A case filed today against the nonprofit parent company of Blue Cross and Blue Shield of New Mexico raises the question of whether the company breached its duties to the members of the non-profit institution. A class action lawsuit on behalf of the members of the non-profit Health Care Service Corp (HCSC) – which owns Blue Cross and Blue Shield of New Mexico as well as similar health insurance companies in Illinois, Oklahoma, Montana and Texas – alleges that HCSC between 2011 and 2013 remitted nearly $96 million in bonuses to its top ten executives and that during that period it cumulatively earned more than $4 billion in net income from operations.
Babbitt Municipalities, Inc., a Chicago-based benefits administration company, which administers pensions and other benefits programs, filed the lawsuit in Cook County, Illinois. HCSC maintains its headquarters in that county. The lawsuit claims that HCSC established a perverse incentive system which drained the company of its profits at the expense of its policyholder members. HCSC is the largest customer-owned insurance company in the U.S., and fourth-largest insurer overall, according to the Complaint filed in the case.
It appears the central question in the case will be whether duties owed by directors and officers of the nonprofit corporation require that they abstain from paying company executives at such levels considering the overall economic condition of the company. As the case is intended as a class-action suit, the Court must address the question of whether the group of plaintiffs can be certified as a cognizable class for purpose of these types of suits. Class actions are intended to provide claimants with similar or identical claims to have the chance to present in unison a case which affects all of their rights. The substance of the matter concerning duties to policyholders of mutual legal reserve nonprofit health plan by its directors could have significant impact on the manner in which such corporate entities govern their affairs particularly with regard to questions of executive compensation.
George “Dave” Giddens at Giddens & Gatton Law, P.C. has experience advising New Mexico business owners as to which corporate entity will best serve their company’s needs and how they form, maintain and operate their corporation. Giddens & Gatton Law, P.C. is located at 10400 Academy Road N.E., Suite 350 in Albuquerque, New Mexico. Call the office at (505) 633-6298 to set up an appointment or visit the firm’s website at giddenslaw.com for more information.
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