A California State Appeals Court recently granted Blue Shield of California a rehearing from a controversial December 2007 ruling that would have allowed policyholders to bring class action lawsuits against insurers for bad faith insurance practices such as post-claim underwriting.

How it began

The case began when a California man sued Blue Shield when it rescinded his health insurance policy after he submitted $100,000 worth of medical claims. Blue Shield alleged that the policyholder willfully misrepresented his health condition on the application. The case made its way to California’s 2nd District Court of Appeals where a three judge panel unanimously ruled that Blue Shield’s practice of post-claims underwriting, or looking back at the policy for errors once a claim is submitted, is “flatly prohibited”. The court also ruled that a class action lawsuit may be filed against Blue Shield – which would have been a huge victory for consumers. However…

The rehearing

Blue Shield, and several other insurers, took issue with the court’s decision and its interpretation of the law. The insurers claim that California law allows them to cancel coverage when discovering that policyholders omitted or misstated information on their applications – even if those discrepancies are discovered after claims are submitted.

Legal experts are watching this case very closely – especially after Steve Poizner, California’s Insurance Commissioner fined Blue Shield $12.6 million in December 2007 for, among other things, illegal policy rescissions. It will be interesting to see whether the court, which unanimously ruled against Blue Shield only a month ago, will be swayed by any information provided in the rehearing.

Post-claim underwriting is all too common

The practice of post claim underwriting is all too common amongst insurance companies – and consumers are the ones who suffer the consequences. When insurers rescind policies, consumers are left with often outrageous medical bills and find it nearly impossible to find coverage elsewhere. Insurance companies have a duty to treat their policyholders in good faith and deal with them fairly.

If your insurance company has acted in bad faith, contact an attorney who understands how insurance companies work. For a free, no obligation consultation with a qualified attorney, please click here.