Ormond v. Anthem, Inc.

799 F.Supp.2d 910

Mary ORMOND, et al., On Behalf of Themselves and All Others Similarly Situated, Plaintiff,

v.ANTHEM, INC. and Anthem Insurance Companies, Inc., Defendant.

Case No. 1:05–cv–1908–TWP–TAB.

United States District Court, S.D. Indiana, Indianapolis Division.

July 1, 2011.

Cari C. Laufenberg, Lynn L. Sarko, T. David Copley, Keller Rohrback L.L.P., Seattle, WA, Dennis Paul Barron, Cincinnati, OH, Edward O'Donnell Delaney, Kathleen Ann Delaney, Delaney & Delaney LLC, Indianapolis, IN, Eric Hyman Zagrans, Elyria, OH, H. Laddie Montague, Jr., Neil F. Mara, Peter R. Kahana, Todd S. Collins, Berger & Montague P.C., Philadelphia, PA, Michael F. Becker, The Becker Law Firm Co., L.P.A., Cleveland, OH, for Plaintiff.

Adam K. Levin, Craig A. Hoover, Peter R. Bisio, Hogan Lovells U.S. LLP, Washington, DC, Anne Kramer Ricchiuto, Christopher G. Scanlon, Kevin M. Kimmerling, Matthew Thomas Albaugh, Paul A. Wolfla, Baker & Daniels, Indianapolis, IN, for Defendant.

ENTRY ON DEFENDANTS' MOTION FOR SUMMARY JUDGMENT

TANYA WALTON PRATT, District Judge.

This matter is currently before the Court on Defendants' Anthem, Inc. and Anthem Insurance Companies, Inc.'s (collectively, “Defendants”) Motion for Summary Judgment. The Plaintiffs in this class-action lawsuit assert claims arising out of the 2001 demutualization of Anthem Insurance Companies, Inc. (“Anthem”), and the related initial public offering (“IPO”) of stock in its parent company, Anthem, Inc. This demutualization provided the means for Anthem to compensate its mutual company members in exchange for the liquidation of their interests. Defendants have moved for summary judgment and the Court heard oral argument addressing the motion on April 14, 2010. For the reasons set forth below, Defendants' Motion (Dkt. 263) is GRANTED IN PART and DENIED IN PART.

Summary Judgment Standard

Summary judgment is appropriate “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(c). The Motion should be granted so long as no rational fact-finder could return a verdict in favor of the nonmoving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Thus, a court's ruling on a motion for summary judgment is akin to that of a directed verdict, as the inquiry for the court in both is “whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.” Id. at 251–52, 106 S.Ct. 2505.

When ruling on the motion, the court must construe the evidence in the light most favorable to the non-moving party and draw all reasonable inferences in that party's favor. Id. at 255, 106 S.Ct. 2505. If the non-moving party bears the burden of proof on an issue at trial, that party “must set forth specific facts showing that there is a genuine issue for trial.” Fed.R.Civ.P. 56(e); see also Silk v. City of Chicago, 194 F.3d 788, 798 (7th Cir.1999). The moving party need not positively disprove the non-movant's case; rather, it may prevail by establishing the lack of evidentiary support for that case. See Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

Demutualization

Mutual insurance companies are owned by their policyholders (i.e. members), who, like garden-variety shareholders, have voting rights and share in the company's financial success or failure. Over the course of this century, mutual companies have lost favor, primarily because they face difficulty in raising capital compared to publicly-traded companies. This problem has led hundreds of mutual companies to convert to stock companies over the course of the last 75 years, through a process known as a “demutualization.” 3 Lee R. Russ & Thomas F. Segalla, Couch on Insurance § 39:43 (3d ed. 2005). Typically, demutualizations are governed by statute and regulated by the state where the insurance company is domiciled.

Anthem is organized under the laws of Indiana. In 1999, a new Indiana statutory scheme governing the demutualization of insurance companies went into effect. The statutes allow an Indiana mutual insurance company to convert to a stock company through a plan of conversion, which must be proposed to and approved by both the State's Commissioner of Insurance (“Commissioner”) and two-thirds of the company's membership.¹ Ind. Code § 27–15–1–2 et seq. The Commissioner and the Indiana Department of Insurance (“IDOI”) are tasked with gathering the expertise and information necessary to reach conclusions regarding: (1) the fairness of the amount and form of consideration to be distributed to the members, both in the aggregate and individually; (2) the compliance of the plan with applicable statute and state laws; (3) the overall fairness, reasonableness and equity of the plan to the members; (4) whether policyholders would be prejudiced by a conversion; and (5) whether the total consideration provided to extinguish the member's interests is equal to or greater than the surplus of the converting mutual company. Ind. Code § 27–15–4–8. A public hearing is required and if the Commissioner reaches a favorable conclusion regarding these five issues, she must approve the plan. If a conversion plan is approved by the Commissioner, it is then submitted to the membership for an approval vote. Ind. Code § 27–15–5–1.

Factual Background

To put it mildly, this dispute has been zealously litigated by both sides. The quality of the work has been impressive, and the sheer quantity of the motions practice has been astonishing. As a result, the relevant factual circumstances have been described multiple times by both the parties and the Court—both in this case, where the Plaintiffs are former mutual company members who received cash in exchange for their interests, and in a related case filed on behalf of members who received stock in exchange for their interests. See Jorling v. Anthem, Inc., 1:09–cv–798–TWP–TAB. ² For this reason, and because many of the relevant facts are uncontested, the Court should be pardoned if it cribs portions of its factual description from prior writings.

Anthem Insurance is the product of numerous mergers, acquisitions, and name changes, a factor which is significant to some of Plaintiffs' claims. The company history began with a merger of two Indiana mutual insurance companies, thus resulting in Associated Insurance Companies, Inc. (“Associated”). Associated's bylaws provided that its membership would be comprised solely of individuals, regardless of whether the individual held a personal policy or was enrolled as a certificate holder in a group plan. Associated then merged with a Kentucky mutual insurance company, Southeastern Mutual Insurance Company (“Southeastern”), and an Ohio mutual insurance company, Community Mutual Insurance Company (“CMIC”), both of which had bylaws defining their memberships as being comprised of individuals who were insured under individual insurance policies and those entities or groups as a whole that had purchased group policies. Unlike Associated's bylaws, under the bylaws of Southeastern and CMIC, the individuals who were the certificate holders or insured persons under group policies did not obtain membership status.

In order to protect the rights of those entities that had obtained membership through the purchase of the group policies from Southeastern and CMIC, a “grandfather” clause was placed in the merger documents. This clause allowed those group policy purchasers (most often employers) with membership status pursuant to the respective company bylaws to become members of Associated, so long as their insurance policies or health care benefits and services contracts remained in effect or were renewed, amended, or replaced without a lapse in coverage. However, new group customers (again typically employers) in Kentucky or Ohio that entered into group contracts with Associated for the first time post-merger did not become members. Instead, pursuant to Associated's bylaws, the individual enrollees under those post-merger group policies became members.

After those two mergers, Associated changed its name to Anthem Insurance. In 1997, Anthem merged with Blue Cross & Blue Shield of Connecticut, Inc. (“BCBS Connecticut”), a Connecticut mutual insurance company whose bylaws defined its membership in a manner similar to the way the merged Kentucky and Ohio companies had defined their memberships. Specifically, in the case of group polices, the “group as a whole” was recognized as a member (as opposed to each individual insured or certificate holder under a group policy). As with the prior mergers, Anthem preserved the rights of the BCBS Connecticut “group as a whole” members by having them become members of Anthem Insurance, so long as the group insurance policies or health care benefits contracts remained in effect or were renewed, amended, or replaced without a lapse in coverage.

Thus, by the time of Anthem Insurance's demutualization in 2001, it had many different types of members, including: (i) “grandfathered groups” in Kentucky, Ohio, and Connecticut; (ii) individuals insured under group policies in Kentucky, Ohio, and Connecticut that were issued to new groups after the Kentucky, Ohio, and Connecticut mergers took place; and (iii) persons insured under individual insurance policies in Kentucky, Ohio, and Indiana. As will be discussed in more detail later, those distinctions are at the root of some of Plaintiffs' claims.

Anthem embarked on the demutualization process through a resolution of its Board of Directors passed on June 18, 2001. However, prior to the adoption of the resolution, Anthem and the IDOI communicated regarding the company's intent to demutualize. The IDOI reviewed and...