The appellant is Arkansas Insurance Commissioner W. H. L. Woodyard, III. The appellee is Arkansas Diversified Insurance Company (ADIC).

ADIC sought a certificate of authority from Woodyard to sell group life insurance to Blue Cross and Blue Shield . . . subscriber groups.

Woodyard denied the application. On appeal, his decision was reversed by the Pulaski County Circuit Court as being arbitrary and not supported by substantial evidence. We find on appeal [that] the circuit court was wrong and [we] reverse the judgment. We affirm the commissioner.

The only evidence before the commissioner was presented by ADIC. The appellee candidly admitted it was a wholly owned subsidiary of a corporation named Arkansas Diversified Services, Inc. (ADS) which is a wholly owned subsidiary of Blue Cross and Blue Shield, Inc.

. . . ADIC candidly admitted it was created solely to serve Blue Cross customers. It would provide services that could not otherwise be provided by law. . . . ADS wanted its own life [insurance] company to better compete in the market place.

Blue Cross owns all the stock of ADS, which in turn owns all the stock of ADIC. The president of Blue Cross is the president of both ADS and ADIC. Other Blue Cross officials hold positions in ADS and ADIC. The companies use the same location and similar stationery.

ADIC will use Blue Cross employees to sell insurance. Underwriting for ADIC will be done by a division of ADS.

Discussion Questions 

1. How does a Blue Cross health plan fall under the definition of a “hospital and medical service corporation”? 

2. What is the function of that type of corporation in the healthcare system? (Other states assign different names to those corporations. Do you know what those names are?) 

3. What differences in this situation might have led to a different outcome in the case?