Insurer Disputes WebMD Crime Coverage

February 17, 2005

An insurance company is refusing to cover losses at WebMD, asserting it has no responsibility because senior executives knew about the kickback scheme at the health information and transaction firm.

The insurer, Fidelity and Deposit Co. of Maryland, claimed that Elmwood Park-based WebMD failed to disclose information about corrupt workers when it applied for crime insurance.

Baltimore-based Fidelity made the statements last week in response to a lawsuit filed by WebMD in state Superior Court in Hackensack. The lawsuit, filed in December, seeks compensation for at least $6.7 million in fraud losses.

In January, two former WebMD employees and a consultant to its software subsidiary, Medical Manager, pleaded guilty to participating in an accounting and kickback scheme at the company from 1997 to 2002. Their plea deals referred to unnamed senior Medical Manager personnel who had a role in the scheme, or knew of it. The three are cooperating in the continuing federal investigation.

The probe surfaced in September 2003, when FBI and Internal Revenue Service agents raided WebMD’s Elmwood Park headquarters, as well as offices in Tampa and Alachua, Fla. At the time, the company said the search warrant was based on misleading information from two terminated employees whom WebMD has sued for taking improper kickbacks and that the company believes that it has not violated any laws.

The Securities and Exchange Commission joined the investigation about a year ago.

Last week, the executive who founded Medical Manager and operated it after being acquired by WebMD in 2000 left the company. Michael Singer, who has not been charged, agreed to forgo $500,000 in severance benefits, as well as accrued vacation pay and stock options, until the investigations are done.

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