West Virginia Record

Monday, January 20, 2020

Blue Cross, UMW case goes to Supreme Court

By Steve Korris | Sep 1, 2006

CHARLESTON – Blue Cross and Blue Shield of West Virginia hurt a lot of people when it went broke 16 years ago, and leaders of the United Mine Workers of America still think it hurt their union more than anyone else.

Attorneys for the union have asked the West Virginia Supreme Court of Appeals to give the union priority over other creditors of the Blues.

The Justices must decide whether a $1,000,000 union investment in Blue Cross and Blue Shield constituted a trust. As a trust it would take priority.

State insurance commissioner Jane Cline, as receiver of the estate, would rather channel the disputed funds to former subscribers and their doctors.

Last year Kanawha County Circuit Judge Charles King ruled against the union.

Attorney Bradley Pyles of Logan appealed for the union. He plans to present oral argument before the Supreme Court of Appeals Sept. 6.

Twenty years ago the union paid Blue Cross and Blue Shield of West Virginia $1 million to subsidize a health plan for unemployed members and those on layoff.

Blue Cross and Blue Shield of West Virginia agreed to invest the million at interest at least one percent greater than a one year U. S. Treasury bill.

Both sides called it a trust, but instead of setting up a trust account Blue Cross and Blue Shield mixed the million with other funds in its general account.

In 1990 Blue Cross and Blue Shield declared insolvency. Kanawha County circuit court barred any legal action over assets of the estate.

In 1991 the union filed a claim with insurance commissioner Hanley Clark as receiver of the estate, asserting that the money was not an asset of the estate.

Alternatively the union argued that it held a secured claim.

In 1992 Clark rejected the claim. The union objected.

In 1992 most creditors reached a settlement agreement under a liability policy covering directors and officers of Blue Cross and Blue Shield.

Still the union objected, though it received a $225,000 payment.

The union and the insurance commissioner submitted the dispute over the remaining $775,000 to referee Nicholas Barth.

In 2002 Barth recommended summary judgment against the union. Briefs of the attorneys do not account for the ten year lag.

In 2005 Judge King adopted the recommendation for summary judgment. He held that there was no trust because the funds could not be traced.

He also relied on West Virginia insolvency law, which bars lawsuits of creditors and policyholders seeking to circumvent the priorities in the law.

The union appealed, with Pyles arguing that he could trace the funds to a treasury bill that Blue Cross and Blue Shield of West Virginia bought.

He wrote that, "…if the UMWA can trace any of the commingled funds to an asset in the possession of BCBS at the time of the liquidation order, it is entitled to recover that asset as its trust property."

He wrote, "Money in an account does not carry a name tag or a birth certificate."

He wrote that state insolvency law did not bar the claim because the union was neither a creditor nor a policyholder.

Attorney Christopher Smith of Charleston, responding for insurance commissioner Cline, wrote that the union has delayed a final distribution to creditors.

He estimated that the estate would have $2,449,000 available for distribution.

He wrote that if King's orders stands, subscribers would receive $1,647,000 to cover 100 percent of their "out of pocket" claims.

He wrote that the federal government would receive $27,000.

He wrote that subscribers and medical providers would receive the remaining $775,000 in partial payment of more than $9 million in claims.

If King's order does not stand, Smith wrote, the union would receive as much as $1,235,000.

Subscribers with claims out of pocket would receive 73 percent instead of 100 percent, he wrote, and nothing would remain for anyone else.

He wrote that Blue Cross and Blue Shield of West Virginia treated all creditors and policyholders unfairly.

He wrote, "The Receiver's duty is not to rectify this unfairness. This would be impossible because there is not enough money to pay all creditors."

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West Virginia Supreme Court of Appeals