Saturday, March 1, 2008

Health Insurer Loses $9m Arbitration

An arbitrator recently awarded a California woman $9m dollars in damages from health insurer, Health Net Inc. for rescinding her policy while she was fighting breast cancer. Although news reports provide some interesting information about the incident, I took the time to actual judgment issued by the arbitrator. It made interesting reading.

Summary of Facts:
Patsy Bates, a hairdresser, had health insurance through another carrier when an agent approached her about saving some money. While she was busy cutting hair, the agent completed the Health Net Inc. application and she signed it. Mistake 2: For reasons that are not clear, the agent changed her weight listed and “he” initialed the change. Although it had an authorization to pull her medical history for underwriting purposes, Health Net chose not to do so and issued the policy. Ms. Bates canceled her old policy and everything should have been fine. Unfortunately, it wasn’t.

Instead of underwriting policies properly before issuance, Health Net had a program where employees investigated applications for possible rescission. Ms. Bates application was flagged after she had a health problem. Her policy was rescinded and she was stuck with $129,000 in costs from cancer treatments.

My Conclusions:
1. The agent could probably be prosecuted for violating California law by changing the application. Nevertheless, the evidence suggested he was guilty of a mistake and not an intentional attempt to defraud Health Net or Ms. Brady.
2. Health Net got what it deserved. Her weight was obviously changed on the application by the agent. If it was a big deal to Health Net, they had a legal obligation to investigate the issue BEFORE they issued the policy.

Despite Ms. Bates “win” in the arbitration, she wasn’t a winner. She was lucky California had a program to help her get the treatment she needed. Without it, she could have died. Please be sure to read any insurance application carefully (even if you don’t fill it out). Insurance companies take applications seriously and so should you. If the application has inaccurate information (even if you didn’t intend to lie), the insurance company may deny your claim and/or rescind/cancel your policy. If it is accurate, it is nearly impossible for them to rescind a policy, cancel the policy, or otherwise deny a valid claim.

Link:,0,187355.story (a link to the order is included at the site)

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