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Class-action Blues suit is dismissed


A class-action lawsuit against Blue Cross and Blue Shield of Maryland was dismissed yesterday by a Circuit Court judge who said the public policy that is at issue in the case should be decided by a higher court.

Baltimore County Circuit Judge John J. Fader ruled that -- despite what he said were some persuasive claims by policyholders in the unusual case -- it should be left to the state's highest court, the Court of Appeals, to decide if customers of Blue Cross have a right to sue the company.

Under Maryland law, customers typically cannot sue the directors or officers of a company for misusing money. That is usually left to shareholders.

But Blue Cross, the state's largest insurance company, serving 1.4 million people, has no shareholders. It is a nonstock corporation chartered as a nonprofit company to serve subscribers. In cases where there are no shareholders, the courts defer to the General Assembly to set up regulatory agencies or devise other ways to protect consumers.

While sympathetic to the subscribers' claim, Judge Fader said he was acting to avoid the possible waste of hundreds of thousands of dollars on a trial that a higher court might later rule should not have proceeded.

"It's scary if one-tenth of the allegations your clients claim are true. It's scary," he told the plaintiffs' lawyers. "But look at my position. . . . These are high-profile policy decisions -- not the type of decision to be made by little old trial judges like me."

Judge Fader's decision came in response to a lawsuit filed by six Blue Cross subscribers in March in the aftermath of a U.S. Senate subcommittee investigation into the company's management and financial condition. The subscribers sued 18 current and former directors or officers of the company, accusing them of recklessly wasting subscriber money.

The plaintiffs are seeking $145 million in damages from the company and its consultant, Booz Allen & Hamilton Inc. of New York, which they want returned to the insurer and used to lower the cost of health insurance.

Blue Cross has sought dismissal of the lawsuit, arguing that the company should instead be allowed to proceed with its own narrower case against former Blue Cross senior attorney Fred M. Gloth Jr. and Booz Allen for about $2 million in claims.

The Blue Cross lawsuit developed after the insurer hired a Washington law firm to investigate the allegations outlined in the subscriber lawsuit. Three weeks ago, Blue Cross said the investigation had uncovered no evidence of gross negligence by directors or officers or personal benefit to them that would warrant monetary damages. As a result, and because the company concluded that its directors were protected from lawsuits under the state's corporate liability statutes, Blue Cross targeted the one former executive and consulting firm in its lawsuit.

The subscriber suit is believed to be the first of its type against a Blue Cross plan in the country.

The subscribers who brought the suit include several doctors, a candy store owner and two men who served as directors of the insurer in the 1970s. They claim the company raised their rates 300 percent in five years and misspent their premium money on such things as exorbitant executive salaries and country club membership fees.

The subscribers are seeking redress in the courts because, their lawyers said yesterday, the regulatory system did not work in this case -- the company routinely circumvented the insurance commissioner of Maryland.

Judge Fader did not rule on whether the directors of Blue Cross were immune from lawsuits. But he indicated that subscribers had a stronger case in their position that directors should be subject to lawsuits.

"This court is absolutely terrified by the fact that people can run rampant in a nonprofit corporation," the judge said.

The General Assembly recognized that subscribers' protection needed to be beefed up last year when Blue Cross' alleged mismanagement became public. A law that went into effect June 1 requires the governor to appoint a subscriber to the company's board. Had such a representative been on the board, subscribers would have had an automatic right to sue.

The subscribers' lawyers, Jon L. Brassel of Annapolis and Stephen J. Nolan of Towson, said they would immediately appeal the case to the Maryland Court of Appeals. If it is heard on an emergency basis, a decision could be made by the spring, Mr. Brassel said.

In the interim, the subscribers' lawyers said they would seek to stop Blue Cross from going ahead with its separate lawsuit, which is in federal court in Baltimore.

Lawyers for Blue Cross said yesterday they would press ahead with that case.

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