12/24/07 - On Monday, California’s Fourth District Court of Appeals ruled that a bad faith insurance case against Blue Shield of California may be decided by a jury and told the insurer that it must stop its practice of rescinding healthcare policies known as post-claims underwriting. It is a major victory for consumers who now have a better chance of having their claims go to trial instead of being dismissed early on.

The case

A California couple and their child applied for, and received, healthcare coverage from Blue Shield of California in 2000. One year later, the husband was hospitalized for stomach problems and submitted his claim to the insurer. After reviewing his medical records, Blue Shield discovered that he was actually 40 pounds heavier than what was listed on their application and also suffered from hypertension.

Shortly after being released from the hospital, he was in a serious car accident, spent over two months in the hospital recovering and accumulated approximately $450,000 in medical bills. Blue Shield denied most of those payments and rescinded the couple’s policy citing that they failed to disclose the husband’s previous health issues. The company sued Blue Shield saying that the application was confusing and that the information that they provided was truthful.

The ruling

A trial court ruled in favor of Blue Shield and required the couple to reimburse the insurer for over $100,000 in paid medical bills. The couple appealed that decision and the Fourth District Court of Appeals ruled in their favor saying that a jury should decide whether they completed the application truthfully and whether Blue Shield should have resolved any questions it might have had about the application before issuing a policy.

Why this case is important

This case, and a similar case recently decided in California’s Second Circuit Court of Appeals against Blue Shield, is an important victory for consumers whose bad faith insurance practice cases are often dismissed at the trial level in favor of insurance companies. It may allow more policyholders to have their day in court and let a jury decide their fate – something insurance companies don’t want to happen.

On the heels of a $12.6 million fine

The Fourth Circuit’s ruling comes on the heels of California’s Insurance Commissioner, Steve Poizner’s, recent announcement that he is seeking $12.6 million in fines from Blue Shield for over 1,200 insurance regulation violations that led to approximately 600 policyholders to wrongly lose their insurance coverage.

Insurers must treat their policyholders in good faith and deal with them fairly. When they wrongly rescind a policy, they are breaching that duty and may be acting in bad faith. If this has happened to you, contact an attorney whose practice focuses on insurance bad faith to discuss your options. For a free consultation with an experienced attorney, please click here.