You asked if municipalities receiving proceeds from the 2001 Anthem Blue Cross Blue Shield demutualization shared proceeds with unions and, if so, if the unions distributed funds to members.

SUMMARY

Anthem converted from a mutual to a stock company in 2001. As part of its conversion, Anthem issued stock to policyholders of record, including the State and numerous municipalities. Numerous disputes emerged over this distribution, mostly from employees represented by unions whose insurance was the subject of collective bargaining.

The unions likened the demutualization proceeds to premium refunds and argued that those who contributed a portion of the premiums, including their members, should receive a pro rata share of the refund.

It appears that the resolution of the disputes varies by municipality. Some courts found the unions' claims were not subject to arbitration because the collective bargaining agreements did not contemplate the insurer's demutualization. Other courts held that unions could arbitrate their claims because the union members were required to pay toward their insurance premiums and any refund of payments directly implicates that provision of the agreements.

Therefore, a person interested in how a particular city or town handled its Anthem stock distribution in terms of unions, and then the union's handling of any proceeds received, could contact the particular municipality or union in question for more information. We continue to pursue information concerning how specific municipalities handled the distribution. Upon receipt of such information, we will amend this report.

DEMUTUALIZATION

Anthem Blue Cross Blue Shield (Anthem BCBS), a subsidiary of Anthem Insurance Company (AIC), was created in 1997 when Anthem merged with Blue Cross Blue Shield of Connecticut (BCBS-CT). AIC, an Indiana insurance company, converted from a policy-owned mutual company to a stock company through a process called demutualization, effective November 2, 2001. Under the conversion, AIC's “eligible statutory members” received shares of Anthem, Inc. common stock or cash in exchange for giving up their membership.

Because the State and many municipalities administered policies for their employees, and because Anthem considered the State and municipalities to be the policyholders, Anthem distributed stock to them, not to individuals covered under the policies. Numerous disputes emerged over this distribution, mostly from employees represented by unions whose insurance was the subject of collective bargaining. For its distribution, the State maintained the disputed stock and proceeds in a fiduciary fund pending the resolution of all ownership issues.

Attorney General Opinion

In January 2002, Attorney General Richard Blumenthal issued an opinion that the State is the rightful owner of the stock distribution it received. He found that under AIC's articles of incorporation, a person or entity that was a member of BCBS-CT before its merger with Anthem is a member of AIC. Under BCBS-CT's articles of incorporation, group policyholders were deemed members of BCBS-CT, while individuals issued insurance certificates under the group policy were not considered members. Therefore, for policies issued before the merger that were continued under Anthem BCBS, Anthem's conversion plan designated policyholders, not individual certificate holders, as eligible statutory members for demutualization purposes. (Connecticut Attorney General's Opinion dated January 31, 2002).

It appears that the ownership issue of the stock the State received remains in dispute (Gold v. Rowland, Westlaw No. CV020813759S, Conn. Sup. Court, January 18, 2007).

Legal Disputes

In a number of lawsuits, State employee unions argue that the ownership of the distributed stock is a mandatory subject of collective bargaining and exclusive retention of the stock by the State constitutes an unfair labor practice. Municipal union employees similarly contest ownership of stock distributed to municipalities.

For example, AFSCME sued dozens of municipalities on behalf of its members. Teachers unions have also sued municipalities where the stock proceeds were paid to the city or town, not to the school board that employs teachers and has the collective bargaining relationship with their union. Some cases were arbitrated and others went to court to determine whether the issue presented was subject to arbitration.

Early decisions from arbitrators favored the unions. The arbitrators likened the demutualization proceeds to premium refunds and decided that those who contributed a portion of the premiums should receive a pro rata share of the refund.

Cases that went to court saw mixed results. Some courts found the unions' claims were not subject to arbitration because the collective bargaining agreements did not contemplate the insurer's demutualization. Other courts held that unions could arbitrate their claims because the union members were required to pay toward their insurance premiums and any refund of payments directly implicates that provision of the agreements.

The law firm Shipman & Goodwin issued an opinion in a 2004 employment law newsletter, saying that demutualization payments were based on premium payments and so are most appropriately used to defray future premiums. Employers who used the proceeds for a “premium holiday” (a time period when employees were not charged a premium contribution) generally received no complaints from the unions.

It appears that the resolution of the disputes varies by municipality. Therefore, a person interested in how a particular city or town handled its Anthem stock distribution in terms of unions, and then the union's handling of any proceeds received, should contact the particular municipality or union in question for more information.

JLK: ts