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Judge stays decision in WellPoint policyholder case

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Former policyholders of WellPoint Inc., who won the right to a class-action trial over their claims that they were shortchanged when the company went public a decade ago, will have to put their plans on hold after a federal judge in Indianapolis stayed the case pending an unusual request for appeal by WellPoint.

U.S. District Court Judge Tanya Walton Pratt stayed the case on Wednesday after WellPoint earlier this month asked for permission to appeal Pratt’s granting of a trial. The Seventh Circuit Court of Appeals has yet to decide whether to hear WellPoint’s appeal.

Pratt had dismissed most of the policyholders’ claims in July, but said two of those claims deserved to be heard by a jury at a trial. Attorneys for WellPoint appealed that decision on Sept. 12, leading to Pratt’s stay order this week.

The policyholders covered by the class-action suit were part-owners of WellPoint’s predecessor, Anthem Inc., before it converted from a mutual insurance company to a publicly traded one in October 2001. That conversion resulted in Anthem shelling out nearly $2.1 billion in cash to more than 740,000 policyholders.

Other policyholders elected to receive stock in the conversion, and they have sued WellPoint in a separate lawsuit.

Anthem’s stock price rose rapidly after its IPO, gaining 20 percent in its first four days of trading. Policyholders sued in 2005, claiming Anthem’s directors under-priced the IPO, thereby cheating policyholders out of money.

In fact, if Anthem had calculated its cash payouts on Nov. 2—the day the state of Indiana officially approved Anthem’s conversion—instead of on Oct. 30—the day Anthem went public—the policyholders would have reaped an extra $167 million, they claim.

The policyholders also note that in the days leading up to the IPO Anthem directors increased the number of shares to be sold by nearly 20 million, but they did not appear to have seriously considered raising the price of the IPO, which would have generated more cash for the policyholders.

Pratt ruled that the policyholders had a right to have a jury decide whether Anthem had breached its fiduciary duty and been negligent. She rejected the policyholders’ other claims, which said Anthem had breached its contract with policyholders and had improperly included some employer groups in its distribution of cash.

It is unusual for an appeal to be made in the middle of an ongoing case, which is why WellPoint must first win permission from the appeals court. If the appeals court refuses to hear WellPoint’s appeal or if it affirms Pratt’s decision, then the case would proceed to a trial, scheduled for June 2012.

But if WellPoint is allowed to appeal and the appeals court reverses Pratt’s decision outright, it would end the policyholders’ case. However, the appeals court could also reject Pratt’s ruling in such a way that would still send the case back to her for further proceedings.

Indiana Attorney General Greg Zoeller filed an amicus brief with the appeals court, as his office had with the federal court in Indianapolis. The state claims that the Anthem policyholders should have brought their case to the Indiana Department of Insurance immediately after it approved Anthem's IPO. The fact that they did not, Zoeller and WellPoint claim, should invalidate their lawsuit.

 

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