Humana 2002 Annual Report Download - page 24

ITEM 3. LEGAL PROCEEDINGS
Securities Litigation
In late 1997, three purported class action complaints were filed in the United States District Court for the
Southern District of Florida by former stockholders of Physician Corporation of America, or PCA, and certain of
its former directors and officers. We acquired PCA by a merger that became effective on September 8, 1997. The
three actions were consolidated into a single action entitled In re Physician Corporation of America Securities
Litigation. The consolidated complaint alleges that PCA and the individual defendants knowingly or recklessly
made false and misleading statements in press releases and public filings with respect to the financial and
regulatory difficulties of PCA’s workers’ compensation business. On May 5, 1999, plaintiffs moved for
certification of the purported class, and on August 25, 2000, the defendants moved for summary judgment. On
January 31, 2001, defendants were granted leave to file a third-party complaint for declaratory judgment on
insurance coverage. The defendants seek a determination that the defense costs and liability, if any, resulting
from the class action defense are covered by an insurance policy issued by one insurer and, in the alternative,
declaring that there is coverage under policies issued by two other insurers. On April 25, 2002, the Court
dismissed the third-party complaint without prejudice finding that it could be refiled in the future if the insurance
claims are not otherwise resolved. On July 24, 2002, the Court denied the defendants’ motion for summary
judgment and set the case on the Court’s trial calendar for December 2, 2002. The Court subsequently postponed
the trial. The Court is expected to set a date which is 90 days after it rules on the plaintiff’s motion for class
certification.
Managed Care Industry Purported Class Action Litigation
We are involved in several purported class action lawsuits that are part of a wave of generally similar
actions that target the health care payer industry and particularly target managed care companies. As a result of
action by the Judicial Panel on Multi District Litigation, most of the cases against us, as well as similar cases
against other companies in the industry, have been consolidated in the United States District Court for the
Southern District of Florida, and are styled In re Managed Care Litigation. The cases include separate suits
against us and five other managed care companies that purport to have been brought on behalf of members,
which are referred to as the subscriber track cases, and a single action against us and eight other companies that
purports to have been brought on behalf of providers, which is referred to as the provider track case.
In the subscriber track cases, the plaintiffs seek a recovery under the Racketeer Influenced and Corrupt
Organizations Act, or RICO, for all persons who are or were subscribers at any time during the four-year period
prior to the filing of the complaints. Plaintiffs also seek to represent a subclass of policyholders who purchased
insurance through their employers’ health benefit plans governed by ERISA, and who are or were subscribers at
any time during the six-year period prior to the filing of the complaints. The complaints allege, among other
things, that we intentionally concealed from members certain information concerning the way in which we
conduct business, including the methods by which we pay providers. The plaintiffs do not allege that any of the
purported practices resulted in denial of any claim for a particular benefit, but instead, claim that we provided the
purported class with health insurance benefits of lesser value than promised. The complaints also allege an
industry-wide conspiracy to engage in the various alleged improper practices.
On February 20, 2002, the Court issued its ruling on the defendants’ motions to dismiss the Second
Consolidated Amended Complaint (the “Amended Complaint”). The Amended Complaint was filed on June 29,
2001, after the Court dismissed most of the claims in the original complaints, but granted leave to refile. In its
February 20, 2002, ruling, the Court dismissed the RICO claims of ten of the sixteen named plaintiffs, including
three of the four involving us, on the ground that the McCarran-Ferguson Act prohibited their claims because
they interfered with the state regulatory processes in the states in which they resided (Florida, New Jersey,
California and Virginia). With respect to ERISA, the Court dismissed the misrepresentation claims of current
members, finding that they have adequate remedies under the law and failed to exhaust administrative remedies.
Claims for former members were not dismissed. The Court also refused to dismiss claims by all plaintiffs for
breach of fiduciary duty arising from alleged interference with the doctor-patient relationship by the use of so-
called “gag clauses” that assertedly prohibited doctors from freely communicating with members. The plaintiffs
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