California Appeals Court Overturns Cancellation Case, Sends to Trial
A unanimous ruling by a California appeals court backs individuals' cases against health insurers that terminated policies after substantial medical claims were filed, the Los Angeles Times reports.
Insurers in California cannot cancel individual health insurance policies without establishing that members intentionally mislead the company and showing that the insurer pursued an investigation before issuing the policy, according to the ruling by a panel of the 4th District Court of Appeals in Santa Ana.
In the case, Blue Shield of California is accused of inappropriately terminating an individual health insurance policy after authorizing more than $450,000 in medical services for a member. A lower court dismissed the case without a trial, but the appeals court overturned that decision and declared that insurers are obliged to verify information included in health insurance applications before extending coverage (Girion, Los Angeles Times, 12/25/07).
In response to charges by the California Department of Insurance last month, Blue Shield argued that such a process is time-consuming and costly (California Healthline, 12/13/07).
Blue Shield said it is considering appealing the decision.
The ruling sets the stage for similar cases against insurers to move forward in trial courts.
Insurers and attorneys for policyholders say that courts previously have dismissed such lawsuits without trials, making it possible for health insurance companies to settle claims privately out of court.
William Shernoff, an attorney for policyholders, said, "Just one or two punitive damage awards by juries will clean this up, and the appellate court is now going to let that happen."
Bryan Liang, executive director of the Health Law Institute at California Western School of Law in San Diego, said that the ruling also reinforces recent decisions by state regulators, adding that the decision "stated quite clearly that the current policies of insurers simply do not serve as a basis for legal rescission" (Los Angeles Times, 12/25/07).
Insurers' denials of coverage for some services also are drawing scrutiny, according to the Times.
Statistics from the Department of Managed Health Care show that the number of challenges to claims denials by California's five largest health insurers nearly doubled from 2001 to 2006. A Times analysis indicates that members succeeded in winning a reversal of those denials in about one-third of cases.
Shannon Troughton -- a spokesperson for WellPoint, the Indianapolis-based parent company of Blue Cross of California -- says the increase in challenges to denied claims stems from insurers' growing use of independent medical reviews to ensure that members receive only effective and appropriate health care services.
The Times profiles the case of a family whose claim for a home nurse was denied by Blue Cross of California; the insurer previously covered the service. The case is now in arbitration (Girion, Los Angeles Times, 12/30/07).