Blues subscribers fight for right to sue insurer

May 06, 1994|By Patricia Meisol | Patricia Meisol,Sun Staff Writer

Subscribers of Blue Cross and Blue Shield of Maryland sought to convince the state's highest court yesterday that they are not ordinary customers and should be allowed to sue the directors and executives they claim nearly ran the insurer into the ground.

In a bid to reactivate a March 1993 class-action suit, attorney Abraham Dash likened the subscribers to shareholders in a co-operative rather than customers of a corporation. Under state corporate law, customers don't have the right to sue directors -- but shareholders do.

"We are dealing with a unique situation," he told judges of the Court of Appeals in Annapolis.

A ruling in favor of the subscribers would pave the way for them to pursue claims for millions of dollars the subscribers say should be returned to Blue Cross to boost its financial position.

The suit named 10 present and past board members, six former executives and a consultant firm, Booz Allen & Hamilton Inc.

It could also mean millions in legal bills for the insurer to defend its own directors, many of them prominent Baltimore business leaders, from charges they recklessly wasted the company's money. The insurer is separately seeking at least $2 million in its own lawsuit against two former executives and Booz Allen.

Yesterday's arguments came 14 months after a half-dozen Blue Cross subscribers filed the suit alleging gross negligence and abuse that led to losses of $120 million in premium dollars. Former U.S. Attorney George Beall yesterday represented Blue Cross directors, who insist they alone have the right to seek money for past wrongs. The insurer was represented by Jeffrey B. Maletta.

The case was dismissed Nov. 30 by a Towson judge who said a higher court should first decide if subscribers could sue. The Court of Appeals agreed to hear the issue directly, bypassing the regular judicial process. A ruling could take months.

Yesterday, lawyers for Blue Cross and its directors argued that such a ruling would open the way for hundreds of claims from people any time they disagreed with the insurer's investments or premium increases.

"Subscribers are simply purchasers of insurance," Mr. Beall maintained. "We're not shareholders by any stretch of the imagination. We bought insurance contracts . . . for insurance protection."

But Mr. Dash, a professor of constitutional law at the University of Maryland School of Law, argued that two things make Blue Cross different from companies covered under the state's corporate law.

First, the company's board is self-perpetuating -- the directors appoint and reappoint themselves or their designees year after year, with no outside intervention. Second, Blue Cross was set up for one purpose -- to provide health care at a minimum cost. Its only source of money is premiums from people who believed that that is what it was doing, he said.

"What has happened is that a predatory set of executives took over the company and, through the negligence of the directors, came close to destroying it," Mr. Dash said. "What we are trying to do is make it work, put the money back."

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