In a victory for consumers, a state appeals court Tuesday opened the way for class-action lawsuits against insurers that may have improperly dropped individuals for alleged errors and omissions on applications after medical claims had been submitted.
The 2nd District Court of Appeal called into question California health insurers' practice of waiting until individual policyholders incurred medical expenses before scrutinizing individual policies for misstatements, then canceling coverage for omissions and errors.
The court said that if an insurer failed to properly attach a copy of the completed application to an individual's policy, the company forfeited the right to cancel. The practice of looking back at applications after medical claims are submitted, known as post-claims underwriting, "is flatly prohibited," the three-judge panel said in a unanimous decision.
Blue Shield of California Life & Health Insurance Co. maintains that state law allows insurers to cancel individual policyholders who make omissions or misstatements on coverage applications -- even if those discrepancies are discovered after medical claims are submitted. Still, the insurer says, it rescinds policies sparingly.
The company also contended that it complied with state law in making reference to the application in the policy.
Blue Shield spokesman David Seldin said the ruling was limited. "The only issue that the court was considering was the very narrow, technical issue on whether a class can be certified, and they ruled that a class can be certified," Seldin said. "And presumably this will now go forward as a class action."
But others following the controversy said that the decision, even though it is technical, bodes poorly for Blue Shield and could affect the outcome of similar suits against other insurers.
"This decision will likely invalidate thousands of health insurance recisions," said William Shernoff, a Claremont lawyer who represents policyholders.
These cases, examined in articles in the Los Angeles Times, are under scrutiny by the courts, state regulators and the Legislature. Bryan Liang, executive director of the Health Law Institute at California Western School of Law in San Diego, said the appellate court decision was "really going to open the doors to changes in policies by the insurers or a lot more lawsuits."
Dr. Richard Frankenstein, president of the California Medical Assn., said the ruling was "an important victory for patients."
