He pointed to a 1973 California Supreme Court ruling as the foundation for the position that intent to deceive is not necessary for cancellation.
Blue Cross' parent, Indianapolis-based WellPoint Inc., the nation's largest health benefits company, also cancels California subscribers whether or not they intended to mislead, and it believes the practice is lawful, said spokesman Robert Alaniz.
Consumer advocates said the practice makes a mockery of the purpose of health coverage.
"You think you have insurance, and then, after you get the treatment, you find out you really don't have insurance after all," said Claremont lawyer William Shernoff, who represents former policyholders in several lawsuits against Blue Cross and Blue Shield.
The law is on policyholders' side, said Bryan Liang, executive director of the Institute of Health Law at California Western School of Law in San Diego.
The 1993 statute barring cancellation without "willful misrepresentation" trumps the 1973 court decision, Liang said, adding that asserting an older ruling amounted to "trolling for anything that's going to support" the insurers.
The companies say premiums would increase if, before issuing coverage, they had to verify all the information applicants submitted or if they had to investigate all policies for fraud before canceling them.
Irvine lawyer Robert Scott, who represents the Shaeffers and several others in suits against Blue Cross and Blue Shield, said the current practice was a misguided effort to hold down costs.
"It's all about the money," he said.
So far, the regulatory record is on the health plans' side, however. Over the last two years, 289 policyholders complained to the Department of Managed Health Care that they had been improperly canceled. The agency ruled against policyholders in all but 10 to 20 cases. Those cases, which include some of the plaintiffs suing Blue Cross or Blue Shield, remain under investigation.
Agency spokeswoman Randolph could not say whether any of the old cases would be reopened, but she said pending complaints would be resolved. In addition, she said, the agency planned to give such complaints a higher level of scrutiny in the future.
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Dawn and Steve Foiles were left with $100,000 in bills when Blue Cross terminated Dawn's coverage after authorizing back and neck operations. It accused her of failing to disclose a 1997 back surgery and refused to reconsider after the Foileses told the company that it had made a mistake.
