Health Net Inc. has agreed to settle a class action lawsuit for $14 million over its bad faith insurance rescission practices. The lawsuit was filed on behalf of over 800 policyholders whose insurance was rescinded by a California attorney and Los Angeles City Attorney Rocky Delgadillo.

Details of the settlement

According to a press release on Rocky Delgadillo’s website, www.lacity.org/atty, under the terms of the settlement:

• more than 800 rescission victims will receive $6.3 million in automatic payments. The average payment will be $7,836 and the range will be approximately $4,000 to $220,000.
• rescission victims will be able to submit claims for reimbursement for out-of-pocket medical expenses and will be held harmless for unpaid medical expenses that are in active collection.

In addition, Health Net:

• will pay $2 million in civil penalties to the People of the State of California as well as make $500,000 in charitable contributions to Padres Contra El Cancer (Parents Against Cancer) and the Children’s Health Fund.
• will adopt a new corporate compliance program and abolish any rescission-related bonus programs.
• has agreed to a one-year moratorium, through January 31, 2010, during which the company will not rescind any plan members or policyholders and will work to develop an independent third party review process acceptable to its regulators and the City Attorney’s Office.

Bad faith insurance practices

Health Net has seen its share of scandals and fines in the past few years – and they’ve paid dearly for it. Here are some of the settlements and fines the insurer has paid out since late 2007:

• $255M: Settlement over three bad faith class action insurance lawsuits which alleged that the insurer under-reimbursed members due to a faulty computer database program. The insurer will pay approximately $215 million to more than two million members and will spend another $40 million on updating its business practices.
• $9M: Fine by a private arbitration judge after the insurer canceled a cancer patient’s coverage while she was in the middle of receiving chemotherapy treatments.
• $1M: Fine by the California Department of Managed Health Care for lying to the Department about the existence of an employee bonus program created to “find ways” to illegally rescind insurance policies.

If an insurance company has wrongly rescinded your policy or treated you in bad faith, contact an experienced bad faith insurance attorney to discuss your situation and evaluate your options. Consultations are free, without obligation and are strictly confidential.