Anthem Blue Cross 2001 Annual Report Download - page 62

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The Company intends to vigorously defend these proceedings. All of the proceedings are in the early stages of
litigation, and their ultimate outcomes cannot presently be determined.
Following the purchase of Blue Cross and Blue Shield of Maine (“BCBS-ME”), appeals were filed by two parties that
intervened in the administrative proceedings before Maine’s Superintendent of Insurance (the “Superintendent”),
challenging the Superintendent’s decision approving the conversion of BCBS-ME to a stock insurer, which was a
required step before the acquisition. In one appeal, Maine’s Attorney General requested the Court to modify the
Superintendent’s decision, by requiring BCBS-ME to submit an update to the statutorily mandated appraisal of its
fair market value and to deposit into the charitable foundation the difference between the net proceeds that have been
transferred to the foundation and the final value of BCBS-ME, if greater. In the other appeal, a consumers’ group also
challenged that portion of the Superintendent’s decision regarding the value of BCBS-ME. On December 21, 2001,
the Court issued an opinion affirming the decision of the Superintendent of Insurance approving the conversion of
BCBS-ME and the subsequent acquisition by Anthem Insurance. The Consumers for Affordable Health Care have
appealed this decision to the Maine Supreme Judicial Court. The Attorney General did not appeal the decision, and
the appeals time has passed. While the Consumer appeal is still pending, the Company does not believe that the
appeal will have a material adverse effect on its consolidated financial position or results of operations.
On March 11, 1998, Anthem Insurance and its Ohio subsidiary, Community Insurance Company (“CIC”) were
named as defendants in a lawsuit, Robert Lee Dardinger, Executor of the Estate of Esther Louise Dardinger v. Anthem
Blue Cross and Blue Shield, et al., filed in the Licking County Court of Common Pleas in Newark, Ohio. The plaintiff
sought compensatory damages and unspecified punitive damages in connection with claims alleging wrongful
death, bad faith and negligence arising out of the Company’s denial of certain claims for medical treatment for
Ms. Dardinger. On September 24, 1999, the jury returned a verdict for the plaintiff, awarding $1,350 (actual dollars)
for compensatory damages, $2.5 for bad faith in claims handling and appeals processing, $49.0 for punitive damages
and unspecified attorneys’ fees in an amount to be determined by the court. The court later granted attorneys’ fees of
$0.8. An appeal of the verdict was filed by the defendants on November 19, 1999. On May 22, 2001, the Ohio Court
of Appeals (Fifth District) affirmed the jury award of $1,350 (actual dollars) for breach of contract against CIC,
affirmed the award of $2.5 compensatory damages for bad faith in claims handling and appeals processing against
CIC, but dismissed the claims and judgments against Anthem Insurance. The court also reversed the award of $49.0
in punitive damages against both Anthem Insurance and CIC, and remanded the question of punitive damages
against CIC to the trial court for a new trial. Anthem Insurance and CIC, as well as the plaintiff, appealed certain
aspects of the decision of the Ohio Court of Appeals. On October 10, 2001, the Supreme Court of Ohio agreed to
hear the plaintiff ’s appeal, including the question of punitive damages, and denied the cross-appeals of Anthem
Insurance and CIC. In December 2001, CIC paid the award of $2.5 compensatory damages for bad faith and $1,350
(actual dollars) for breach of contract, plus accrued interest. The ultimate outcome of the matters that are the subject
of the pending appeal cannot be determined at this time.
In addition to the lawsuits described above, the Company is also involved in other pending and threatened litigation
of the character incidental to the business transacted, arising out of its insurance and investment operations, and is
from time to time involved as a party in various governmental and administrative proceedings. The Company believes
that any liability that may result from any one of these actions is unlikely to have a material adverse effect on its
consolidated results of operations or financial condition.
Other Contingencies:
The Company, like a number of other Blue Cross and Blue Shield companies, serves as a fiscal intermediary for
Medicare Parts A and B. The fiscal intermediaries for these programs receive reimbursement for certain costs and
expenditures, which is subject to adjustment upon audit by the federal Centers for Medicare and Medicaid Services,
formerly the Health Care Financing Administration. The laws and regulations governing fiscal intermediaries for the
Medicare program are complex, subject to interpretation and can expose an intermediary to penalties for non-
compliance. Fiscal intermediaries may be subject to criminal fines, civil penalties or other sanctions as a result of such
audits or reviews. In the last five years, at least eight Medicare fiscal intermediaries have made payments to settle
issues raised by such audits and reviews. These payments have ranged from $0.7 to $51.6, plus a payment by one
company of $144.0. While the Company believes it is currently in compliance in all material respects with the
regulations governing fiscal intermediaries, there are ongoing reviews by the federal government of the Company’s
activities under certain of its Medicare fiscal intermediary contracts.
On December 8, 1999, Anthem Health Plans, Inc. (“AHP”), a subsidiary of Anthem Insurance, reached a settlement
agreement with the Office of Inspector General (“OIG”), Department of Health and Human Services, in the amount
of $41.9, to resolve an investigation into misconduct in the Medicare fiscal intermediary operations of Blue Cross &
Blue Shield of Connecticut (“BCBS-CT”), AHP’s predecessor. The period investigated was before Anthem Insurance
merged with BCBS-CT. The resolution of this case involved no criminal penalties against the Company nor any
suspension or exclusion from federal programs. This expense was included in administrative expense in the statement
of consolidated income for the year ended December 31, 1999.