Class Alleges Bogus|Group Insurance Plan

(CN) - A class claims that an insurance company sold them disability policies under an illegal blanket insurance group, using "Superman" actor Christopher Reeve in its marketing materials.

James and Emma Imes sued Catamaran Health Solutions LLC - formerly known as Catalyst Health Solutions Inc. and HealthExtras Inc. - Stonebridge Life Insurance Company, and Virginia Surety Company Inc. individually and on behalf of a proposed class of North Carolinians who have purchased the defendants' disability insurance since 1999.

The Imeses say Catamaran created the scheme around 1997, which offered $1 million in disability insurance coverage, and a $2,500 accident and sickness expense benefit, sold under the HealthExtras name.

The lawsuit alleges Catamaran created a fake group to comply with a North Carolina state law requiring that blanket group disability policies be sold only to an employer or other entity that is not controlled by the insurer. Catamaran then paid credit card companies to include its marketing materials, featuring pictures of Reeve, in cardholders' monthly statements, according to the complaint.

"The marketing flyers contained images of the late famed Superman actor, Christopher Reeve, well-known for his equestrian accident causing quadriplegia, as well as statements by Mr. Reeve endorsing the HealthExtras Program," the complaint states.

Once consumers sent Catamaran a short application, they were made a member of a fake group and were charged insurance premiums, the class action claims. [40f-g]

"Avoiding insurance regulation, rate oversight and the scrutiny of an actual group allowed Catamaran to fraudulently market and sell illegal group disability policies known as the HealthExtras Program to individuals on a large nationwide scale," the lawsuit states. "These policies, disguised as inexpensive individual disability policies, were then issued to fictitious groups or trusts formed by the defendants to create the illusion of a valid group. This was a successful scheme to avoid state regulatory scrutiny and to avoid the scrutiny of an actual group and has been perpetrated in North Carolina for nearly 15 years."

HealthExtras profits went from $5.3 million in 1999 to $44.2 million in 2000 thanks to more than 300,000 new enrollments, according to a shareholder report cited in the lawsuit.

The plaintiffs allege Stonebridge and Virginia Surety, as underwriters, approved the illegal policies that were not approved by the North Carolina Department of Insurance, as required by state law. The insurance plan's policyholder - HealthExtras Inc. - was not a valid group for disability insurance purposes, the complaint says.

"HealthExtras Inc. was not a group or association at all. HealthExtras, now Catamaran was a fictitious, illegal and sham company, with premiums collected for the benefit of it and its business partners, rather than a valid group of persons," the plaintiffs claim. "There was no constitution or bylaws and the HealthExtras 'members' had no voting privileges or representation on any boards or committees. This group was created for the sole purpose of selling the HealthExtras scheme to consumers, while avoiding supervision and oversight of the North Carolina Department of Insurance in direct violation of North Carolina law."

The disability policies were cancelled without explanation in 2014 amidst similar class actions in different jurisdictions, according to the complaint.

The lawsuit seeks the return of insurance premiums, punitive damages and an order of restitution.

The class is represented by Aaron Hemmings of Hemmings & Stevens in Raleigh, N.C.

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