Superior National Commences Litigation Against Foundation Health Corporation, Foundation Health Systems, Inc., and Milliman & Robertson, Inc.

Business Editors & Legal Writers

OAK PARK, Calif.--(BUSINESS WIRE)--May 1, 2000

Superior National Insurance Group, Inc. (SNTL or "Superior National") filed a lawsuit in United States Bankruptcy Court on April 28, 2000, alleging that Foundation Health Corporation ("FHC"), Foundation Health Systems, Inc. (NYSE:FHS), and Milliman & Robertson, Inc., actuary for FHC's insurance subsidiaries, defrauded SNTL when in 1998 FHC sold Business Insurance Group, Inc. ("BIG") to Superior National knowing at the time of the sale that BIG was insolvent.

Superior National alleges that Milliman & Robertson, Inc. ("M&R") conspired with FHC and FHS and assisted in the execution of the fraud. Superior National's lawsuit contains seven causes of action alleging:

1.   Under the California Uniform Fraudulent Transfer Act Superior
     National is entitled to void the BIG acquisition because Superior
     National did not receive reasonably equivalent value for the
     purchase price it paid for BIG and became insolvent as a result
     of the BIG acquisition.
2.   FHC, FHS, and M&R conspired and committed fraud to induce
     Superior National to purchase BIG.
3.   Superior National is entitled to rescission of the BIG
     acquisition based on the fraud committed by FHC, FHS, and M&R.
4.   Superior National is entitled to indemnification by FHC due to
     misrepresentations FHC made to SNTL regarding the adequacy of its
     reserves, the status of its accounts receivables, the financial
     health of its captive insurance companies, and the provision of
     reliable and enforceable reinsurance to guarantee BIG's reserves.
5.   FHC breached the BIG purchase agreement when it made the
     misrepresentations regarding the adequacy of its reserves, the
     status of its accounts receivables, and the financial health of
     its captive insurance companies, and the provision of reliable
     and enforceable reinsurance to guarantee BIG's reserves.
6.   FHC, FHS, and M&R committed securities fraud under the California
     Corporations Code by fraudulently misrepresenting BIG's reserve
     adequacy, the enforceability of reinsurance acquired by FHC to
     guarantee BIG's reserves, and the assets and liabilities of BIG
     as disclosed to Superior National.
7.   Superior National is entitled to recovery of the value of the
     acquisition from FHC under the United States Code due to FHC's
     bad faith.

Superior National seeks recovery from FHC, FHS, and M&R of at least $300 million in damages, rescission of the BIG acquisition, indemnification of SNTL by FHC, FHS, and M&R from any damages suffered by SNIG due to the fraud, the return to Superior National of the $285 million that it paid FHC to acquire BIG, punitive damages, and reimbursement of Superior National's costs associated with the lawsuit.

J. Chris Seaman, Superior National's President and Chief Executive Officer, stated, "Superior National believes the plain language of the California Uniform Fraudulent Transfer Act alone results in the voiding of the BIG acquisition, let alone the six other causes of action alleged in the lawsuit. Foundation Health Systems issued a press release on April 27, 2000, in which it attempted to offer several anticipatory defenses to Superior National's lawsuit, none of which were relevant with respect to Superior National's right to void the contract under the Uniform Fraudulent Transfer Act."

Mr. Seaman further stated, "The filing of the lawsuit in U.S. Bankruptcy Court should significantly accelerate the disposition of this action, as litigation in Bankruptcy Court could conceivably be resolved within the next twelve to eighteen months versus three to five years in the California state courts. Superior National intends to exact rescission of the BIG acquisition and damages, which would entail the return of the $285 million that Superior National paid for BIG and its insolvent insurance subsidiaries, at least $300 million of compensation for the considerable damages Superior National has suffered as a result of the California Department of Insurance conservation of Superior National's insurance subsidiaries, and indemnification for any claims or damages that might be asserted by other parties."

Superior National previously announced that it sought Chapter 11 protection in a petition filed on April 26, 2000, and on March 3, 2000 announced that the California Department of Insurance seized the assets and operations of Superior National's four California domiciled insurance subsidiaries.