UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

NANCY L. AMBROSE; HABIB GUIRGUIS,
On behalf of themselves and all
others similarly situated,
Plaintiffs-Appellants,

and

RICHARD GRANT BIRD,
Plaintiff,

v.
                                                               No. 95-2466

BLUE CROSS & BLUE SHIELD OF
VIRGINIA, INCORPORATED, a/k/a
Trigon Blue Cross Blue Shield;
HMO OF VIRGINIA, INCORPORATED;
HEALTHKEEPERS, INCORPORATED,
formerly known as Healthkeepers of
Virginia, Incorporated,
Defendants-Appellees.

Appeal from the United States District Court
for the Eastern District of Virginia, at Richmond.
Robert E. Payne, District Judge.
(CA-94-636-3)

Argued: June 5, 1996

Decided: August 27, 1996

Before ERVIN, HAMILTON, and LUTTIG, Circuit Judges.

_________________________________________________________________

Affirmed by unpublished per curiam opinion.

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COUNSEL

ARGUED: Seaton D. Purdom, GAMBRELL & STOLZ, Atlanta,
Georgia, for Appellants. James Patrick McElligott, Jr., MCGUIRE,
WOODS, BATTLE & BOOTHE, L.L.P., Richmond, Virginia, for
Appellees. ON BRIEF: Irwin W. Stolz, Jr., GAMBRELL & STOLZ,
Atlanta, Georgia; Richard Tyler McGrath, KANE, JEFFRIES, FOR-
MAN & GAYLE, Richmond, Virginia, for Appellants. R. Gordon
Smith, David F. Dabbs, Pamela L. Ventura, MCGUIRE, WOODS,
BATTLE & BOOTHE, L.L.P., Richmond, Virginia; Jeanette D. Rog-
ers, BLUE CROSS & BLUE SHIELD OF VIRGINIA, Richmond,
Virginia; James C. Roberts, MAYS & VALENTINE, Richmond, Vir-
ginia, for Appellees.

_________________________________________________________________

Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

_________________________________________________________________

OPINION

PER CURIAM:

The defendant health insurers--Blue Cross & Blue Shield of Vir-
ginia, Inc. (now known as Trigon Blue Cross Blue Shield), and its
two subsidiaries, Blue Cross Blue Shield HMO of Virginia, Inc., and
Healthkeepers, Inc. (collectively, "Trigon")--allegedly negotiated
secret volume discounts with health care providers, which they
applied only to their own portion of medical costs when calculating
policyholder copayments and annual deductibles. As a result, insureds
effectively paid a higher percentage of the true medical costs than
represented in policy literature and contracts. The discounting
arrangements triggered an investigation by Virginia's State Corpora-
tion Commission ("SCC"). The SCC concluded that Trigon's prac-
tices violated several provisions of Virginia's Insurance Code,
including laws prohibiting unfair claims settlement practices and mis-
representation of insurance policy terms. On September 22, 1994, the
SCC entered an Order Accepting Offer of Settlement, under which

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Trigon agreed to pay a fine of $5 million and to implement a Coinsur-
ance Refund Program to refund excess payments to policyholders.
During the Refund Program's initial phase, Trigon paid approxi-
mately 128,000 claims, totalling $21.9 million.

The same discounting practices formed the basis for the appellants'
civil action under the Racketeer Influenced and Corrupt Organizations
Act, 18 U.S.C. § 1961 et seq. ("RICO"). Nancy L. Ambrose and
Habib Guirguis represent classes of policyholders who claimed that
they were defrauded by the use of secret discounting practices
designed to inflate their copayment burden. The district court dis-
missed the action under Rule 12(b)(6), ruling that the application of
RICO is precluded by the McCarran-Ferguson Act, 15 U.S.C.
§ 1012(b). Ambrose v. Blue Cross & Blue Shield of Virginia, 891 F.
Supp. 1153 (E.D. Va. 1995).

The McCarran-Ferguson Act, 15 U.S.C. § 1011 et seq., was passed
in 1945 with the "primary objective of granting the states broad regu-
latory authority over the business of insurance." United States Dep't
of Treasury v. Fabe, 508 U.S. 491, 505 (1993). Section 2(b)--the
centerpiece of the Act--provides, in part:

          No Act of Congress shall be construed to invalidate, impair,
          or supersede any law enacted by any State for the purpose
          of regulating the business of insurance, . . . unless such Act
          specifically relates to the business of insurance . . . .

15 U.S.C. § 1012(b). The sole issue on appeal is whether the district
court correctly ruled that Section 2(b) of the Act, providing for ple-
nary regulatory authority of the "business of insurance" by states, pre-
cludes a RICO claim based on conduct already regulated by
Virginia's Insurance Code.

In its comprehensive opinion, the district court determined that the
relevant state laws--portions of the "Unfair Trade Practices" chapter
of Virginia's insurance code prohibiting misrepresentation of policy
terms, deceptive insurance advertising, and unfair claim settlement
practices--were "by their terms, [ ] aimed at protecting and regulating
the relationship between insurer and insured." Ambrose, 891 F.Supp.
at 1163 (construing Va. Code §§ 38.2-502, 503, 510). Allowing a

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RICO action under the circumstances, the district court reasoned,
would "greatly impair the SCC's ability to enforce Virginia's insur-
ance code and, specifically, to secure from insurers settlements that
are in the interest of all insureds and in the public interest as well."
Id. at 1166. Similarly, because of the dramatic disparity in the cause
of action and remedies available to RICO plaintiffs, RICO would
effectively supplant Virginia's chosen system of redress. Id. at 1165.

We fully agree with the district court's reasoning and conclusion
that the plaintiffs' RICO claim is precluded by the McCarran-
Ferguson Act, and therefore affirm the decision below on that basis.
Ambrose v. Blue Cross & Blue Shield of Virginia , 891 F. Supp. 1153
(E.D.Va. 1995).

AFFIRMED

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