Aug. 09--Blue Cross of Northeastern Pennsylvania filed a lawsuit Wednesday against Scranton seeking $2.05 million owed by the city in a promissory note from last fall.
The city executed a note on Oct. 27 promising to pay Blue Cross $2 million in unpaid bills by Jan. 5, the lawsuit states. The city's failure to pay constituted a default, the lawsuit states.
As of Wednesday, no payment had yet been made, and the lawsuit seeks the principal amount of $2 million as well as 5 percent interest that accrued from Jan. 6 to Wednesday, for a total amount sought of $2,058,904, according to the complaint.
Blue Cross has been one of the city's largest vendors with bills that have gone unpaid under the city's financial crisis. As such, the lawsuit was not necessarily unexpected, said Mayor Chris Doherty, adding that he is in contact regularly with Blue Cross about the situation and the firm is continuing to provide health care coverage for the city's employees.
"As soon as we get a recovery plan and financing, we'll pay them back," Mr. Doherty said. "And they know that. We're in full communication with them. They're just protecting themselves (legally, by suing). They're not cutting off any services."
Council President Janet Evans said, "I do agree that once we have our financing in place they will be fully paid. I did speak with the mayor, and he assured me that Blue Cross would not be canceling any service."
Blue Cross issued a statement that said: "Blue Cross of Northeastern Pennsylvania is continuing to work with the city of Scranton as the third-party administrator for its self-funded health insurance plan. With the city's financial difficulties remaining unresolved, however, we have filed documents with the Lackawanna County prothonotary's office on Aug. 8, 2012, to make record of certain amounts owed to us."
As of Wednesday, the city owed Blue Cross$2,393,578, which was composed of the $2 million promissory note and the rest of the current unpaid bills, said city Business Administrator Ryan McGowan.
In recent months as the city's cash-crunch crisis unfolded, Blue Cross had warned the city of a possible lapse in health care coverage if the city did not pay the bills, officials had said. Mr. McGowan said this week that the city has kept Blue Cross at bay by making partial payments so coverage would not lapse.
While council had been aware for several months that the city's outstanding bills included the $2 million owed to Blue Cross from last year, council only learned yesterday from the filing of the lawsuit that administration Solicitor Paul Kelly signed the promissory note on Oct. 27, and that it was due on Jan. 5, Mrs. Evans said.
The default occurred 10 days after the city failed to pay the promissory note on Jan. 5, the lawsuit states.
On June 1, the city caused an unrelated default when council refused to cover a $1 million bond payment of the Scranton Parking Authority that was due June 1. Council later relented and covered that debt, but the default had already occurred.
Last week, SPA warned council that it is courting financial disaster if it creates another default by failing to cover another nearly $1 million SPA bond payment that will come due on Sept. 15 -- a scenario that could lead to the city having to pay SPA's entire bond principal of some $54 million immediately, the authority solicitor Joseph O'Brien has said.
Meanwhile, the mayor and council are continuing efforts to revise a proposed recovery plan, to come up with a version acceptable to the city's Act 47 recovery coordinator, Pennsylvania Economy League, and presumably lending institutions from which the city needs to secure some $20 million in borrowing and refinancing to keep the city afloat this year.
In that vein, both the mayor and Mrs. Evans said they were making progress.
"It's going well," Mr. Doherty said. Mrs. Evans added, "The mayor and I speak daily and exchange ideas and I feel that we're making progress."
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