Monday, February 25, 2008

Bad Boys, Bad Boys, Whatcha Gonna Do When They Come for You?

[Welcome Insurance Forum and Industry Radar readers!]

This plays out like a scene from one of those cop shows.

It pits the big bad insurance carrier against the policyholder victim. In the middle of all this is the shyster agent.

Just like the cop shows, this is played out in the media.

This much we know. Health Net was fined $9M when a policy rescission went to arbitration.

What we don't know is the rest of the story.

A woman who had her medical coverage canceled as she was undergoing treatment for breast cancer has been awarded more than $9 million in a case against one of California's largest health insurers.

On the surface, the action is reprehensible. Canceling coverage in the middle of a claim may seem harsh, but without all the facts it is difficult to say if the company acted in bad faith or not.

"Word on the street" is, an agent was involved that failed to reveal all the details of the applicant's health. Rumor is an agent completed the application for the individual, and ignored (or missed) questions about pre-existing conditions. The applicant signed the application without reviewing (BIG MISTAKE). If true, the carrier correctly (and within their legal rights) rescinded the application on the basis of a fraudulent application.

This argument would appear to be supported by this comment.

Health Net also said it would review its practices and the way its brokers and agents are trained.

Of course the carrier has other resources available to them other than the application to aid in underwriting. It is unclear if they availed themselves of these sources or not, but if not then they were definitely negligent on a contributory basis.

The rescission appears to be legal but that does not mean it was right.

UPDATE: After penning this article we found a new source that seems to give credence to the filing of a fraudulent application.

According to the LA Times, Health Net had defended its actions, saying it never would have issued Bates a policy in the first place if she had disclosed her true weight and a preexisting heart condition on her application.

Bates said a broker filled out the application while she was styling a client's hair on a busy day in her shop. She said she answered his questions as best she could.

With this new information, it is possible the agent purposely left out damning information, or the applicant failed to fully disclose pertinent details. Regardless of where the fault lies, it is still the responsibility of the applicant to REVIEW the application before signing.

The carrier also shares responsibility for using all available resources to underwrite an application.

On the surface, it would appear the only way out was to rescind the policy and allow the courts to override the terms of the policy.

Had the carrier allowed the fraudulent application to stand they could have opened themselves up to future lawsuits whereby anyone can file a fraudulent application then file suit if the claim is not paid or the policy rescinded.

This was a catch 22 situation where either way, the carrier couldn't "win."

Bates had been insured with another company but was persuaded to switch over to a Health Net policy after an agent suggested she could save money.

There is nothing wrong with trying to save money, but ANYTIME you make a switch you need to understand the ramifications of leaving an old plan for a new one.

Read the proposal and make sure you understand what is covered, what isn't before applying for coverage.

Read the application before signing anything.

Never make a change in coverage when you have a pre-existing condition without fully understanding the consequences.

Read your policy when it is delivered. Most policy's come with a 10 day right to review & refuse the policy with a full refund.

Never cancel existing coverage until you know you have been accepted by the new carrier and know the terms of the offer.

Be wary of anyone who makes claims about their plan that seem too good to be true. Do not allow yourself to be pushed into anything without first doing a thorough review of all the facts.
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