AB1324 was passed in 2007 with very little fanfare. The consumer-friendly law, which is really just a ‘restatement’ of existing law, went into effect on January 1st and is intended to stop insurance companies from rescinding insurance policies instead of paying valid claims. Here’s a quick look at the new law and what it means to you:

What the law says

Assembly Bill (AB) 1324 was signed into law by Governor Schwarzenegger in October 2007. The law, in part, specifies that:

A health care service plan or a health insurer is precluded from rescinding or modifying its authorization for any reason, including its subsequent rescission, cancellation, or modification of the contract or its subsequent determination that it did not make an accurate eligibility determination.

What that means in a nutshell is that insurance companies must stop post-claim underwriting – a common practice where insurers simply take your premiums and issue a policy without ever really looking at your application. If you do make a claim, then they review the policy and determine that you either aren’t eligible or find an issue with your application to deny coverage. AB1324 puts a stop to that and says that insurance companies:

• Have to justify any rescissions they make to the Department of Managed Health Care (DMHC)
• Cannot recover any of the costs already paid out unless they can prove that the policyholder intentionally provided false information.
• Must review your application before they extend coverage.

  It seems odd that a law was needed to force insurance companies not to act in bad faith. However, a quick review of the fines imposed in 2007 shows that the law was needed – and badly…

  More rescissions, more fines

  Insurance companies rescinded policies at an alarming rate in 2007. California’s Insurance Commissioner, Steve Poizner, along with California’s Department of Managed Health Care, slapped insurers with hefty fines throughout the year. Some of worst offenders were Blue Shield, Kaiser Permanente, Blue Cross and Health Net. These four insurers alone were fined a total of nearly $20 million in 2007, which many believe is exactly why California’s legislature passed AB1324.

  Even though this law is consumer friendly, it doesn’t mean that insurance companies won’t continue to find ways to avoid paying valid claims. If your insurance company has acted in bad faith, contact an attorney who understands how insurance companies operate. To contact a qualified attorney for a free consultation, please click here.