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Virginia Tech Claims Insurers Rolled It

RICHMOND, Va. (CN) - Virginia Tech claims insurance companies rolled it for millions of dollars by understating premiums and overstating claims for its student health insurance plan for seven years.

The Commonwealth of Virginia and Virginia Polytechnic Institute sued GM-Southwest, Nationwide Life Insurance, Clarendon National Insurance Co., Madison National Life Insurance, Pan-American Life Insurance and several individuals in Richmond City Circuit Court, alleging fraud and breach of contract.

The college claims its insurers "fraudulently induced the university to agree to insurance policies with premium rates that far exceeded the amount necessary to fund the VT Student Health Plan."

Virginia Tech says it contracted with GM-Southwest to secure insurance policies for the school's health plan through various carriers. It says its goal was to sponsor an affordable group health insurance plan for students, to be paid for by the university and the students who use the program.

But from 2003 to 2010, Virginia Tech claims, says GM-Southwest, through its defendant vice president James Lane, bilked it for millions by fudging the numbers on monthly claims reports.

Virginia Tech says it relied on the bogus information from the reports to decide whether to agree to premium changes and whether to renew GM's year-to-year contract.

In 2010, the school says, its new associate director of risk management found discrepancies in the reports and ordered a financial audit. Virginia Tech claims the audit turned up staggering data.

"GM-Southwest understated the amount of premiums it collected from all Virginia Tech students enrolled in the VT Student Health Plan (including undergraduate students, graduate students, and GAs) from AY 2003-2004 to AY 2009-2010 by $3,333,052.88," Virginia Tech claims.

After breaking down the 7 years of numbers in a chart, the complaint adds: "GM-Southwest overstated the amount of claims paid on behalf of all Virginia Tech students enrolled in the VT Student Health Plan (including undergraduate students, graduate students, and GAs) from AY 2003-2004 to AY 2009-2010 by $9,136,312.42."

(GA stands for graduate assistants.)

Virginia Tech claims that Lane stopped showing up for work just before the audits and the GM tried to pin the scheme on him.

But Virginia says that GM claims preparer Carolyn Beck, CEO John Gutschlag Sr., and GM President Kelly Hernandez, who is Gutschlag's daughter, knew the reports were false. All are named as defendants.

The school claims carriers Nationwide, Clarendon, Pan-American and Madison Life are liable for agreeing to the excessive premiums.

"As a result, the defendants reaped exorbitant profits from the VT Student Health Plan at the expense of the University and its students," the complaint states.

Virginia Tech seeks treble damages of $32 million from GM-Southwest and its employees, plus $151.6 million in civil penalties.

It seeks $246,000 in damages and $19.6 million in civil penalties from Clarendon National Insurance.

It wants Nationwide Life Insurance to pay it $11.4 million in damages and $62.3 million in civil penalties.

From Madison National Life Insurance it seeks $3.5 million in damages and $22.2 million in civil penalties, and from Pan-American Life Insurance Company it wants $11.3 million in damages and $47.3 million in civil penalties.

The school and commonwealth want another $20 million in compensatory damages and $6 million in punitive damages.

Virginia Tech is represented by Jonathan Harmon, with McGuire Woods.

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