Health Net Settles Suit Over Sale of Subsidiary
Health Net Inc., one of California’s largest medical insurers, agreed Thursday to pay $137 million to settle a lawsuit that accused the Woodland Hills company of misrepresenting the health of a subsidiary it sold.
The lawsuit was brought in 2000 by Superior National Insurance Group, which bought a workers’ compensation firm called Business Insurance Group from Health Net. The suit, which was scheduled to go to trial next month, was filed shortly after Superior was seized by state regulators and filed for Bankruptcy Court protection.
Calabasas-based Superior accused Health Net of making misleading statements about Business Insurance’s financial reserves and sought to undo the $285-million purchase.
Health Net disputed the claims and, in an August filing with the Securities and Exchange Commission, said it planned a vigorous defense. Health Net also said Superior had testified that damages could top $408 million.
A Health Net spokeswoman declined to discuss why the company elected to settle the lawsuit. Superior is no longer in business; the $137-million payment would go to SNTL Litigation Trust, a successor-in-interest to Superior, for payment of creditors.
Health Net said it expected to record the settlement as an extraordinary expense in the third quarter ended Sept. 30.
Health Net’s stock Thursday rose 2 cents to $32.53 on the New York Stock Exchange.
“Health Net throws off a lot of cash, so in the grand scheme of things the settlement is not going to be much of a burden for the company,” said Thomas A. Carroll, an analyst with Legg Mason Wood Walker.
