Vermont and Maine have adopted this language in similar form.
[5]
The Maine statute does, however, go a bit further than the Revised Model
Act in specifying the consequences if the Maine Superintendent either leads
or participates in a consolidated proceeding. Notably, it provides that to
the extent the Maine Superintendent agrees to participate in a consolidated
hearing in another state, “. . . the application is exempt from further
review under this section . . . and the consolidated proceeding,
notwithstanding the superintendent's participation, is not subject to any
provisions of the law of this State governing adjudicatory proceedings,
judicial review, public records or public meetings.”
[6]
To our knowledge, the consolidated hearing option has been little used in
the few years since states have adopted the Revised Model Act, such that
the recent consolidated hearing among Maine, New Hampshire and Vermont was
treading relatively new ground.
II. Benefits and Challenges of Consolidated Hearings
The potential benefits of a consolidated hearing are apparent. Imagine that
XYZ Company proposes to acquire control of Holding Company and its
affiliates, which includes insurance subsidiaries domiciled in three
different states. Ordinarily, this would entail three separate Form A
hearings before three different regulators, in different locations and on
different dates, and likely with variations in timing and procedures. If
these three hearings could be condensed into one proceeding at a single
time and location, and with a single set of procedures, then significant
efficiencies could be achieved.
These efficiencies are obviously attractive to the involved insurers, and
potentially to the regulators as well. But the consolidated hearing process
also raises a number of interesting questions and complications. Who will
serve as the “lead” regulator for purposes of ordering and conducting the
proceeding? If a single hearing is held at a single location in the lead
state, how do the other regulators ensure that their constituents have an
adequate opportunity to be heard? Where filings are made in each state, but
a single hearing is held, how does each regulator dispose of its respective
filing (e.g., is there a single, consolidated order issued or separate
orders by each regulator)? How does each regulator determine what
constitutes the relevant record for the proceeding (e.g., a single record
with all filings/testimony or distinct records within the hearing for each
state)? What if the issues are somewhat different between the states?
The Model Act appears to envision a role for the NAIC, which could help
establish some degree of best practices or appropriate considerations for
determining and handling a multi-state proceeding. However, to date, the
NAIC has not taken an active role, but has instead expressed a desire to
defer to state regulators on implementing the consolidated hearing process.
This, of course, is very unlikely to result in standard practice since each
new combination of states is likely to be the first. This outcome is a
result of the fact that each multi-state proceeding has by definition at
least two states and may have many more. Even with only two states, there
are about 2,500 possible combinations.
Notwithstanding the legitimate questions raised by a consolidated hearing
process, and the absence of guidance from the NAIC, our recent experience
demonstrates that there are opportunities to take advantage of the
consolidated hearing option. As noted in the introduction, we were counsel
in a recently completed transaction where the states of Maine, New
Hampshire and Vermont agreed to conduct a consolidated hearing.
The holding company in this instance was domiciled in New Hampshire, with
certain subsidiaries and affiliates domiciled in Maine and Vermont, such
that New Hampshire took on the role of the “lead” regulator for purposes of
conducting the hearing. Both Maine and Vermont agreed to participate in a
single hearing conducted in New Hampshire, with notice of the New Hampshire
hearing being provided to their respective constituents. The ability to
proceed in this fashion was facilitated both by the relatively close
geographic proximity of the three states and the substance of the hearing
itself (which all parties were confident would not generate significant
public interest).
The proceeding was actually handled somewhat differently by Maine and
Vermont. Maine had representatives from its Attorney General’s office in
attendance at the hearing (and representatives of the Bureau on the phone)
and, in accordance with its statutory structure, agreed to sign on directly
to the order of the New Hampshire Commissioner. Vermont, which also had a
representative at the hearing (also by phone), issued its own order, but
based this order on the collective record from the consolidated hearing.
In some ways this transaction represented the perfect test case. The
transaction was viewed favorably by the regulators from the outset, there
was broad policyholder support and no apparent public interest or
opposition, the geographic distances were conducive to a consolidated
hearing at a single location and the regulators already had strong,
well-established working relationships with one another. Changing one or
more of these variables would likely dim the prospects for a successful
consolidated hearing significantly. For example, regulators might be
hesitant to cede the conduct of a physical hearing if there is a high level
of public interest in the transaction in their jurisdiction. Similarly, a
combination may trigger substantive regulatory concerns in one jurisdiction
which are simply not present elsewhere. In these situations, it will likely
be more efficient for each state to conduct its own proceeding.
III. The Influence of Technology on the Hearing Process
Technological innovation has created opportunities for efficiencies in the
hearing process short of formally consolidating multiple hearings under the
Revised Model Act provisions. Although the use of technology can present
its own challenges, it may be more attractive to regulators who are
concerned about maintaining substantive control over the process or
physical participation by their constituents.
Taking the multi-state acquisition example described above, technology
could allow for a reduction in the burdens imposed on the parties without
any state forfeiting its right to allow participation by regulators and
constituents in its jurisdiction. Video conferencing in particular has
improved significantly to the point where it has become fairly commonplace,
and allows for efficient two-way communication. Such technology could allow
for a “lead” regulator to conduct a single live hearing for all parties and
witnesses, while still allowing for other hearing states to designate a
physical space for the public and other interested parties to attend and
participate on a “virtual” basis. In fact, in New Hampshire we often have
this experience even at “Town Meeting” when there is an overflow crowd!
The concept of a “virtual” hearing could allow parties and witnesses to
travel to a single jurisdiction on a particular date, thus reducing costs,
burdens and redundancies. At the same time, the “virtual” hearing states
could preserve the right to meaningfully participate in the live hearing in
its own jurisdiction. Such a “virtual” hearing would also not raise the
same procedural issues around the scope of the record and the disposition
of the matter, because each state would presumably maintain its own docket
and issue its own order.
Undoubtedly the concept of a “virtual” hearing may give regulators some
pause, particularly to the extent that it may be viewed as less conducive
to effective participation. (For example, swearing in, questioning a
witness under oath, etc.) However, as the technology continues to improve
and as parties, participants and the public increasingly expect use of this
technology, regulators may very well need to evolve towards a more virtual
regulatory world.
IV. Closing Thoughts
Disrupting the status quo almost always involves growing pains. The
consolidated hearing process will likely be no different in this regard as
it becomes more frequently used by the states. As discussed in this
article, however, there may be proceedings that are well suited to this
process. Additionally, there may be opportunities to leverage technology to
reduce the burdens of multi-state hearings. Of course, as with any change,
regulators and legal counsel would be well advised to take it one step at a
time.