Rescinding an insurance policy is a serious matter. It means that an insurer is accusing the policyholder of withholding or concealing vital information. A policy rescission means that the consumer’s coverage is completely gone – as if it never existed. It can spell trouble for consumers in the future as other insurers consider a policyholder’s previous rescission a black mark on their record.

California getting tough on wrongful rescissions. First up – BC Life.

The California Department of Insurance seems to be getting tough on insurance companies that wrongfully rescind insurance policies. Steven Poizner, the new Insurance Commissioner will have his hands full as the department receives more and more complaints from consumer advocate groups and plaintiff’s attorneys on insurers’ wrongful rescission tactics. The department has said that it will likely investigate several insurers that do business in California, such as Blue Shield, Health Net, Cigna and Aetna. For now, BC Life is first up…

The department recently reviewed 93 policies from BC Life and found that the company may have wrongfully rescinded policies in 67 of those reviewed. The investigation reported that the company revoked over 1800 policies in 2004 and 2005, but only reviewed 93 of those policies. BC Life now faces possible fines of $10,000 for each of those 67 violations.

A breakdown of the violations

Although BC Life has initially denied any wrongdoing, the department and the insurer will likely continue to examine the findings. Here’s a quick summary of the 67 violations contained in the report:

• Failure to effectuate prompt, fair and equitable settlements of claims in which liability had become reasonably clear (32 violations)
• Failure to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under its insurance policies (27 violations)
• Failure to represent correctly to claimants, pertinent facts or insurance policy provisions relating to any coverage issue (4 violations)
• Failure to maintain all documents, notes and work papers in the claim file (2 violations)
• Persistent seeking of information not reasonably required for or material to the resolution of a claim dispute (1 violation)
• Failure to provide the written basis for the denial of the claim (1 violation)

The department has published the full BC Life investigatory report which can be viewed at: http://www20.insurance.ca.gov/epubacc/REPORT/98969.htm.