U.S. Justice Department Seeks to Dismiss Lawsuit Against Xelan and Doctors Benefit

December 20, 2004

The United States Department of Justice last Friday asked the Federal District Court in San Diego to dismiss without prejudice its lawsuit against xelan and Doctors Benefit Insurance Company, companies that provide financial planning and insurance for health care professionals.

Last month, in a widely publicized and rare move, the Government sought and obtained, without a hearing, an order freezing all of the assets of xelan and Doctors Benefit, and appointing a temporary receiver. After securing the temporary restraining order, the Government issued a press release accusing the defendants of operating fraudulent tax reduction schemes, and suggesting that doctors contact the receiver to learn how to file claims against the companies.

Nearly a month later (Dec. 3), the Federal District Court in San Diego conducted a full hearing on the Justice Department’s application for a preliminary injunction, pending trial of the lawsuit. After hearing all arguments, the Court ruled that the Government had not demonstrated that it was likely to prevail in the case, one of the prerequisites for granting such relief. At that time, the Court also denied the Government’s request for a preliminary injunction, dissolved the freeze of assets and dismissed the receiver.

Last Wednesday, the Court issued its written opinion, in which it found that the government made no showing that xelan violated the tax laws, no showing that assets seized were traceable to criminal activity, no showing of asset dissipation or of an alleged Ponzi scheme, and no showing that the tax implications of any xelan product were mischaracterized in the marketing.

DBIC and its predecessor have been writing supplemental disability insurance since 1995. At the hearing on Dec. 3, DBIC presented opinions from five actuarial firms and two law firms that had previously reviewed DBIC’s insurance, each stating unequivocally that the disability insurance was in fact “true” insurance and satisfied all tests for what constituted insurance.

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