%, the insurer’s policyholders would generally be

entitled, under IN §19-805(b)(1), to a subsidy equal to the difference

between the amount of the actual increase and a 5% increase. In 12

other words, the subsidy would protect the policyholders from

experiencing more than a 5% increase in their premiums for

malpractice insurance.

You posit that the insurer does not seek an increase or new

approved rate for 2006. In that case, there would be no subsidy

under the literal language of IN §19-805(b)(1). Under that

provision, the subsidy equals “the amount of the premium increase

that is greater than 5% of the approved rates in effect 1 year prior to

the effective date of the policy.” In the circumstances you have

described, the premium rate for 2006 would be the same as the

“approved rate in effect 1 year prior to the effective date of the

policy.” Thus, the 2006 premium would not exceed a 5% increase

over the 2005 premium. There would be no subsidy under IN §19-

805(b)(1).

Nor would a subsidy be available under the formula in IN §19-

805(b)(2). That formula literally applies only in the case of a

premium “approved for an initial effective date on or after January

1, 2006.” The premium rate in question would have had an initial

effective date in 2005. Thus, IN §19-805(b)(2) simply would not

apply.

2. Hypothetical Situation - Small Rate Increase in 2007

This application of the literal language of the subsidy formula,

however, appears to be contrary to the evident purpose of the statute.

A hypothetical example that incorporates the facts you have

described is illustrative. Suppose malpractice insurers obtained

approval of rate increases on the order of 20% for 2005. Under IN

§19-805(b)(1), a policyholder would experience only a 5% increase

and the subsidy from the RS Account would cover the remaining
124 [90 Op. Att’y

 One can imagine other variations on this scenario with equally 13

odd results. For example, if one insurer with a large market share held

premium rates steady in 2006 after a substantial increase in 2005, while

an insurer with a small market share obtained just a small increase, the

policyholders of the former insurer would receive no subsidy for 2006

while those of the latter might receive a very substantial subsidy. It is

difficult to imagine any rational basis for that result.

15%. Suppose the insurers chose not to seek approval of an increase

premium for 2006. Under the literal language of the statute, as

explained above, there would be no subsidy and the policyholders

would experience the full brunt of the 20% increase in 2006.

However, funds would accumulate in the RS Account for that year.

 

Suppose the insurers then obtained approval of a small increase

for 2007. That rate increase would have an initial effective date

after January 1, 2006 and the insurers would be entitled to a subsidy

according to the formula in IN §19-805(b)(2). Under that formula

the subsidy is a percentage of the new premium that equals a fraction

composed of the balance of the RS Account divided by the aggregate

amount of premiums at the approved rate for the prior year.

Accordingly, the larger the balance of the RS Account, the greater

the percentage subsidy. Because the balance of the RS Account

would consist of the allocations for both 2006 and 2007, there would

be a very substantial subsidy for 2007. This subsidy would

undoubtedly absorb the entire increase in the 2007 premium and

likely reduce the amount paid by a policyholder well below the

amount the policyholder paid in 2006. It is even conceivable that the

large subsidy for 2007 would reduce the amount paid by

policyholders below the amounts paid in 2005 and 2004.

The net effect of this strict application of the language of the

statute would be that the subsidy would rise and fall like a yo-yo

over this period with the premiums actually paid by policyholders

rising and falling equally radically in the opposite direction. It is 13

difficult to believe that this is the solution that the Legislature

intended to resolve the perceived crisis in malpractice insurance

marketplace. Nor is this a pattern one would expect to find in a

formula for a “rate stabilization subsidy.”
Gen. 117] 125

B. Giving Effect to Legislative Purpose

1. Principles of Statutory Construction

The Court of Appeals has declared that, where a literal

construction of statutory language would yield a result so

inconsistent with the apparent legislative purpose as to demonstrate

a drafting error, “the plain meaning rule is not rigid.” Kaczorowski

v. City of Baltimore, 309 Md. 505, 513, 525 A.2d 628 (1987). In

that situation, if the legislative purpose can be determined from an

examination of the statute’s context and history, a non-literal

construction that gives effect to that purpose is to be adopted, even

if that construction varies from an unambiguous, but ill-drafted text.

See, e.g., Kaczorowski, 309 Md. at 511-20 (holding that provision

repealing authority for local industrial development authority should

be disregarded); Brown v. State, 359 Md. 180, 753 A.2d 84 (2000)

(construing statute that declared that one spouse “incompetent” to

testify with respect to confidential communications with other

spouse to create a testimonial privilege rather than a rule of witness

competency); see also 85 Opinions of the Attorney General 120

(2000) (concluding that Election Law required State officials to

make determinations concerning law passed by General Assembly

despite language that literally assigned task to county attorney); 84

Opinions of the Attorney General 138 (1999) (concluding that

Maryland Hospital Bond Program was available for bonds issued by

the Maryland Industrial Development Financing Authority even

though section could be read to restrict program to political

subdivisions); 82 Opinions of the Attorney General 165 (1997)

(concluding that retailers could continue to collect “bad check fee”

notwithstanding the apparent repeal of legislation authorizing such

fees).

2. Legislative History of Subsidy Formula

A literal interpretation of the subsidy formula appears

inconsistent with the origin and stated purpose of the Fund. Many

of the features in the 2004 and 2005 legislation can be traced to the

report of a Senate commission that made various recommendations

for legislation that would impact medical malpractice insurance

rates. In particular, it recommended that a fund be created to

provide “immediate relief” to physicians by allowing them to

purchase liability insurance at a reduced cost through a rebate or

insurance rate reduction. It was contemplated in the report that such

a subsidy program would remain in effect for four years.
126 [90 Op. Att’y

 For example, the Economic Growth and Tax Relief Reconciliation 14

Act of 2001, Pub.L. No. 107-16, 115 Stat. 38, provides for the phase out

and repeal of the federal estate tax by 2010 and its resurrection at prior

rates in 2011.

Recommendations of the Senate Special Commission on Medical

Malpractice Liability Insurance (December 2004) at pp. 7, 14.

The portion of the 2005 legislation that created the Fund was

clearly designed to carry out those parts of the Commission’s

recommendations. The Legislature specified in the statute that one

of its purposes was to retain health care providers in Maryland by

allowing malpractice insurers “to collect rates that are less than the

[approved] rates...” IN §19-802(b)(1). In addition, the statute

allocates moneys to the RS Account – the part of the Fund that

supports malpractice insurance subsidies – for a period of four years.

Under a literal reading of the subsidy formula, this intention

would be defeated as a malpractice insurer would collect the

approved rate in 2006, even though that rate represented a dramatic

increase over the rates collected in the prior year and even though

there would be substantial funds in the RS Account for the specific

purpose of subsidizing those insurance premiums. 

It is not totally inconceivable that a legislature might provide

for the elimination of a monetary benefit followed by its sudden

reappearance. However, if such were the case here, one would 14

expect a clear explication and understanding of this seemingly

illogical approach in the legislative record. We find none. Instead,

the legislative record suggests that the General Assembly

contemplated that physicians would receive a significant subsidy for

their malpractice insurance premiums for four years while the other

reforms enacted during the 2004 Special Session and the 2005

Session took effect and lowered the anticipated liability and related

premium rates.

The bill that created the Fund, as it was originally introduced,

articulated the formula for calculating the subsidy in different terms

from the language that was ultimately enacted. See Senate Bill 836

(2005) – first reader. In particular, under the original version of the

bill, policyholders would pay a “stabilized rate” that would increase

more gradually over a four-year period than the approved rate. The

subsidy would make up the difference.
Gen. 117] 127

 Proposed IN §19-801(d)(1) described the “increased rate factor” 15

(continued...)

As originally proposed, the subsidy with respect to each

policyholder would equal the difference between the premium

charged by the insurer at the approved rate and the premium charged

at the “stabilized rate.” Id., Proposed IN §19-805(b). The

“stabilized rate” was defined essentially as the approved rate for the

policyholder in effect for the prior year multiplied by an “increased

rate factor.” Proposed IN §19-801(h). The “increased rate factor”

was in turn defined as:

(1) For medical professional liability

insurance polices subject to rates that were

approved for an initial effective date on or

after January 1, 2005, but prior to January 1,

2006, 105% of the approved rates in effect 1

year prior to the effective date of the policy;

and 

(2) For policies effective for the 3 years

subsequent to the period set forth in paragraph

(1) of this subsection, a percentage, as

determined annually by the Commissioner, of

the approved rates in effect 1 year prior to the

effective date of the policy.

Proposed IN §19-801(d). Thus, it appeared that the intent was to

allow for an increase of 5% in the effective premium paid by

physicians for 2005. For the years 2006 through 2008, the statute

authorized the Commissioner to set the rate of subsidy. The

Commissioner was to set the rate by reference to the amount

allocated to the RS Account for the particular year, which was to be

used solely for purposes of funding subsidies. Proposed IN §19-

806(a). It is evident from declining allocations to the RS Account

in the statute for the period 2006 through 2008 that the Legislature

expected that the amount of the subsidy would gradually decline.

However, the literal language of the formula set forth in

Proposed IN §19-801(d) did not achieve that result. While the

“increased rate factor” was evidently intended to be a percentage

figure, the number described in the definition was not actually a

percentage and, literally applied, would have resulted in

computations far afield from the apparent legislative intent. 

15
128 [90 Op. Att’y

 (...continued) 15

for 2005 as “105% of the approved rate in effect 1 year prior to the

effective date of the policy.” That language literally describes the product

of a percentage figure (105%) multiplied by a dollar figure (the prior

year’s premium). The result of that computation would be a dollar figure

rather than the percentage that was undoubtedly intended. 

For example, if the approved premium for 2004 had been $200, the

“increased rate factor” under this language would be 105% of $200, or

$210. The next step would be to compute the “stabilized rate” for 2005,

which was defined as the approved rate for the prior year ($200)

multiplied by the “increased rate factor” ($210), or, in this case, $42,000.

Thus, literal application of the formula in the proposed bill would have led

to absurd results that were clearly foreign to the purpose of the bill.

The definition of “increased rate factor” for the subsequent years of

the subsidy suffered from the same technical defect. Proposed IN §19-

801(d)(2).

 The MIA submission stated, with respect to the subsidy formula 16

in the original bill:

This formula does not accurately describe the

subsidy. The subsidy is not intended to be a

reduction of premium owed at the approved rate;

it is intended to be a portion of any approved

increase in the prior year’s premium. Thus, the

(continued...)

At the Senate hearing on the proposed bill, the Maryland

Insurance Administration (“MIA”) suggested that the language of

the bill be amended in a number of respects. Among the items

identified by MIA as worthy of amendment was the formula for the

subsidy and related terms. It proposed that the term “subsidy factor”

be substituted for “stabilized rate” as a more accurate

characterization of the purpose of the computation. See MIA’s

Points of Clarification Regarding the Rate Stabilization Fund as

Modified in SB 836/HB 1359 at p.1. Consistent with that approach,

MIA suggested that it would be confusing to suggest that insurers

would be charging a rate different from the approved rate and that

the statute should simply reflect that they would collect a reduced

amount from policyholders in anticipation of the State subsidy. Id.

The MIA also suggested that the formula for the subsidy be revised.

Its written critique of the subsidy formula is somewhat confusing

and susceptible of a number of interpretations, perhaps because, as

the MIA witness testified at the hearing, it was put together on very

short notice. In any event, it does appear clear that the MIA 16
Gen. 117] 129

 (...continued) 16

language should be amended to identify the

subsidy as the premium charged by the carrier on

the policy at what is currently called the

“stabilized rate,” minus the rate in effect one year

prior to the effective date of the policy.

MIA’s Points of Clarification Regarding the Rate Stabilization Fund as

Modified in SB 836/HB 1359 at p.2. The references to “premium” in this

paragraph are somewhat unclear as the formula in the original bill

contained references to different types of rates while the MIA earlier in its

written submission seemed to suggest a more limited use of the term.

Depending on how those terms are employed, the second and third

sentences of this paragraph appear to describe different calculations.

believed that the Legislature intended to moderate increases from

“the prior year’s premium.” 

At the hearing on the bill, a representative of MIA

characterized the formula in the bill as “awkwardly worded,” but

said that MIA representatives had been able to agree with legislative

staff to work out substitute wording. The change was described as

a “technical amendment.” Testimony of Associate Commissioner

Pamela Randi Johnson before Senate Finance Committee on Senate

Bill 836 (February 23, 2005). There was no suggestion that MIA

was proposing that the General Assembly deviate from the effort to

provide a gradually diminishing subsidy to policyholders over the

four-year period.

A new version of the subsidy formula was added to the bill by

way of floor amendment in the Senate. In describing the

significance of the amendment, the floor manager of the bill

explained that it did not change the substance of the subsidy, but was

recommended for technical reasons by MIA. She recommended

adoption of the proposed amendment on the basis that the Insurance

Commissioner was charged with administration of the subsidy

program and that insurance industry representatives had also agreed

to the amendment. Remarks of Senator Dolores Kelley concerning

floor amendments to Senate Bill 836 (March 10, 2005).

Once again, however, the drafters had encountered some

difficulty expressing the agreed-upon concepts in words. It was

apparently easier to describe the subsidy to be provided in 2005 as

opposed to subsequent years. Many of the key facts were already

known for 2005 – e.g., the amount of the approved rate increase for
130 [90 Op. Att’y

 This assumption was apparently based on historical experience.

17

For example, we understand that the State’s largest malpractice insurer

had obtained a new approval of its rate plan each year for the past decade.

Illustrative examples of subsidy computations provided by MIA to the

General Assembly assumed that malpractice insurers would seek and

obtain approval of rate increases of 20% in 2006. 

2005 and the likely proceeds from the new tax that would fund the

subsidy for that year. There apparently was sufficient confidence in

those estimates for there to be a common understanding that the RS

Account could support a subsidy that allowed policy holders to

experience only a 5% increase in their malpractice premiums.

However, for future years, some of the critical variables were

unknown. What premium would the insurers seek in the future?

Would the MIA approve that rate? How much revenue would be

collected to fund the subsidy? The challenge was to devise language

that accurately described those variables in a formula that would

give the Commissioner adequate direction as to the subsidy to be

disbursed.

The amendment clearly defined the subsidy for 2005 as the

amount of the approved rate in excess of 105% of the 2004 rate. For

the years 2006 through 2008, the formula first computed the amount

in the RS Account for the current year as a percentage of aggregate

premiums at the approved rate for the prior year and would reduce

the current year approved premium by that amount. That approach

appeared to replicate the method used for the 2005 subsidy without

committing to a specific percentage figure, in light of the unknown

variables. However, in distinguishing the formula for 2005 from

that for the subsequent years, the amended language appeared to

assume that there would be a new approved rate for each year.17

Thus, the statute distinguishes the two parts of the formula by

reference to the “initial effective date” of a premium rate. 

However, the language would have incorporated a distinction

between the two parts of the formula even if the word “initial” had

been omitted. Moreover, if the word “initial” were omitted, the

literal application of the statute, both in the circumstances you

hypothesize and in the example we gave above, would result in a

gradually diminishing subsidy for policyholders that the Legislature

apparently intended. Neither the initial reinsurance mechanism in

the 2004 emergency legislation, nor the original proposal for the

subsidy formula in the 2005 legislation, required that an insurer

obtain a new approved rate for 2006 or subsequent years in order for
Gen. 117] 131

 Industry representatives who reviewed the floor amendment and 18

advised the floor manager of their assent apparently also failed to grasp

the literal significance of the inclusion of the term “initial”in the new

formula. See Letter of David M. Funk, Esquire, to David L. Murray,

President, Medical Mutual Liability Insurance Society of Maryland

(August 12, 2005) at p. 13 n.1. 

 For example, the General Assembly may wish to consider whether 19

any allowance should be made in the formula for circumstances in which

an insurer lowers rates during the four-year period of the subsidy.

its policyholders to be eligible for the premium subsidy. None of the

descriptions of the floor amendment suggested that any of the

interested parties intended to place such a condition on eligibility for

a subsidy. In these circumstances, Kaczorowski and its progeny 18

indicate that an interpretation of the statute that furthers the

legislative purpose should be favored over a literal interpretation at

odds with that purpose. Accordingly, in our opinion, you should not

give effect to the use of the word “initial” in IN §19-805(b)(2).

We recommend that the General Assembly revise the formula

to confirm its intent as we have construed it. In addition, the

Legislature may also wish to consider whether the formula should be

revised in other respects.19

III

Conclusion

In our opinion, the literal language of IN §19-805(b)(2) in the

circumstances that you envision would yield a result inconsistent

with the purpose of the statute. This appears to be attributable to an

oversight in the drafting of the subsidy formula. The statute as a

whole demonstrates a legislative intent to subsidize physician

malpractice premiums for a limited period at a gradually declining

rate. The legislative history confirms that intent. In accordance with

the rules of statutory construction, you should disregard the one

word that would defeat the legislative intent and apply the statute to

achieve the legislative purpose. 
132 [90 Op. Att’y

In our opinion, this should be done by ignoring the use of the word

“initial” in IN §19-805(b)(2) and applying the formula in that

paragraph to a rate effective after January 1, 2006, whether or not its

initial effective date preceded that date. We also recommend that

the General Assembly amend the statute to confirm this

interpretation of its purpose. 

J. Joseph Curran, Jr.

Attorney General

Robert N. McDonald

Chief Counsel

 Opinions & Advice