Novant ‘unjustly enriched itself’ off employee retirement plans, insurer says

July 05--Novant Health paid itself "excessive" amounts out of employee retirement plans and "unjustly enriched itself" from the assets, according to an insurer's reply to a federal lawsuit brought by the Winston-Salem-based health care system.

The claims are in a filing by Federal Insurance Company, one of two insurers named in the civil suit Novant filed last month to force insurers to cover a settlement the system struck with employees over retirement plans. The $32 million accord resulted from a 2014 lawsuit by current and former employees, who claimed the plans were charged millions of dollars in excessive fees paid to third-party companies.

Federal Insurance, also known as Chubb, similarly alleges in its court filings that Novant's arrangements permitted exorbitant fees to be charged for retirement plan services. One contract with D.L. Davis & Company obligated Novant to pay the provider a monthly figure "far in excess" of the value of the services, Chubb said.

The D.L. Davis contract also benefited Novant and certain executives, Chubb alleged in its filing.

Dating at least to the 1990s, Novant and the executives forged business ties with real estate investor and broker Derrick L. Davis, who formed D.L. Davis to provide services for Novant's retirement plan, Chubb claims. Novant and executives benefited "insofar as it incentivized Davis to engage in separate business dealings with, and contributions to them, to their financial advantage," Chubb said in the filing.

In its lawsuit, Novant said D.L. Davis received a monthly fee of $65,000 or 0.15 percent of total plan assets, whichever was greater. Novant's suit says it terminated D.L. Davis' services December 2015.

Novant's suit says the retirement plan did not always have sufficient funds to cover fees as they came due each month. Rather than force plan participants to pay vendor fees as monthly reductions from their retirement accounts, Novant said it instead paid the vendors and received reimbursement from the plan for exactly the same amount: "Novant received no financial benefit from this arrangement."

Chubb disagrees.

"Novant did not merely extract from the plan an amount of money representative of services provided on behalf of Novant to plan participants; rather, Novant took excessive amounts to which it had no legal entitlement," the insurer says in its filing.

Novant received an "ill-gotten gain" that does not qualify as a loss under its insurance policy, Chubb said, adding, Novant "took money that belonged to the plan and unjustly enriched itself."

The health system's June suit also accuses Travelers Casualty and Surety Company of America of breaching contracts by not providing coverage for the settlement. Novant claims the policies had combined coverage limits of $25 million but that Chubb has provided only $4 million and Travelers about $4 million toward the settlement.

Both insurers are seeking to have Novant's lawsuit dismissed.

In a statement Wednesday, Novant said it initiated the suit because the insurers "did not honor their obligations to pay under liability insurance purchased by Novant Health."

"The insurers' claims are simply untrue," the health system said.

Deon Roberts: 704-358-5248, @DeonERoberts

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