Confidential
Settlement – $10,000,000Judge
Court
USDC Southern District of California
Attorneys
Plaintiff
Robert L. Brace
(Law Office of Robert L. Brace)
Timothy D. Cohelan
(Cohelan & Khoury)
Defendant
Facts
In late 1989, a 5-time convicted felon (the organizer) convinced Defendant insurance carrier of New York to provide medical insurance to the members of his newly formed "union". Defendant was not authorized to sell insurance outside the New York area, and through mandated state subsidies, it was the only insurance company in the country accepting people with preexisting adverse medical conditions with no underwriting. Using Defendant's good name and the no-preexisting-conditions exclusion, a network of over 1,025 insurance agents, the union, and the Taft-Hartley statutes as a temporary shield from state insurance regulators, the organizer sold the insurance over a 4-month period to approximately 8,000 people, the Plaintiffs. Most of these new union members were from Florida, California, Texas, and Illinois and were small employer groups or individuals with preexisting medical conditions who were otherwise hard to insure or uninsurable. Defendant discovered the organizer's unauthorized solicitations and terminated the medical insurance contract with the union; a significant number of carriers warned Plaintiffs in writing not to buy the new insurance through off-shore insurers. Thereafter, the group of unhealthy insureds, although ever diminishing in size over time, were "rolled over" by the organizer and his associates to no less than 8 phony offshore carriers. These offshore carriers were incorporated in the Turks and Caicos Islands or other Caribbean sand bars and had no assets, employees, or histories of doing business. They operated by using misleading financial statements and by providing "insurance" to agents at a significant discount for risks. State insurance departments ultimately shut some of these carriers down; and some continue to operate. The matter was originally filed in the Federal District Court for the Southern District of California; because of the existence of other similar litigation, this case was transferred by the Multi-District Litigation Panel to the Federal District Court for the Southern District of New York. All other cases, except for the class action, were ultimately dismissed or remanded to their transferor Courts. The trial against the remaining unsettling Defendants will be tried this year in New York before the Honorable Milton Pollack. The RICO Defendants and 275 agents remain in the case. This case has involved numerous procedural hurdles including ERISA, Federal Court subject matter jurisdiction over the Defendant agents, personal jurisdiction over Defendant agents not residents of New York or California, and the certification of the case as a class action.
Settlement Discussions
These discussions were too numerous to quote here.
Damages
Plaintiffs contended that the class damages exceeded $18,000,000; the human misery associated with the unpaid claims was not quantified; many claimants had to file for bankruptcy or were hounded by collection agencies working for the unpaid medical providers. Defendants contended that actual provable damages were less than half the amount claimed by Plaintiffs.
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