A case before the 4th District Court of Appeals in Santa Ana could set legal precedent on whether health insurance companies' cancellation of individual policies is legal, setting the case up to affect hundreds of similar lawsuits in California, the Los Angeles Times reports.
California law allows insurers to deny coverage to applicants for individual policies and also permits insurers in some cases to cancel coverage after the policy is written based on inaccurate information provided in the coverage application.
Consumer advocates maintain that the law permits such cancellations only if the insurer can prove that the policyholder intended to mislead the insurer by providing inaccurate information, not for unintentional errors or omissions.
Health insurers say state law permits the cancellations in any case where the policyholder's application is found to be inaccurate, regardless of the member's intent.
Case Details
The case before the appeals court involves Blue Shield of California's cancellation of a member's individual policy after the insurer learned that his weight was not correctly reported on his application and that his history of medical treatment for headaches had been omitted. At the time the policy was canceled, the member was being treated for injuries from a car accident.
The member's wife says the errors in the application were inadvertent.
Blue Shield said it uncovered the errors in a routine review of claims filed under the policy and immediately canceled the member's coverage. The insurer subsequently won a judgment for the member to repay the insurer more than $100,000 that it had paid for his treatment after the car accident.
Wider Implications
The court is soliciting briefs on the legal and public policy implications of "improper health policy cancellations and postclaims underwriting." Consumer advocates, regulators and insurance industry officials are expected to weigh in on the matter.
The Department of Managed Health Care will be among those submitting a brief in support of the member's claim. DMHC recently has issued fines against insurers for similar cancellations and is drafting new rules on the practice (Girion, Los Angeles Times, 5/7).