A Maryland Circuit Court is expected to rule soon on whether the state’s insurance department was justified in reducing the severance package of former CareFirst BlueCross BlueShield CEO William Jews.

As of press time, the case files sat in the chambers of Judge Timothy J. Martin.

A staff member in Martin’s office said a decision is due “very soon,” following a recent hearing and subsequent follow-up filings from attorneys for both Jews and the Maryland Insurance Administration.

William Jews

Martin will rule on Jews’ challenge of a 2008 decision by Maryland Insurance Commissioner Ralph S. Tyler to cut the former executive’s severance package to nearly $9 million, rather than the $18 million Jews said he negotiated with his former employer.

Last year, Tyler ruled that Jews was due the lower compensation, citing a 2003 state law that limits compensation for non-profit health plan executives to that which is “fair and reasonable…for work actually performed for the benefit of” the company.

Tyler’s ruling challenged

Following Tyler’s determination, Jews filed suit in federal court and asked for a judiciary review of the MIA’s decision in state court. In January, a federal court dismissed the case, deferring to the state court.

According to the most recent filings in the case, the MIA argues that Martin should uphold its decision on the $9 million in compensation for a number of reasons, including that Jews is not due a third year of salary following his termination, citing a non-complete clause in his contract.

CareFirst terminated Jews as its CEO in November 2006 after 13 years of leading the company, including a failed conversion to a for-profit entity through a 2003 sale to WellPoint, which was blocked by Maryland regulators.

In preparing for the failed conversion, the MIA argues there is “substantial evidence” that under Jews’ watch CareFirst “deviated from its mission” as a non-profit. That failure, the MIA contends in its court filings, “could have been viewed as so critical a failure that no post termination payment was owed to Mr. Jews.”

“However, such a strict view is unreasonable in light of the substantial work Mr. Jews undertook,” the MIA contends, citing that the $9 million it feels is reasonable is 3.5 times Jews’ 2006 compensation and thereby “fair and reasonable.”

‘Intellectually dishonest’ claims

Lawyers for Jews contend that there is no set explanation by the MIA for 50% of the severance package and further contend that Tyler’s decision violates the Employee Retirement Income Security Act (ERISA). ERISA sets minimum standards for pension and health plans in private industry to protect plan participants.

Jews’ lawyers say that Tyler issued a “substantively incorrect” rationalization why ERISA is inapplicable to the case, notably that the $18 million “substantially affects the risk pooling arrangement” for CareFirst, in that these funds will not be available for the insurer. They also called the risk-pooling argument “intellectually dishonest” on the part of Tyler.

“This court should reject the commissioner’s last-minute effort to salvage his ill-founded decision on ERISA preemption,” Jews’ lawyers contend.

This story originally appeared in the October 2009 print edition of Insurance & Financial Advisor.