Court Denies Claims of Both Cigna and Anthem in Bitter Settlement Suit Over Failed Merger

A three-year-long feud between Cigna Corp. and Anthem Inc., stemming from an ill-fated attempt to merge the two companies, has ended in a draw.

Two of the nation’s largest insurers, Anthem and Cigna, were seeking billions of dollars in damages from each other resulting from losses sustained because of the merger failure. But last month a Delaware court that governs disputes between businesses incorporated in Delaware denied the claims of both companies, saying both had played a part in the failure of the merger.

Cigna was seeking damages of $14.7 billion, along with a breakup fee of about $1.8 billion, from Anthem. Anthem sought damages of $21.1 billion from Cigna.

Calling the drama a “corporate soap opera,” Delaware Chancery Court Vice Chancellor J. Travis Laster said Anthem proved that Cigna had failed to fulfill its obligations under the pending merger, while Cigna proved that it was likely that the deal would have been blocked due to pending antitrust litigation regardless of its actions.

In the end, Laster wrote, “[E]ach party must bear the losses it suffered as a result of their star-crossed venture.”

(The Chancery Court is a forum for the determination of disputes involving the internal affairs of businesses incorporated in Delaware. According to the court’s website, “the litigation in the Court of Chancery consists largely of corporate matters, trusts, estates, and other fiduciary matters, disputes involving the purchase and sale of land, questions of title to real estate, and commercial and contractual matters in general.”)

The drama had its origins in July 2015 when Anthem announced its intention to acquire Cigna, a merger that both companies claimed at the time would create efficiencies and improve service for enrollees. The following year the Justice Department filed an antitrust suit to block the deal.

The medical community responded with alarm to the proposed merger. In a September 2015 letter to then U.S. Assistant Attorney General William J. Baer, APA CEO and Medical Director Saul Levin, M.D., M.P.A., and then APA President Renée Binder, M.D., said that APA sided with the AMA and other medical groups in their concern that the proposed mergers would be bad for patients. (See Psychiatric News).

The merger “will functionally leave the vast majority of health care administration in the United States to three major insurers, thereby eliminating consumer choice and encouraging insurers to raise prices and reduce quality of care in most markets,” they wrote. “Furthermore, individuals with mental illness, including substance use disorders, are uniquely affected by the impact these mergers will have on access to psychiatric care in insurance plan provider networks. We request that the Department of Justice [DOJ] focus attention in its review of the proposed mergers on each company’s history of restricting access to clinically appropriate psychiatric care, as well as their ability to more severely restrict access to care if such acquisitions are permitted.”

In April 2017, the U.S. Court of Appeals for the District of Columbia upheld a lower court ruling halting the proposed $54 billion merger. “The trend toward consolidation in the insurance market is a troubling one that threatens patient choice, which is critical in our health care system,” said then APA President Maria A. Oquendo, M.D., Ph.D. “We are pleased that the court sided with the Justice Department and agreed that the Anthem-Cigna merger would reduce competition and limit patients’ coverage options” (see Psychiatric News).

Last month’s Court of Chancery ruling was to settle the claims the two insurers were charging against the other for the failed merger.

“Their battle for power spanned multiple acts,” Laster wrote. “Once the Cigna [executive and legal team] concluded that Anthem had the upper hand and would not make the concessions that Cigna wanted, Cigna turned against the Merger. Anthem proved that Cigna breached its obligations …, but Cigna proved that it was more likely than not that the Merger would have been enjoined anyway. Cigna failed to prove that Anthem breached its obligations … and Cigna failed to prove that it is entitled to the Reverse Termination Fee.”

In a statement following the ruling, Cigna said, “We are pleased that the Court agreed with us that Cigna did not cause the merger to fail. We continue to strongly believe in the merits of our case, and we are evaluating our options with respect to appeal.”

Anthem issued a statement saying, “We are satisfied with the decision determining that Cigna breached its obligation to use best efforts to obtain regulatory approval for the merger, thereby eliminating its right to a $1.85 billion termination fee.” ■

The Chancery Court decision is posted here.