Health Net Agrees to $137 Million Settlement for Lawsuit Over Sale of Workers’ Compensation Firm

Woodland Hills-based insurer Health Net on Thursday agreed to settle a lawsuit filed in 2000 by now-defunct Calabasas-based Superior National Insurance Group for $137 million, the Los Angeles Times reports (Rivera Brooks, Los Angeles Times, 10/24). The suit accused Health Net of making misleading statements about the financial reserves of Business Insurance Group, a workers' compensation firm that Health Net sold to Superior for $285 million in 1998 (Bloomberg/New York Times, 10/24). As part of the lawsuit, Superior sought to reverse its purchase of Business Insurance Group (Los Angeles Times, 10/24). The company sought $300 million in compensatory damages and unspecified punitive awards (Bloomberg/New York Times, 10/24). The suit was filed soon after Superior was seized by state regulators and filed for federal bankruptcy protection. The lawsuit was scheduled to go to trial next month. Health Net disputed Superior's claims and, in an August filing with the Securities and Exchange Commission, said it planned a "vigorous defense." In settling the lawsuit, Health Net will make the $137 million payment to SNTL Litigation Trust, a successor-in-interest to Superior, for payment of creditors, the Times reports. A spokesperson for Health Net would not comment on why the company decided to settle the lawsuit, but Health Net said it expects to record the settlement as an "extraordinary expense" in the third quarter, which ended Sept. 30. Thomas Carroll, an analyst with Legg Mason Wood Walker, said the settlement "is not going to be much of a burden" for Health Net (Los Angeles Times, 10/24).