Life, Health and Disability Insurance Law Blog : Life, Health and Disability Insurance Law Blog : California Disability Lawyer & Attorney : Barger & Wolen Law Firm : CA Life Insurance & ERISA Law, Life Health Disability

by John M. LeBlanc and Jason C. Love

On April 28, 2010, the California Supreme Court declined to review the Second District Court of Appeal’s decision in Nieto v. Blue Shield of California Life & Health Insurance Company, 181 Cal. App. 4th 60 (2010) (previously discussed here). The Supreme Court also declined to depublish the Nieto decision, despite numerous requests from consumer groups and a specific request from the Los Angeles City Attorney’s office. 

The Supreme Court’s decision confirms the Nieto court’s holding that the underwriting standards addressed by the Second District in Hailey v. California Physicians’ Service, 158 Cal. App. 4th 452 (2007), have no application to health insurers in California. It also confirms the holding in Nieto that advising applicants in the application, and in the policy, that an insurance policy is issued in reliance on the application statements will satisfy the requirements of the California Insurance Code attachment statutes to “endorse” the application on the policy. 

Finally, the Nieto decision is also being widely reviewed for its holding concerning when successive motions for summary judgment can be filed.

Further discussions on the Hailey and Nieto decisions can be found here:

• Victory in Health Care Rescission Case
• California Court of Appeal Upholds Rescission of Health Insurance Policy
• Court Finds Triable Issue of Fact as to Rescission of Health Insurance, but Upholds Dismissal of Bad Faith and Punitive Damage Claims

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One month from today, the National Association of Insurance Commissioners (“NAIC”) will hold a meeting to address Stranger Originated/Owned Annuities (“STOA”). Similar to Stranger Originated/Owned Life Insurance (“STOLI”), STOA transactions often involve seniors and terminally ill individuals who were induced to purchase annuities largely for the benefit of an investor. The NAIC is “determined to address how individuals are being affected by these new transactions and whether new or modified current laws or regulations are necessary to protect consumers,” stated Thomas R. Sullivan, NAIC’s Life Insurance and Annuities Committee Chairman and Connecticut’s Insurance Commissioner. The May 20th public hearing in Washington, D.C. is expected to include testimony from consumers, state regulators and industry representatives.

State legislatures across the country have focused in recent years on the enactment of STOLI regulations. For example, California enacted its first legislation in October 2009, classifying the underlying transactions as fraudulent. Experts report that STOA could be the subject of similar legislation in the near future. However, the NAIC’s investigation and possible regulation of STOA would be limited to transactions involving insurance, because transactions involving variable annuities are outside the state insurance commissioners’ regulatory authority; they are instead regulated by the Securities and Exchange Commission and the Financial Industry Regulatory Authority.
 

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The California Assembly’s Insurance Committee is scheduled to conduct its first hearing today on AB 1868, a bill outlawing clauses in insurance policies and other related documents that purport to vest the insurer with discretionary power to determine eligibility for benefits or to interpret the terms of the policy.

Under the proposed legislation introduced by Assemblyman Dave Jones (D-Sacramento), any provision in an insurance policy, contract, certificate or agreement providing or funding life insurance or disability insurance coverage that purports to reserve discretionary authority with the insurer would be void and unenforceable. The bill would also require that the Insurance Commissioner disapprove of any disability policy containing such a provision.

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Following the Hailey and Nieto decisions, issues exist whether a Health Care Service Plan completed sufficient medical underwriting prior to rescission

by John M. LeBlanc and Jason C. Love

In Nazaretyan v. California Physicians’ Service, ___ Cal. Rptr. 3d ___, 2010 WL 1038685 (2010), the California Court of Appeal reversed the trial court’s grant of summary judgment in favor of California Physicians’ Service dba Blue Shield of California (“Blue Shield”), a health care service plan, following its rescission of Gevork Nazaretyan and Narine Ghazaryan’s (the “Plaintiffs”) health care coverage. In a fact-driven decision, the Court of Appeal held that Blue Shield failed to establish, as matter of law, that its investigation prior to issuing Plaintiffs’ coverage was sufficient to demonstrate that it completed medical underwriting, as required under Health & Safety Code § 1389.3, to rescind for non-willful, material misrepresentations in the application for coverage.

The Court of Appeal also concluded that, as a matter of law, it could not hold that the Plaintiffs, who are husband and wife, willfully misrepresented material information in their application to Blue Shield. However, the Court of Appeal affirmed summary adjudication in Blue Shield’s favor on the Plaintiffs’ bad faith and punitive damage claims.

In August 2004, the Plaintiffs applied for health care coverage with Blue Shield with the assistance of their long-time insurance broker Ahman Yusop. On September 10, 2004, Blue Shield sent Yusop a form requesting information that was missing from the initial application. On September 21, 2004, the missing-information form was returned to Blue Shield with the questions answered, and on October 12, 2004, the Plaintiffs resubmitted their application to Blue Shield. Based on the information in the applications, Blue Shield approved coverage at its most favorable rate on November 1, 2004.

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