Opinion ID: 202647
Heading Depth: 2
Heading Rank: 2

Heading: The Secretary's Withholding of Funds

Text: 9 Since the effective date of the compulsory liability insurance system on January 1, 1998, 6 the JUA has been unable to determine exactly how many registered motor vehicles in Puerto Rico are covered by private liability insurance. The JUA initially estimated that 25% of all vehicles were covered by policies from private insurers, and, accordingly, set aside 25% of all premiums received and accumulated them in the Reserve. By 2001, experience and additional data revealed that the actual proportion of privately insured registered motor vehicles was closer to 17%. As a result, the Reserve as disclosed in the December 2001 annual statement — approximately $73 million — exceeded the actual amount owed to third parties by approximately $10 million (Overstated Reserve Funds). In other words, the JUA set aside and accumulated in the Reserve approximately $10 million more than was actually owed to privately insured vehicle owners and their insurers who would be seeking reimbursement for the purchase of duplicative compulsory liability insurance. In 2001, the JUA sought permission from the Insurance Commissioner to adjust the Reserve to the accumulated level that it would have been if only 17% of all premiums had been set aside, rather than 25%. The Insurance Commissioner agreed to allow the JUA to adjust the Reserve for the 2001 fiscal year, but did not allow any adjustments for the preceding fiscal years. 10 In 1998 and 1999, the Secretary collected the insurance premiums and transferred them to the JUA in accordance with Law 253. 7 The JUA then set aside a portion of these premiums in the Reserve. Beginning in 2000, however, the Secretary discontinued the transfer of compulsory liability insurance premiums to the JUA in an attempt to ease the Commonwealth's cash-flow problems. 8 On May 30, 2002, the JUA filed a petition for mandamus against the Secretary in the Puerto Rico Superior Court, requesting an order that the Secretary transfer to the JUA the withheld compulsory liability insurance premiums. By September 2002, the Secretary had withheld approximately $173 million in premiums from the JUA. Because of the Secretary's failure to transfer the insurance premiums, the JUA was forced to liquidate approximately $98 million of investments in order to comply with its own cash-flow needs. The liquidation of the JUA's investments, together with the lost opportunity to invest new premiums, resulted in a loss to the JUA of $14.2 million in interest. Despite the Secretary's withholding of premiums, the JUA continued to reimburse privately insured motorists and their insurers from its own funds. From January 2002 through September 2002, the JUA reimbursed third parties out-of-pocket a total of $13.6 million (Out-of-Pocket Funds).