Monday, June 18, 2007

Is It Legal for Your Health Insurance Company to Cancel Your Policy?

The following is a transcript of an interview with California insurance attorney, Bob Scott, conducted on December 15, 2006. Mr. Scott, managing partner of the Advocate Law Group, has over thirty years of experience as a trial attorney in California, specializing in all aspects of bad faith insurance litigation, including life, health and accident insurance and all attempted insurance policy rescissions or cancellations. Mr. Scott has represented a diverse range of clients, from individuals victimized by insurance companies to large banks and industrial companies. In this interview, Mr. Scott discusses the rules that govern policy cancellations, particularly in California, and current developments in bad faith health insurance rescissions and health insurance lawsuits.

Free Advice: Hello Bob and welcome.

Bob Scott: Hello. Thanks for having me.

Free Advice: Before we go forward, can you explain what a plaintiff is?

Bob Scott: A plaintiff is someone in insurance law who has been denied something, usually a benefit, subsequent to making an insurance claim. Usually, in a life, health or disability setting, a plaintiff is someone who purchased a insurance policy and then made a claim under the terms of the policy that was denied. He would then come to a lawyer, who would bring an action [a health insurance lawsuit], usually on a contingent fee basis. People that have to bring such actions are called plaintiffs.

Free Advice: So it’s not the insurance company. It’s the person with the claim against the insurance company.

Bob Scott: Right, and the insurance company would be the defendant.

Free Advice: So I’m going to go forward with questions, as if I were a consumer.

Bob Scott: Right.

Free Advice: Can an insurance company cancel my insurance policy?

Bob Scott: Yes. An insurance company can cancel your insurance policy, but only under very strict terms. The most obvious cancellation would be if you didn’t pay your premiums, and there is a whole road map for that, with both payment and the cancellation set out in specific detail in the insurance policy.

Free Advice: Is that the policy I get when I buy the insurance?

Bob Scott: Right. The policy should include a heading and a section called “Cancellation” and/or “When Am I No Longer Insured,” which states those terms. Sometimes it depends on your age. That would usually apply with life or disability insurance in a situation where you grow out of the policies because you attain a certain age, upon which you are no longer covered. It works the other way too; failure to properly answer questions at the outset of the insurance policy, when they take the application, could cancel the policy.

Free Advice: So that would be an example of a legitimate reason to cancel a policy?

Bob Scott: It very well could be.

Free Advice: Are there other examples of a legitimate reason to cancel a policy, besides non-payment, or that you didn’t tell the truth when you applied?

Bob Scott: Again, the only third one would be if you grew out of the policy because your age no longer made you eligible. There could be other eligibility questions. For example, if you bought a policy through an affinity group and then no longer belonged to that group. If you retired from the profession represented by the group, and you gave up your license, then that might make you an ineligible too, because you would no longer be in the class of people insured. That could also work for people in group policies. If they’re no longer with their employer, they often lack the right to continue that insurance, although in many cases, they can transition to individual or other policies in such settings.

Free Advice: Do I always have to be given notice of any of these legitimate reasons?

Bob Scott: Yes, and it has to be in writing, and it has to be to you, and you have to receive it.

Free Advice: Are there legitimate reasons to deny benefits under my policy?

Bob Scott: Actually, there are a number of legitimate reasons to deny benefits. Usually, those denials are found in the policy terms, but because one of the small little sections in the policy at the very end is called “Conformity with State Statute Provision,” it requires additional policy terms that are not explicitly stated in the policy. There could be a number of reasons, some of which are in the policy, and some which are not, and those, frankly, are known by insurance people.

Free Advice: What other special rules apply then – when they’re canceling health insurance policies in California?

Bob Scott: Well, the most important rule when they’re canceling is in the context of a big claim. (For example, if a person went in for a heart attack or they went in for a broken leg, and there’s now a five or six figure current claim bill.) An insurance company, during the first two years (and two years only) from the effective date of the policy, can look back and see on your insurance application if you answered all the questions correctly.

If you made a material, in other words, a big misstatement, and you intended to not tell them the truth, then the insurance company could rescind – in other words, cancel the policy – all the way back to the effective date, and you would have no insurance coverage. However, that is a very technical rule, and whether or not a material misstatement was made on an application usually requires a lawyer’s review.

Free Advice: That was my next question: If that happens, how do I determine if it was fairly done?

Bob Scott: Well, first of all, in over 30 years of seeing rescission cases, I’ve never seen one in which the insured did not know that they didn’t make a material misrepresentation. It was something they never thought about; a trip to the emergency room that they never gave a second thought to; something the agent told them. None of those reasons are legitimate bases for the insurance company to rescind. So you have to look at those very, very carefully.

Free Advice: What would be an example in those kinds of cases? What is a legitimate reason to rescind coverage?

Bob Scott: Let me give you a classic one in California. It’s a California appellate decision that I always refer to as the mole case. It involved a person who had a tendency to grow cancerous moles on their skin, and they had had a number of the moles burned off. A couple had to be literally dissected off of their skin because they were cancerous. That person knew what a cancerous mole was because they had that history, as I’ve suggested.

Well, they saw another mole growing on themselves, and they quickly ran in to get insurance without saying they had treatment or had any worry about this new mole. The Court of Appeals said, “No, in that setting, you knew that you had a condition. Because of the prior experience of having these cancerous moles excised, you intentionally failed to give the insurance company that information. If the company had such information, they would not have written you this insurance; therefore, the company can legitimately get off of this risk and rescind.”

Free Advice: You said that you’ve been looking at these cases for 30 years. Why has there been a recent increase in California health policy cancellations then?

Bob Scott: That’s a really good question. I think it’s because the insurance companies see that their brethren are doing it and get away with it, so they all try to do it. The only reason that I can think of why there has been a recent upswing in this is because the insurance companies, through merger and acquisition, are no longer entities that have grown up and had their management and their claims philosophy all in tune with California law. Now, many companies in the health insurance field are owned by distant parent multi-national corporations, and bean counters tell claims people to cut down claims. So they go back into their old bag of tricks, pull out the rescission card and try to play it.

Free Advice: Is this only happening in California or other states as well?

Bob Scott: Other states as well. These corporations control these health entities across many states.

Free Advice: Which insurance companies have been canceling California health insurance policies?

Bob Scott: Kaiser, Blue Cross, Blue Shield, Health Net, and PacifiCare.

Free Advice: What type of policies have the insurance companies been targeting?

Bob Scott: Individual policies. The difference is the individual policy would be something you would buy from an insurance broker across the proverbial kitchen table, when the broker comes to your house. In today’s world, that kitchen table is substituted for the internet. People buy individual insurance on the internet. If you are afforded your insurance through your employer, then they are subject to a group, because you’re buying it through the group called the employee group. Those usually do not have this rescission issue, because the employer group policy takes everybody [with or without pre-existing conditions– and there is no health application associated with the policy issuance.

Free Advice: So this is for individual, privately-purchased policies in particular?

Bob Scott: Right, and that’s an important distinction to make.

Free Advice: What has been the basis of the decision process for these cancellations, and is it intentional?

Bob Scott: Well, the insurance companies certainly intend to do what they’re doing – no question about it. And changes in the company’s philosophy do not happen by chance. It is intentional. They simply don’t want to pay out $300,000.00-$400,000.00 in claims, per claim. They want to deny the claim and see if they can get away with it.

Free Advice: Intentionally?

Bob Scott: Oh, yes.

Free Advice: Now, how can they get me to accept a policy cancellation?

Bob Scott: Well, if they tell you that the policy has been rescinded, and you don’t do anything about it, they win. If they tell you the policy has been cancelled, they might make you sign something acknowledging that cancellation, and perhaps give you some of your premium back, and tell you that if you cash that check, you will have agreed to the rescission. In that case, they may get away with it. That would be then characterized as an “accord and satisfaction” in law, but all cases

Free Advice: So they would send me back a check from the premiums I already paid, and if I cash that, then I’ve agreed to the cancellation?

Bob Scott:Possibly. Not all the time, but it gives them a better argument, and frankly, anybody reading this should know – never cash that check if you feel that you have been harmed and done wrong by the insurance company in the claim and in its attempted rescission. Do nothing. Agree to nothing. Sign nothing. And get to a lawyer that’s focused on this area of law as quickly as possible.

Free Advice: What is the California Department of Insurance doing about these cancellations?

Bob Scott: Well, there are two regulatory agencies. The Department of Insurance regulates the insurance folks, and the HMOs are regulated by the Department of Managed Care. Both of them have been very proactive, and we’ve been dealing with them and assisting them in getting after, penalizing, and in some cases fining, some of these companies for the conduct we’ve described today.

Free Advice: What are my remedies, if my policy was cancelled?

Bob Scott: If your policy was improperly rescinded, find the right [health insurance] lawyer, someone who knows what he’s doing in this field. Then bring an action for bad faith denial of claim and bad faith rescission, and litigate that claim in the courts to either conclusion or to settlement.

Free Advice: If I go forward in one of these cases, will I be able to get health insurance again?

Bob Scott: Very probably yes, because one of the by-products of the case will be the agreement by the company that the rescission was improper, or at least a tacit agreement it was improper via an agreement to pay you money and not state that any policy had ever been rescinded concerning you in the future, which is a very important thing.

Free Advice: So, could you then just briefly recap – If my policy’s cancelled, what should I do?

Bob Scott: Well, first of all, do nothing that in any way accepts the insurance company’s conduct. Write them and tell them it’s wrong, and be sure to immediately make a claim with your state insurance or managed care regulatory agency, though they don’t have any real power to get your wrong righted. After making that claim, seek the help of a skilled attorney who knows what they’re doing in this field of law, and get after that insurance company. That means a lawsuit and discovery. You have to beat them back. They hire very good lawyers who are on staff to try to fight you, and it becomes a battle of wills. As long as you have good facts on your side (and a good plaintiff’s [health insurance] lawyer will know whether you have a good case), you should prevail.

Free Advice: Alright. Thank you for your time.

Bob Scott: Thank you.


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