CHARLESTON, W. Va. - West Virginia Physicians Mutual Insurance Company lost some freedom and gained some at the state's Supreme Court of Appeals.

All five justices agreed June 27 that the privately owned malpractice insurer must act like a state agency when dropping a doctor's policy.

At the same time, they called off a trial in a suit that physician Robert Zaleski filed after Physicians' Mutual chose not to renew his policy.

They also reversed a decision of Ohio Circuit Judge Arthur Recht to reinstate Zaleski's policy.

They told Recht to let Physicians Mutual hold a hearing for Zaleski.

They told him he could conduct further proceedings to resolve disputes that might arise at the hearing.

The Justices held that a $24 million loan from taxpayers to Physicians' Mutual makes the insurer less than purely private.

Legislators supplied the loan in 2004 when they authorized creation of a private company to insure West Virginia doctors.

"There is no question that the Legislature is enjoined from providing public funds to a purely private company," Justice Joseph Albright wrote.

He called the insurer "a state actor for due process purposes."

Legislators who created the company wrote that doctors found it "difficult, if not impossible, to obtain medical liability insurance..."

They temporarily pooled 1,470 policies in the Board of Risk and Insurance Management, or BRIM.

Physicians' Mutual opened July 1, 2004. BRIM transferred the policies.

In September 2004, Physicians' Mutual sent notice to Zaleski that when his policy ran out the company would not renew it.

Zaleski appealed. In a certified letter Physicians' Mutual set a hearing and told him he could have 15 minutes.

Zaleski appeared before the insurer's underwriting committee. He presented evidence and answered questions.

The next day the insurer told Zaleski by phone and letter that the committee upheld the decision not to renew the policy.

He complained to the state insurance commissioner in December 2004. The insurance commissioner asked Physicians' Mutual to respond.

Physicians' Mutual stated that it decided not to renew the policy because of "frequency of lawsuits in his history."

The insurance commissioner told Zaleski that Physicians' Mutual did not violate any statute or rule.

In April 2005 Zaleski sued, claiming breach of covenant of good faith and fair dealing, breach of fiduciary duty and infliction of emotional distress.

He asked for compensatory damages and punitive damages.

Physicians' Mutual moved to dismiss or for summary judgment.

The insurer argued that Zaleski faced 19 malpractice suits in 25 years, resulting in indemnity settlements of $2,042,447.

Zaleski moved for summary judgment, arguing that the insurer was a quasi-public agency.

Recht denied the insurer's motion for summary judgment and granted partial summary judgment to Zaleski, declaring the insurer a state actor.

He directed Physicians' Mutual to submit procedures for policyholders who wished to contest decisions not to renew policies.

The insurer objected to the order and filed its procedures under protest.

Recht reaffirmed his order in April 2006. He held that Zaleski had a significant property interest in maintaining his policy.

He ruled that Zaleski could use the same procedure the insurance commissioner would use to review any allegations involving acts or omissions of the commissioner.

Under that procedure, Zaleski could directly appeal a decision to the circuit court where he lived or the circuit court in Kanawha County.

Recht ordered immediate reinstatement of the policy. He set a trial date.

For Physicians' Mutual, D. C. Offutt Jr. of Huntington appealed.

Perry Oxley, Jody Offutt and Dana Bonnell of Huntington also represented the insurer.

James Companion and Yolonda Lambert of Wheeling represented Zaleski.

Insurance Commissioner Jane Cline filed a brief as friend of the Court, asserting her authority to resolve the dispute.

Mary Jane Pickens of Cline's office argued in the brief that Recht invaded the purview of the executive branch.

Pickens wrote that neither the state Constitution nor statute grants a circuit court the right of appeal directly from an insurance company.

"The insurance commissioner must be allowed to hear complaints relating to the Mutual and to take action relating to those complaints," she wrote.

Cline proposed to treat Physicians' Mutual like any other private company, but the Justices would not allow that.

"The relevant statutory factors surrounding the creation of Mutual weigh in favor of Mutual being a quasi-state entity rather than a private company for due process purposes," Albright wrote. "While doctors have no absolute right to be insured by Mutual, once a doctor has been afforded the benefit of insurance coverage by Mutual as a quasi-state entity, any action by Mutual to change or remove the benefit cannot be arbitrarily made."

He wrote that state law obligates the insurance commissioner to review disputes over cancellations but not over decisions not to renew policies.

Although the Justices agreed on that much with Recht, they found that he went beyond the dictates of due process when he set a jury trial.

Albright wrote that due process required formal notice of charges and an opportunity to rebut the charges before an unbiased hearing panel.