American Medical Security Group Completes Ala. Class-Action Lawsuit

March 12, 2004

American Medical Security Group Inc. (AMS) and plaintiffs’ representatives have reportedly reached an agreement of understanding to certify and settle a class-action lawsuit, Gadson v. AMS, pending in the Circuit Court of Montgomery County, Alabama.

The agreement between AMS and the class plaintiffs is expected to be presented for preliminary court approval in the near future.

The lawsuit, filed in 2001, involves issues relating to the rating
methodology formerly used by the company on group health benefit plans marketed to individuals in Alabama and Georgia. AMS has not used the disputed rating methodology since 1999 in Alabama and 2002 in Georgia.

Under terms of the agreement, there is reportedly no admission or implication of liability or wrongdoing on the part of AMS. Also, all claims of participating class members will be dismissed and the litigation terminated in exchange for consideration from AMS valued at approximately $9 million.

The company reportedly believes it is adequately reserved for the cost of the settlement, including related attorney fees. It also believes a portion of the amount should be covered by insurance, although any potential insurance recovery is not currently reflected as an asset on the company’s balance sheet.

“Our rating methods in Alabama and Georgia were both lawful and
appropriate,” said Samuel Miller, AMS chairman, president and CEO. “However, the settlement agreement will allow us to put the
distraction and expense of this litigation behind us and to focus on growing the company.”

The settlement would preclude future lawsuits related to this issue by participating class members in both Alabama and Georgia.

American Medical Security Group, through its operating subsidiaries, markets health-care benefits and insurance products to small businesses, families and individuals. The company serves customers nationwide through partnerships with professional,
independent agents and quality health care providers.

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