Health Net 2011 Annual Report Download - page 55

approximately two million former and current Health Net members, employees and health care providers is on
the drives. Commencing on March 14, 2011, we provided written notification to the individuals whose
information is on the drives. To help protect the personal information of affected individuals, we offered them
two years of free credit monitoring services, in addition to identity theft insurance and fraud resolution and
restoration of credit files services, if needed.
On March 18, 2011, a putative class action relating to this incident was filed against us in the U.S. District
Court for the Central District of California (the “Central District of California”), and similar actions were later
filed against us in other federal and state courts in California. A number of those actions were transferred to and
consolidated in the U.S. District Court for the Eastern District of California (the “Eastern District of California”),
and the two remaining actions are currently pending in the Superior Court of California, County of San Francisco
(“San Francisco County Superior Court”) and the U.S. District Court for the Central District of California. The
consolidated amended complaint in the federal action pending in the Eastern District of California is filed on
behalf of a putative class of over 800,000 of our current or former members who received the written
notification, and also names IBM as a defendant. It seeks to state claims for violation of the California
Confidentiality of Medical Information Act and the California Customer Records Act, and seeks statutory
damages of up to $1,000 for each class member, as well as injunctive and declaratory relief, attorneys’ fees and
other relief. On August 29, 2011, we filed a motion to dismiss the consolidated complaint. On January 20, 2012,
the court issued an order dismissing the complaint on the grounds that the plaintiffs lacked standing to bring their
action in federal court, and gave the plaintiffs thirty days to file an amended complaint. On February 22, 2012,
the court entered an order approving a stipulation giving the plaintiffs an additional sixty days, until April 21,
2012, to file an amended complaint.
The other federal court proceeding was instituted on July 7, 2011 in the Superior Court of California,
County of Riverside and is brought on behalf of a putative nationwide class of all former and current members
affected by this incident, and seeks to state similar claims against us, as well as a claim for invasion of privacy.
We removed this case to the Central District of California on August 1, 2011. On August 26, 2011, the plaintiff
filed a motion to remand the case to state court. That motion was granted on September 30, 2011. On October 10,
2011, we filed an application for leave to appeal the remand order to the United States Court of Appeals for the
Ninth Circuit. On January 30, 2012, the Court of Appeals granted the motion for leave to appeal and ordered the
parties to submit briefs. The appeal is scheduled for oral argument on March 5, 2012. We have not yet filed a
response to the complaint in this action.
The San Francisco Superior Court proceeding was instituted on March 28, 2011 and is brought on behalf of
a putative class of California residents who received the written notification, and seeks to state similar claims
against us, as well as claims for violation of California’s Unfair Competition Law, and seeks similar relief. We
moved to compel arbitration of the two named plaintiffs’ claims. The court granted our motion as to one of the
named plaintiffs and denied it as to the other. We are appealing the latter ruling. Thereafter, the plaintiff as to
whom our motion to compel arbitration was granted filed an application for a writ of mandate with the California
Court of Appeal seeking review of that ruling. We filed an opposition to that application. On January 26, 2012,
the Court of Appeals issued an order indicating it might issue a peremptory writ regarding the enforceability of
the arbitration agreement and inviting the parties to submit additional briefing.
We have also been informed that a number of regulatory agencies are investigating the incident, including
the California Department of Managed Health Care, the California Department of Insurance, the California
Attorney General, the Connecticut Attorney General, the Connecticut Department of Insurance, and the Office of
Civil Rights of the U.S. Department of Health and Human Services.
We intend to vigorously defend ourselves against these claims; however, these proceedings are subject to
many uncertainties. At this time we cannot reasonably estimate the range of loss that may result from these legal
and regulatory proceedings in light of the facts that (i) legal and regulatory proceedings are inherently
unpredictable, (ii) there are multiple parties in each of the disputes (and uncertainty as to how liability, if any,
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