April 15, 2008

Ohio Supreme Court Taking Up Veil Piercing Issue in Dombroski v. Wellpoint, Inc. May Resolve Conflict Regarding Second Tier of Belvedere Precedent

In a decision issued on January 23, 2008, the Supreme Court of Ohio ordered that the parties in Dombroski v. WellPoint, Inc., brief the following issue:

“Does the second prong of Belvedere [Belvedere Condominium Unit Owner’s Assn. v. R.E. Roark Cos., Inc. (1993), 67 Ohio St.3d 274, 1993 Ohio 119, 617 N.E.2d 1075], which states that the corporate veil can be pierced when control of the corporation was exercised in such a manner as to commit fraud or an illegal act against the person seeking to disregard the corporate entity, also allow the corporate veil to be pierced in cases where control was exercised to commit unjust or inequitable acts that do not rise to the level of fraud or an illegal act?”

The Belvedere tripartite test consists of the following: (1) control over the corporation by those to be held liable was so complete that the corporation has no separate mind, will, or existence of its own, (2) control over the corporation by those to be held liable was exercised in such a manner as to commit fraud or an illegal act against the person seeking to disregard the corporate entity, and (3) injury or unjust loss resulted to the plaintiff from such control and wrong.

The basis of the underlying action in Dombroski was a denial of an insured’s coverage for a bilateral cochlear implant pursuant to a corporate medical policy, by WellPoint, Inc.’s (“WellPoint”) alleged subsidiaries, Community Insurance Company (“CIC”), Anthem UM Services, Inc. (“AUMSI”), and Anthem Insurance Companies, Inc. (“AICI”). Dombroski’s complaint asserted that: (1) CIC’s corporate veil could be pierced to get to WellPoint and AICI, and (2) WellPoint’s control over its subsidiaries was exercised in such a manner as to violate the duty of good faith and fair dealings to its Ohio insureds.

In response to the Complaint, WellPoint and AICI filed separate motions to dismiss, and both asserted that Dombroski could not prevail on a claim of breach of duty of good faith under the insurance contract due to lack of privity between WellPoint, AICI and Dombroski. Also, they asserted that Dombroski failed to allege a basis for piercing the corporate veil. 

Basing its decision on Connolly v. Malkamaki, 11th Dist. No. 2001-L-124, 2002 Ohio 6933, the trial court concluded that a complaint asserting breach of contract alone is not a sufficient unjust or inequitable act to pierce the corporate veil. The trial court dismissed the complaint against WellPoint and AICI for failure to state a claim upon which relief could be granted. As the appellate court noted, CIC and AUMSI are still parties to the complaint. 

Pursuant to an appeal to the Court of Appeals of Ohio, Seventh Appellate District, Belmont County, the appeals court considered whether the trial court erred in granting the Motions to Dismiss by WellPoint and AICI. Reversing and remanding the case to the trial court for further proceedings, the appellate court determined that Dombroski’s complaint contained sufficient facts for pleading the doctrine of piercing the corporate veil and the establishment of privity, because Dombroski asserted that she went through the Defendant’s appeal process and coverage was still denied despite her showing that she met the medical necessity criteria. The appellate court found that Dombroski pled sufficient facts to put the defendants on fair notice that she was attempting to pierce the corporate veil. The appellate court, however, determined that Dombroski could not pursue her bad faith or management theory argument against WellPoint and AICI. 

Upon certification to the Supreme Court of Ohio, the court determined that a conflict exists regarding the second prong of the Belvedere tripartite. In the conflict cases, Collum v. Perlman (Apr. 30, 1999), Lucas App. No. L-98-1291, 1999 Ohio App. LEXIS 1938, and Widlar v. Young, Lucas App. No. L-05-1184, 2006 Ohio 868, the courts concluded that the holdings by several appellate districts defining the second prong of Belvedere to include unjust or inequitable acts are too expansive. 

WellPoint, AICI and Dombroski have each filed merit and supplemental briefs. Oral arguments are scheduled for Wednesday, June 4, 2008. 

 This E-alert was prepared by Andria M. Beckham. Please contact any member of the Bricker & Eckler Creditor Rights & Bankruptcy group for more information.