Asian Journal- The Filipino-American Community Newspaper

WE have had several discussions about insurance companies improperly canceling policies and leaving policyholders without insurance coverage when it’s most needed. Policyholders end up with a pile of expensive bills to pay. The worst of these cancellations affect health insurance policyholders whose policies are cancelled while they are in the middle of expensive treatments for serious or life-threatening illnesses.

The insurance company’s practice of canceling policies after a claim is made is called "rescission." Rescission happens when insurance companies engage in "post claims underwriting." They do this when a (very expensive) claim is made on the policy. The policyholder’s insurance application on file with the company is reviewed. Or in the case of health insurance, the patient’s medical history is reviewed. If the insurer finds undisclosed or incorrect information, it cancels the policy.

Insurance companies argue that rescission is necessary to prevent fraud when consumers lie in their applications. However, insurers have improperly rescinded policies because the claims on the policies were very expensive, not because they were fraudulent. When insurers will seize on any mistake or inaccuracy in the applications, no matter how harmless and innocent, in order to justify rescission, they themselves fraudulently deprive their own insureds of the rightful benefits under the insurance contract.

Many policyholders, with the help of their insurance attorneys and state agencies, have fought back against this practice and have sued their insurance companies for bad faith. The latest development on the battlefront involves a victory for policyholders against the giant health insurer, Health Net.

Health Net was sued in a class action by policyholders and in a civil action by the Los Angeles City Attorney’s Office for improper rescission (and paying bonuses to its adjusters for the cancellations). In settling these lawsuits, Health Net has agreed to offer new health coverage to 800 policyholders whom they dropped after the policyholders became ill. Health Net has also agreed to pay without questions the out-of-pocket medical expenses and other damages that these patients incurred. Health Net is expected to pay out at least $13 million in the settlement, which would include about $6.3 million in automatic payouts to patients for emotional distress, $3 million for medical bills, a $2 million fine to California, and more than $2 million in attorneys fees, among others. Health Net has also agreed to stop rescinding policies.

Health Net’s settlement is just one of the many that have occurred involving the practice of rescission. The Department of Insurance has also settled a suit against Anthem Blue Cross for canceling the policies of about 2,300 customers. Unlike the settlement terms with Health Net, Anthem’s customers must waive their rights to sue and they must go through a claims process to receive refunds for their out-of-pocket medical costs.

The settlement terms with Health Net are clearly better for policyholders and may become a standard for settlement in similar lawsuits dealing with rescission. This is because the automatic payments will not require the policyholders to go through the additional hassle and possible failure of a claims process. This represents a victory for policyholders who have been unceremoniously dropped by their insurers and who suffered many a sleepless night wondering how to pay that huge medical bill.

According to estimates, the lawsuit may ultimately cost Health Net more than $50 million. If accurate, this ought to be a warning to insurers that rescission, instead of being a smart business practice, may turn out to be more costly when policyholders decide to fight back.

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C. Joe Sayas, Jr., Esq. is an experienced trial attorney who has successfully obtained significant results, including several million dollar recoveries for consumers against insurance companies and big business. He is a member of the Million Dollar-Advocates Forum—a prestigious group of trial lawyers whose membership is limited to those who have demonstrated exceptional skill, experience and excellence in advocacy. He has been featured in the cover of Los Angeles Daily Journal’s Verdicts and Settlements for his professional accomplishments and recipient of numerous awards from community and media organizations. His litigation practice concentrates in the following areas: serious personal injuries, wrongful death, insurance claims, unfair business practices, wage and hour (overtime) litigation. You can visit his website at www.joesayaslaw.com or contact his office by telephone at (818) 291-0088.

( www.asianjournal.com )

( Published on February 28, 2009 in Asian Journal Los Angeles p. C3 )