As San Francisco insurance attorneys we were glad to see the latest news that Blue Shield of California and Blue Shield of California Life and Health Insurance Company, a major insurer, finally settled a multi-year lawsuit. It is encouraging to see even a small correction of a gross injustice done to the hardworking insurance consumers of California.
After three years of investigation, the lawsuit was filed in 2008 by then City Attorney Rocky Delgadillo on behalf of the city of Los Angeles, alleging that the insurance provider wrongly dropped policy holders after they became ill, duping consumers into buying insurance that would be rescinded, and other shady business practices. The city of Los Angeles was seeking $1 billion in damages and restitution. Blue Shield was accused of rescinding hundreds of policies of patients after they were hospitalized or required major medical procedures. The consumers had previously applied and were approved for insurance, only to be told once they needed health care benefits that they had made a mistake on their misleading or confusing application form, discovered from a retroactive investigation by the insurance company. Often these consumers had been paying for health insurance for years, only to find out at the critical moment that they paid for nothing. Thousands of cases were investigated. Since 2002, Blue Shield denied benefits to 850 people and delayed benefits to countless more.
A federal ban on these types of rescissions for unintentional mistakes on insurance applications went into effect in September 2010 because of the new healthcare legislation. Now Blue Shield has settled for $2 million, to be split between the city and Los Angeles County, and the company will also pay the legal costs of the lawsuit, but without admitting any fault in the matter.
Part of the settlement requires Blue Shield to submit a new and amended health insurance application form that complies with federal and California requirements in being intelligible to consumers. Blue Shield is limited on an application to asking for relevant, as in “reasonable and necessary”, medical information to calculate the risk of insurance benefits being requested. The settlement also bans Blue Shield from rescinding coverage unless it can prove that the policyholder committed fraud or misrepresented relevant health information on their insurance application. It also bans Blue Shield from giving insurance investigators commissions based on their number of rescissions.
The insurer’s spokesperson stated that Blue Shield settled the suit simply to avoid the costs and distractions of ongoing litigation. Blue Shield also claims it is committed to taking aggressive and proactive steps to provide better access to health care.
Even with this settlement, however, the individual policyholders who were wrongfully denied benefits did not gain any monetary restitution. The settlement may be good news overall, especially as a wake-up call to insurance companies that they must comply with federal legislation and behave in a fair and above-board manner with their customers. But for the many families struggling to cover medical expenses, it is perhaps cold comfort. This is why it is vital to speak to a California insurance lawyer if your insurance company is trying to give you the run around or to rescind your policy or benefits. In something that is so important to you and your family and the future, local families need an experienced San Francisco insurance attorney in your corner working specifically on your case.
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