Ronald Gold and Lois O'Connor Individually and on Behalf of all Others Similarly Situated v. Governor John G. Rowland et al. (2014)

SUPPLEMENTAL MEMORANDUM OF DECISION ON DEFENDANTS' MOTION FOR SUMMARY JUDGMENT

I. INTRODUCTION

This certified class action arises out of defendant Anthem Insurance Companies, Inc.'s ¹ (“Anthem Insurance”) 2001 demutualization, pursuant to which it converted from a mutual insurance company into a stock company.   As part of that process, Anthem Insurance paid stock and cash to its members in exchange for them relinquishing their membership interests in the mutual company.   The plaintiffs, Ronald Gold and Lois O'Connor, on behalf of themselves and similarly situated State of Connecticut employees who had insurance coverage through Anthem at the time of the demutualization, claim that Anthem breached its obligations to them and the other class members by not paying them for their membership interests in the mutual company.   The defendants deny that the plaintiffs were members of the mutual company.   Instead, they argue that the State of Connecticut, through whom the plaintiffs' coverage was provided, was the member.   There is no dispute that Anthem distributed 1,645,773 shares of Anthem, Inc. stock to the State of Connecticut in exchange for what it believed were all of the membership rights that existed by virtue of the policies that covered the plaintiffs.   Thus, the question is whether Anthem was correct in its conclusion as to where the membership interest in the mutual company existed.

The parties filed cross motions for summary judgment on this question.   Both the plaintiffs and the defendants claimed that the contract documents that governed the demutualization transaction and Anthem's relationship with the State and its employees require that judgment enter in their favor.   Despite taking this position, both sides filed numerous exhibits beyond the transactional documents either in support of their claim or in opposition to the other side's motion.

By memorandum of decision dated August 19, 2013, this court denied both the plaintiffs' and the defendants' motions based upon their claimed interpretations of the contract documents.   That decision did not address two other arguments raised by the defendants.   Instead, the court deferred ruling on those issues until after it addressed the contract interpretation issues that are at the heart of the parties' dispute.   Having found that genuine issues of material fact exist as to those issues, the court heard additional oral argument on the other grounds raised by the defendants in support of their motion for summary judgment.

First, the defendants argue that they are entitled to summary judgment because the plaintiffs failed to follow the proper procedure under Indiana law to challenge the determination of to whom demutualization proceeds were to be paid.   Second, the defendants argue that they are entitled to summary judgment because, under Section 12.1(g) of the Plan of Conversion, Anthem acted in good faith when it determined that the State, not the plaintiffs, was the member entitled to demutualization compensation.

II. UNDISPUTED FACTS

Rather than restate the undisputed facts relating to the demutualization, the merger of Blue Cross and Blue Shield of Connecticut (“BCBSCT”) into Anthem, and BCBSCT's history as a mutual insurance company and provider of insurance or other services to the State and its employees, the court refers to and incorporates its statement of Undisputed Facts set forth in its August 19, 2013 memorandum of decision.   In addition to the facts set forth therein, the court will discuss additional facts as they relate to each of the issues raised by the defendants.

III. SUMMARY JUDGMENT STANDARD

“In deciding a motion for summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party ․ The party seeking summary judgment has the burden of showing the absence of any genuine issue [of] material facts which, under applicable principles of substantive law, entitle him to a judgment as a matter of law ․ and the party opposing such a motion must provide an evidentiary foundation to demonstrate the existence of a genuine issue of material fact.”  (Citations and internal quotation marks omitted.)  Liberty Mut. Ins. v. Lone Star Indus., Inc., 290 Conn. 767, 787, 967 A.2d 1 (2009).  “It is not enough, however, for the opposing party merely to assert the existence of such a disputed issue.   Mere assertions of fact ․ are insufficient to establish the existence of a material fact and, therefore, cannot refute evidence properly presented to the court [in support of a motion for summary judgment].”  Home Ins. Co. v. Aetna Life & Casualty, Co., 235 Conn. 185, 202, 663 A.2d 1001 (1995).

IV. DISCUSSION

A. Statutory Procedure For Challenging Demutualization

The defendants first claim that they are entitled to summary judgment because the plaintiffs failed to follow the proper procedure to challenge Anthem's determination that the State was the policyholder and member entitled to demutualization proceeds.   In support of this argument, the defendants rely upon Indiana's Demutualization Law and the Plan of Conversion.  Section 27–15–15–1 of the Indiana Code provides:  “A person who is aggrieved by an agency action of the commissioner under this article may petition for judicial review of the action under IC 4–21.5–5.” Section 4–21.5–5–5–1 provides that, with limited exceptions not applicable here, “this chapter establishes the exclusive means for judicial review of an agency action.”   Furthermore, § 4–21–5–5–5 provides that “a petition for review is timely only if it is filed within thirty (30) days after the date that notice of the agency action that is the subject of the petition for judicial review was served.”   Similarly, § 27–15–15–2, relating specifically to challenges to demutualization proceedings, provides:  “All petitions for judicial review of, and any action challenging the validity of or arising out of:  (1) the approval or disapproval of;  or (2) any action proposed to be taken under;  any order or determination of the commissioner in connection with a plan of conversion under this article must be filed not later than thirty (30) days after the order or determination is issued by the commissioner.” ²

The defendants argue that these statutes require that summary judgment enter in their favor because it is undisputed that the plaintiffs did not follow the procedures set forth in the Indiana Code for seeking judicial review and did not do so within thirty days of the Indiana Insurance Department's approval and acceptance of the Plan of Conversion on October 25, 2001.   Ex. 48.

The plaintiffs do not claim to have followed the procedures required under Indiana law to challenge agency action, including that of the Insurance Department.   They also admit that they did not institute this or any action within thirty days of the order of the Insurance Department accepting the Plan of Conversion.   Instead, they argue that the provisions relied upon by the defendants do not apply because the plaintiffs are not challenging the approval of the Plan of Conversion.   They are challenging the defendants' actions after the Plan of Conversion was approved and their failure to abide by the parties' contract.

The court agrees with the plaintiffs.   The plaintiffs do not claim to be aggrieved by any decision by the Indiana Insurance Department.   Nor do they in any way challenge the demutualization process.   They merely claim that once demutualization was approved, Anthem breached its contract with the plaintiffs by paying the demutualization compensation due to them to the wrong entity, the State.   Such a claim falls outside the administrative proceedings contemplated by the Indiana statutes relied upon by the defendants.

This court is not the first to reach such a conclusion.   In Ormond v. Anthem, Inc., Case No. 1:05–cv–1908–DFH–TAB (LOIS) (S.D.Ind., March 31, 2008) the court rejected a similar argument relating to Anthem's demutualization.   According to the court:  “[T]he plaintiffs are not challenging the validity of the Commissioner of Insurance's order approving the demutualization of Anthem.   Unlike in Indiana Bell Telephone, there is also no statutory scheme through which people aggrieved by events that occur subsequent to the Commissioner's order can seek redress.   The plaintiffs, like the plaintiffs in Ordower, allege that Anthem Holding and Anthem Insurance breached their contractual and fiduciary duties to their policyholders and acted negligently both before and after the Commissioner had approved the demutualization.   Thus, the statutory thirty-day time limit in Indiana Code § 27–15–15–2 does not bar these claims.”  Id., page 53.

In addition, as the plaintiffs point out, another Connecticut superior court, reached a similar conclusion, albeit in different circumstances.   In AFSCME v. Town of Andover, X01CV30182395S, 2004 WL 2829835 (Conn.Super.Ct., November 3, 2004) (Sheedy, J.), the plaintiffs sought a declaratory judgment that they, as opposed to the town who employed AFSCME's members, were entitled to the demutualization proceeds paid as part of the Anthem demutualization.   The defendants moved to dismiss or strike the plaintiffs' claim, arguing, inter alia, that the plaintiffs lacked standing because they had failed to appeal pursuant to Indiana Code § 27–15–15–2.   Id., *5, fn. 6. The court rejected the argument, noting that “[w]hat is not challenged here is the validity of the Commission's conclusions nor its approval of the Plan and it is a tenuous claim at best to assert this suit is a challenge to an action ‘proposed to be taken under any order or determination of the Commissioner in connection with this Plan ․’ (Emphasis added.)   Plan, Section 12.14.”  Id., *4. The court further held that “[i]t is a misstatement to assert the plaintiffs here attempt to ‘effectively reverse the Commissioner's decision through declaratory judgment.’  ․ It ignores entirely that the plaintiffs accept the Commissioner's definition of ‘Eligible Statutory Member.’  “ Id. *5.³

The court agrees with the analysis in Ormond and AFSCME.   The plaintiffs are not challenging the Indiana Insurance Department's definition of Eligible Statutory Member.   Instead, the plaintiffs are claiming that the defendants failed to properly apply that definition when they distributed demutualization proceeds to the State instead of to them.

The defendants attempt to avoid this result by making a number of arguments.   First, they argue that the plaintiffs are challenging the Insurance Department's order because that order specifically set forth that the State was the member entitled to demutualization proceeds.   Ex. 48 at 7. The court is not persuaded.   The paragraphs of the decision relied upon by the defendants, Paragraphs 26 and 27, make no finding as to whether the State or the plaintiffs were the Statutory Members entitled to the demutualization proceeds.   Those paragraphs merely summarize the contract provisions that the court addressed in its August 19, 2013 memorandum of decision.   The court has already found that there is a genuine issue of material fact as to how those provisions should be interpreted.   The Insurance Department's order does not alter this conclusion.

Second, the defendants argue that Ormond and AFSCME are distinguishable because in those cases the courts found that the plaintiffs could not have known of their potential claim within the thirty-day review period.   Here, the defendants claim that the undisputed evidence shows that within thirty days of the Insurance Department's order the plaintiffs knew or should have known that all demutualization proceeds would be paid to the State.   In particular, the defendants point to a November 20, 2001 newspaper report that set forth the amount of money the State would receive from the demutualization.   Ex. 56.

In response, the plaintiffs reiterate their argument that because they are not challenging the actions of the Insurance Department, the thirty-day requirement is simply inapplicable.   They also argue that they did not know that they had a claim until after Anthem paid the demutualization proceeds to the State on December 18, 2001, more than thirty days after the Insurance Department's October 25, 2001 order.

The court agrees with the plaintiffs that because they are not challenging the actions of the Insurance Department the procedures on which the defendants rely do not apply.   While the courts in Ormond and AFSCME did discuss the fact that the plaintiffs in those cases could not have known of their claims prior to expiration of the thirty-day period, the holdings set forth above were not dependent on that fact.   The lack of sufficient notice was a separate basis for the courts' conclusions that the thirty-day period could not apply.⁴

Finally, the defendants argue that the Plan of Conversion made clear that any dispute as to membership had to be raised pursuant to § 27–15 of the Indiana Code. In particular, § 12.1(i) of the Plan of Conversion provided:  “Any dispute as to the identity of the Holder of a Policy or the right to vote or receive consideration will be determined in accordance with the foregoing or Ind.Code 27–15 or such other procedures as may be acceptable to the Commissioner.”   The defendants argue that because the plaintiffs' claim is a dispute over the identity of the Holder of a Policy and over who receives compensation, the procedures set forth in § 27–15 had to be followed.

The problem with the defendants' argument is that § 12.1(i) does not provide that § 27–15 of the Indiana Code is the exclusive avenue for resolving such an issue.   Such a dispute may also be determined in accordance with the foregoing provisions of the Plan of Conversion.   Such a determination requires a resolution of who was the Holder of the Policy under the parties' agreement.   That is precisely the issue the plaintiffs are seeking to resolve in their favor pursuant to the agreement and the Plan of Conversion.   Because the plaintiffs are seeking resolution of the identity of the Holder of a Policy or right to receive consideration in accordance with the Plan of Conversion, which incorporates the parties' agreement, they have complied with § 12.1(i).

For all of the foregoing reasons, the defendants' motion for summary judgment based on their claim that the plaintiffs failed to comply with Indiana law for raising such a claim is denied.

B. Good Faith

The defendants argue that even if one were to accept the plaintiffs' proposed contract interpretation as correct, they are nonetheless entitled to summary judgment because their determination that the State was the Holder of the Policy entitled to receive the demutualization proceeds was made in good faith.   Section 12.1(g) of the Plan of Conversion provides:  “In any situation not expressly covered by the foregoing provisions of this Section 12.1, or as to which application of the foregoing provision is unclear, the Holder of a Policy, as reflected on the records of Anthem Insurance and determined in good faith by Anthem Insurance, will be presumed to be the Holder of such Policy for purposes of this Section 12.1, and except for administrative errors, Anthem Insurance will not be required to examine or consider any other facts or circumstances.”  (Emphasis added.)   The defendants argue that this provision clearly applies because the court, in its August 19, 2013 memorandum of decision, found the contract language for determination of the Holder of the Policy, upon which § 12 is based, to be unclear.   They further argue that this court determined in that memorandum of decision that Anthem based its decision on its records.   Furthermore, they argue that because this court concluded that the State was a statutory member pursuant to § 7.6(b) of the 1997 Articles of Incorporation, Anthem's determination that the State was the sole statutory member was made in good faith.

This is not the first time that the court has been asked to consider the good faith language of § 12.1(g).  Judge Sheldon considered the same argument in connection with the defendants' earlier filed motion for summary judgment in this case.   In rejecting that argument, Judge Sheldon held:  “The Court agrees with the plaintiff, however, that the Plan of Conversion did not afford the defendants an absolute defense of good faith reliance on corporate records to every claim against them for alleged negligence in identifying the Eligible Statutory Member of Anthem Insurance with respect to a given insurance policy following the demutualization.   To the contrary, as the plaintiff rightly argues, good-faith reliance upon the books and records of the Company, as described and limited in Article 12.1(g) of the Plan of Conversion, is not really a defense to such a claim, but the basis for a rebuttable presumption of correctness of the defendants' membership determination that arises in certain situations—specifically, when the issue to be resolved is not expressly covered by the Plan of Conversion or the Plan's application to that issue is unclear.   Here, of course, the record before the Court does not establish that either such situation exists, for the Plan of Conversion does deal expressly with the issue at hand and both sides make strong arguments based directly upon the contents of the corporate books and records that are claimed to support their positions.   The defendants can hardly claim on this record that they have adduced any evidence of non-coverage or uncertainty, for on the latter score in particular, they have claimed and sought diligently to prove that the opposite is true.”   Gold v. Rowland, No. CV 02–0813759–S, 2005 Ct.Sup. 476, 510–11 (LOIS) (Conn.Sup.Ct., January 10, 2005) (Sheldon, J.).

Judge Sheldon further found that two additional facts had to be established “before the presumption of correctness based upon good-faith review of corporate records can properly be invoked and relied upon:  that the defendants actually based their challenged Membership determination upon a review of corporate records and that they conducted that review in good faith.”  Id., 2005 Ct.Sup. 511.   He then concluded that he could not find on the record before him “that there is no genuine issue of material fact as to whether the defendants actually examined and fully and fairly considered all of the corporate rules and records available to them when they made their challenged determination that the State was the Eligible Statutory Member of Anthem Insurance with respect to the 1999 Group Policy, but the plaintiff and other holders of certificates of coverage were not.”  Id.

The defendants claim that this case is in a much different posture now because the two additional facts that Judge Sheldon said had to be established, have in fact been established.   First, the undisputed evidence submitted by the plaintiffs proves that Anthem made its Membership determination upon a review of its corporate records.   Second, this determination was made in good faith.

The court agrees with the defendants as to the first issue.   The plaintiffs have produced no evidence whatsoever that the defendants' Membership determination was based on anything other than a review of Anthem's corporate records.   By contrast, as noted in this court's earlier memorandum of decision, the defendants have produced substantial evidence that they relied solely on those records.

Whether the evidence, viewed in a light most favorable to the plaintiffs, establishes that there is no genuine issue of material fact that the defendants made that determination in good faith is a much closer question.   Given the court's conclusion that the State remained an Eligible Statutory Member under the 1999 Policy because that policy replaced the Care Plus policy, the plaintiffs are hard-pressed to show that the defendants' determination that the State was the sole member, to the exclusion of the plaintiffs, was made in bad faith.   Certainly, the plaintiffs have produced no direct evidence of bad faith by the defendants.

The only fact that gives the court pause is the defendants' handling of the HUSKY plans that resulted in the court denying the defendants' motion for summary judgment in the court's August 19, 2013 memorandum of decision.   While the defendants have presented some evidence (Exs.45–47) as to why those plans were treated as separate policies conferring additional ownership rights on the State, viewing that evidence in a light most favorable to the plaintiffs, a fact finder could find that they show that Anthem recognized that ownership interests can be created on a policy by policy basis.   Consequently, the fact finder could similarly find that a good faith determination of Membership based upon a review of Anthem's records required a conclusion that the 1999 Policy also created a new ownership interest that would be governed by § 7.6(c) of the 1997 Articles of Incorporation.   Consequently, viewing the evidence in a light most favorable to the plaintiffs, a fact finder could conclude that the defendants did not make a good faith determination of ownership under the 1999 Policy in light of how they treated the HUSKY plans.

The defendants argue that the HUSKY plans were entirely separate policies, for an entirely separate population, Medicaid recipients.   They also argue that there was never any question that the State, as opposed to the HUSKY enrollees, was the policyholder.   The court addressed both of these points in its earlier memorandum of decision.   For the same reasons set forth there, the court is unconvinced that they eliminate the existence of a genuine issue of material fact.

In addition, one other factor militates in favor of denying the defendants' motion for summary judgment based on § 12.1(g).  As Judge Sheldon noted, that provision does not say that Anthem's good faith acts as a complete bar to the plaintiffs' claim.   Instead, Anthem's good faith merely creates a rebuttal presumption in favor of the correctness of its determination.   While, based on the record submitted, the court believes that the plaintiffs have a high hill to climb to overcome that presumption, it cannot say, at this stage, that the facts surrounding the treatment of the HUSKY plans are, as a matter of law, insufficient to do so.   This is particularly true, given that, as Judge Sheldon noted, “the issue of good faith, like the issue of intent to which it is closely related, is traditionally, and quite appropriately, held to be a jury issue, and thus not amenable to resolution as a matter of law on a motion for summary judgment.”  Gold v. Rowland, supra, 2005 Ct.Sup. 511.

For the foregoing reason, the defendants' motion for summary judgment based upon § 12.1(g) is denied.

V. CONCLUSION

For all of the foregoing reasons, the defendants' motion for summary judgment is denied.

Bright, J.

FOOTNOTES

FN1. The plaintiffs have named a number of “Anthem” companies as defendants, including Anthem, Inc., Anthem Health Plans, Inc. d/b/a Anthem Blue Cross & Blue Shield of Connecticut, Anthem East, Inc., and Anthem Insurance Companies, Inc. The claims appear to be the same as to all of the defendants.   Consequently, except where differentiation is necessary, they will be collectively referred to in this decision as “Anthem.”.  FN1. The plaintiffs have named a number of “Anthem” companies as defendants, including Anthem, Inc., Anthem Health Plans, Inc. d/b/a Anthem Blue Cross & Blue Shield of Connecticut, Anthem East, Inc., and Anthem Insurance Companies, Inc. The claims appear to be the same as to all of the defendants.   Consequently, except where differentiation is necessary, they will be collectively referred to in this decision as “Anthem.”

FN2. This same language is incorporated into § 12.14 of the Plan of Conversion..  FN2. This same language is incorporated into § 12.14 of the Plan of Conversion.

FN3. The plaintiffs also rely on the our Supreme Court's decision in Region 14 Board of Education v. Nonnewaug Teachers Association, 273 Conn. 28, 866 A.2d 1252 (2005).   Such reliance is misplaced.   In that case, the court addressed whether a dispute between the parties over the distribution of proceeds from the Anthem demutualization was arbitrable.   The issue there was not who the Eligible Statutory Member was.   Instead, the issue was whether, pursuant to the parties' collective bargaining agreement, the defendants were entitled to some share of the demutualization proceeds based on the premiums they paid for their health insurance.   Consequently, the Court's determination in a footnote that that issue was not addressed by the Indiana insurance commissioner, 273 Conn. 32, fn. 5, provides little guidance to the court in this case..  FN3. The plaintiffs also rely on the our Supreme Court's decision in Region 14 Board of Education v. Nonnewaug Teachers Association, 273 Conn. 28, 866 A.2d 1252 (2005).   Such reliance is misplaced.   In that case, the court addressed whether a dispute between the parties over the distribution of proceeds from the Anthem demutualization was arbitrable.   The issue there was not who the Eligible Statutory Member was.   Instead, the issue was whether, pursuant to the parties' collective bargaining agreement, the defendants were entitled to some share of the demutualization proceeds based on the premiums they paid for their health insurance.   Consequently, the Court's determination in a footnote that that issue was not addressed by the Indiana insurance commissioner, 273 Conn. 32, fn. 5, provides little guidance to the court in this case.

FN4. In addition, whether the plaintiffs knew during the thirty period after October 25, 2001 that the demutualization proceeds were going to be paid to the State raises a genuine issue of material fact.   While the defendants point to the November 20, 2001 article, there is no evidence before the court that the plaintiffs saw or should have seen the article.   While it is true that the plaintiffs have admitted knowing about the demutualization process during the summer of 2001, that is a far cry from evidence that they knew to whom the proceeds from the demutualization would be paid..  FN4. In addition, whether the plaintiffs knew during the thirty period after October 25, 2001 that the demutualization proceeds were going to be paid to the State raises a genuine issue of material fact.   While the defendants point to the November 20, 2001 article, there is no evidence before the court that the plaintiffs saw or should have seen the article.   While it is true that the plaintiffs have admitted knowing about the demutualization process during the summer of 2001, that is a far cry from evidence that they knew to whom the proceeds from the demutualization would be paid.

Bright, William H., J.