• Attorney General Mike Cox v. Blue Cross Blue Shield of Michigan No.: 08-917-CZ (Mich. Ct. Cl. 10/06/08)
  • December 10, 2008 | Authors: Arthur N. Lerner; Bruce O. Tavel
  • Law Firm: Crowell & Moring LLP - Washington Office
  • On October 6, 2008, the Michigan Court of Claims granted in part and denied in part a Motion to Dismiss Claims that a Blue Cross Blue Shield of Michigan subsidiary violated its non-profit status. Following Blue Cross' transfer of $125 million to its Accident Fund subsidiary to purchase three workers' compensation companies, the Attorney General of Michigan filed suit alleging unauthorized investment ownership of an insurance company, use of Blue Cross funds to operate and subsidize the subsidiary in violation of Michigan law, and breach of the asset purchase agreement. The Defendants' filed a Motion to Dismiss, arguing that Plaintiffs did not allege facts to support its assertion that Blue Cross and its subsidiary violated the Nonprofit Health Care Corporation Reform Act.

    The Court rejected Defendants' argument that Michigan law permitted the parent company's capital contribution. Plaintiff "asserted that Defendant made the contribution explicitly for purposes of funding that acquisition [of the workers' compensation companies]." Plaintiff successfully stated a claim for unauthorized investment because the Nonprofit Health Care Corporation Reform Act prohibits a health care corporation's direct or indirect ownership or control of an insurance company. However, the Court dismissed plaintiff's claim regarding the capital contributions because the claim was more appropriate for resolution by the state Insurance Commissioner under the doctrine of primary jurisdiction. The Court also dismissed plaintiff's claim under the asset purchase agreement because thealleged conduct occurred after the defendant was no longer bound the relevant provisions of the agreement.