The California Department of Insurance has given its approval for the Doctors Company medical malpractice insurer to acquire federal probe target SCPIE Holdings Inc. after the state Attorney General's Office indicated the deal would not unbalance the state market.

“During the review, concerns were expressed that this transaction would lessen competition in medical malpractice insurance in California,” noted the department's general counsel, Adam Cole.

Mr. Cole said Insurance Commissioner Steve Poizner had retained Attorney General Jerry Brown's office to address the competition issue and render an opinion. State officials in the course of their investigation determined that SCPIE is currently the target of a federal probe.

The Attorney General's Office “concluded twice that Doctors' acquisition of SCPIE would not substantially lessen competition in insurance in California,” said Mr. Cole.

In a memo to the insurance department, the Anti-Trust Section of the California Attorney General's Office said the merger would give the Doctor's Company a market share of 45.3 percent based on department statistics, up from 25.78 percent, and would make the company the largest medical malpractice insurer in the state.

However, the Attorney General's Office also noted that a number of companies, including large nationwide insurers, operate in the state, and that the market has very low barriers for entry.

In addition, the memo pointed out that many doctors make use of alternative risk vehicles and re-evaluate their malpractice insurance on a yearly basis.

As a result, the Attorney General's Office concluded that “post-merger, there remains to be some strong viable alternatives in the medical malpractice insurance market for physicians in this state.”

As a safeguard, however, the department said it would require the companies to continue acting individually.

“In order to ensure that neither Doctors' nor SCPIE's rates are excessive, the commissioner required that Doctors, as a condition of the authorization, submit rate applications for both itself and SCPIE by Sept. 1, and at least every three years thereafter,” Mr. Cole said. “Doctors agreed to these conditions.”

The department also said the Federal Trade Commission took no action to prevent the proposed acquisition of SCPIE. However, it noted a potential trouble spot.

“During the review, the department became aware that a federal criminal investigation was opened against Doctors and/or one or more current or former Doctors employees related to possible unauthorized access by Doctors to SCPIE's computer system,” Mr. Cole said.

“The U.S. Attorney's Office in Los Angeles declined to comment on the status of this matter. The department is unable to ascertain whether the criminal investigation is likely to lead to any action against Doctors,” he added.

Mr. Cole also noted that two directors with Doctors and one of the company's officers made “false or misleading” statements in connection with their application for the merger's approval. “They are no longer with Doctors,” he added.

SCPIE noted the department's approval in a statement. The company said the deal will close as of June 30, at which time it will be delisted from the New York Stock Exchange.

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Doctors Company Okayed To Buy SCPIE Holdings

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