Court backs rights of insured - A ruling restricts the ability of California health plans to cancel coverage after patients run up medical bills.
California health insurers have a duty to check the accuracy of applications for coverage before issuing policies -- and should not wait until patients run up big medical bills, a state appeals court ruled Monday.
The court also said insurers could not cancel a medical policy unless they showed that the policyholder willfully misrepresented his health or that the company had investigated the application before it issued coverage.
The unanimous decision by a panel of the 4th District Court of Appeal in Santa Ana is the latest blow to California insurance companies and the way they handle policy cancellations after patients get sick and amass major medical claims.
The insurers' practices are under scrutiny by the state Legislature, the Department of Insurance, the Department of Managed Health Care and the courts. In recent months, state agencies have fined, cited and sued the state's major health insurers for the way they have handled cancellations and treated policyholders.
The decision came in a closely watched case involving Steve Hailey, an Orange County small-business owner whose coverage was canceled by Blue Shield of California after he had a disabling car accident. The ruling in favor of Hailey sends the case back to the lower court for trial and requires Blue Shield to pay Hailey's appellate costs.
At issue for trial, the appeals court said, is whether the Hailey family intended to deceive Blue Shield and whether Blue Shield acted in bad faith by "blindly" accepting their application and taking their premiums until Steve's medical bills got too high.
Spokesman Tom Epstein said Blue Shield, one of the state's largest health plans, looked forward to the trial and would prove that "our underwriting was appropriate and that the Haileys misrepresented numerous important facts on their application."
The company said it was considering an appeal.
Steve Hailey's wife, Cindy, said the decision "was the best Christmas present we could have possibly gotten."
The family was "very excited that our case is finally going to be heard," she said. "There have been so many other people hurt besides us, and hopefully this will just be the best thing for everyone."
Michael Nutter, a lawyer representing the Haileys, said the ruling would be a boon to his clients' case.
Blue Shield is "going to need to show -- which I don't think they ever can do in this case -- that the Haileys willfully misrepresented something," he said.
