Jews due full severance of $18 million, judge rules

Decision reverses insurance commissioner, who says he will appeal

(Baltimore Sun photo by Glenn…)
November 14, 2009|By Lorraine Mirabella and Hanah Cho

A Baltimore County circuit judge has ruled that William L. Jews is entitled to his full $18 million severance package from CareFirst BlueCross BlueShield, reversing a 2008 decision by Maryland's insurance commissioner that the judge called "unlawful."

Judge Timothy J. Martin said Insurance Commissioner Ralph S. Tyler overstepped his authority when he slashed the former CareFirst chief executive's severance and other pay by nearly $9 million. In a 60-page opinion, the judge characterized Tyler's decision as "unobjective, biased, and quite personal."

"The commissioner blurred his role and overstepped his authority in his scope of inquiry and in the basis for his reasons," Martin wrote. "The sum of money and the benefits proposed to be paid to Mr. Jews are indeed enormous but the amount alone cannot and should not be the sole fact which is determinative of this case."

In an e-mailed statement, Tyler said the Maryland Insurance Administration will appeal Martin's ruling.

The ruling comes as a victory for Jews, president and CEO of CareFirst from 1993 to 2006, who had challenged the reduction in severance in state and federal courts. The U.S. District Court dismissed a case this year challenging Tyler's administrative decision. Jews had also filed the Baltimore County Circuit Court lawsuit in August 2008, seeking a review of Tyler's decision.

"We feel that Mr. Jews now has been given a fair hearing, and it has resulted in a very fair decision," said Jews' attorney, Andrew J. Graham. "We look forward to concluding this matter."

Tyler's decision in August 2008 had accused Jews of abandoning the nonprofit mission of the region's largest insurer to provide affordable and accessible health insurance. In that order, Tyler called CareFirst's mission a "noble" one that "is not advanced by paying $18 million to its departing CEO."

Tyler also found that CareFirst's board had violated a 2003 state law requiring executive pay for the nonprofit to meet a "fair and reasonable" standard.

"I am naturally disappointed by the position taken by the Circuit Court in this matter," Tyler said Friday in an e-mailed statement. "I believe my initial ruling upheld the letter and spirit of the law passed by the General Assembly regarding the compensation of executives of CareFirst."

Legislators passed the law after Jews attempted to convert CareFirst to a for-profit entity and sell it to a California company. That proposed deal to sell CareFirst to WellPoint Health Networks Inc. for $1.37 billion would have included $39 million in potential bonuses for Jews, sparking sharp criticism of the insurer's executive pay and leading to the collapse of the deal in 2003.

Jews had been widely credited with turning around CareFirst's finances after being recruited by what was previously known as Blue Cross Blue Shield of Maryland in 1993. He worked to build up the reserves and reorganized a company that had been under scrutiny for mismanagement and lavish spending.

He was fired in 2006 by CareFirst's board of directors, which directed CareFirst to pay Jews nearly $18 million in accordance with his employment agreement. Jews had said at the time he stepped down rather than fight upset board members.

CareFirst declined comment Friday on Martin's ruling.

Vincent DeMarco, president of the Maryland Citizens' Health Initiative, which opposed the deal for CareFirst to convert from a nonprofit to for-profit operation, said he supports the state's decision to appeal the ruling.

"The insurance commissioner's decision was the right one," DeMarco said. "CareFirst has gone on a good track record under new management. ... It could use all the money it can to make health care affordable for people, and it shouldn't go to line Bill Jews' pocket."

Del. Shane Pendergrass, a Howard County Democrat who was the principal sponsor of the 2003 law that locked in CareFirst's nonprofit status and set the "fair and reasonable" standard for compensation, said Friday that she was disappointed by the judge's ruling.

"I have great confidence in our insurance commissioner," she said. "I believe he would not have overreached, and I have to believe that he did what he should have done."

"It's a shame that there will be more money spent to take this to the next level," she added. "That said, I'm glad Commissioner Tyler is doing that."

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