Last week, the Los Angeles City Attorney's office announced that Blue Shield of California has agreed to pay $2 million to settle a lawsuit accusing the insurer of improperly rescinding coverage after policyholders sought costly treatment, the Los Angeles Times reports (Girion, Los Angeles Times, 12/29/11).
Background on the Lawsuit
In 2008, former Los Angeles City Attorney Rocky Delgadillo (D) filed a lawsuit accusing Blue Shield of using deceptive advertising to persuade residents to purchase health insurance policies that the insurer later would rescind without proper cause.
The lawsuit sought $1 billion in damages.
Details of the Settlement
The settlement bans Blue Shield from rescinding health insurance policies unless it can prove that a policyholder committed fraud or intentionally misrepresented medical information when filling out an insurance application.
The settlement also:
- Requires Blue Shield to develop a new health insurance application form that complies with state and federal rules;
- Limits Blue Shield to collecting only "medical information that is reasonable and necessary" to determine the risk of covering an individual; and
- Prohibits Blue Shield investigators from earning commissions based on the number of rescissions they issue (Los Angeles Daily News, 12/28/11).
Funds from the settlement will be split between Los Angeles County and the Los Angeles City Attorney's office (Los Angeles Times, 12/29/11).
Blue Shield Response
Steve Shivinsky, a spokesperson for Blue Shield, said the insurer agreed to the settlement to avoid the costs of continued litigation.
Blue Shield admitted no wrongdoing in the settlement (AP/Sacramento Bee, 12/28/11).