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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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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by Richard De La Mora

Having unsuccessfully urged Congress to impose a national freeze on health insurance rates, Harvey Rosenfield has refocused his efforts on the California legislature and AB 2578.

Who is Harvey Rosenfield? He is, in his own words, the “author of California’s landmark property-casualty insurance rate regulation Proposition 103 – recognized as the most successful rate regulation in the country.” In fact, AB 2578, which cleared Assembly Health Committee earlier this week, includes the following provisions modeled closely on Proposition 103:

• A requirement that all rates and rate changes be filed with and approved by the Department of Insurance or Department of Managed Health Care before they go into effect;

• A prohibition on the use or approval of rates that are “excessive, inadequate, or unfairly discriminatory”;

• A right for consumer advocates to request a hearing on a rate application, and a requirement that a hearing be granted whenever the rate increase sought exceeds 7%.

Finally, Mr. Rosenfield has made sure that he and his friends in the consumer advocacy industry are taken care of by advocating a provision requiring health plans to pay the consumer advocacy fees associated with fighting the health plan’s rate application.    

We have seen this played out before, as our firm has represented property-casualty insurers in administrative and judicial matters involving insurance rates regulated under Proposition 103 since 1989.

While property-casualty insurers have had plenty of time to adjust to the dictates of rate regulation, health plans will face a steep learning curve if AB 2578 becomes law. 

We are hopeful that this legislation will not become law. Even if it does, AB 2578 will likely face legal challenges and hurdles as did Proposition 103.

From our experience, we learned some of those challenges will be more successful than others. Nevertheless, if rate regulation comes to pass, a company’s goals can still be achieved provided that it has a complete understanding of the proposed regulatory system, plans ahead, has input into the development of regulations, and prepares itself for life after the system is implemented.

Barger & Wolen will continue to keep our clients and friends apprised on new issues pertaining to AB 2578 via the firm’s Insurance Litigation & Regulatory Law Blog and the Life, Health & Disability Law Blog. If you would like to be notified about upcoming events and seminars pertaining to AB 2578 and other issues, please subscribe to our blog via the RSS feed or add your e-mail in the left column.

Originally posted on Barger & Wolen's Insurance Litigation & Regulatory Law Blog.

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Two weeks ago, federal agencies published the interim final rules amending the mental health parity provisions, which appear in the Federal Register at Volume 75, Number 21, page 5409 (the “Rules”). The Rules are intended to implement the Wellstone-Domenici Mental Health Parity and Addiction Equity Act of 2008 (“MHPAEA”).  A brief summary of some highlights of the Rules follows.

Among other things, the Rules prohibit large group health plans (or group insurers) from imposing a separate deductible for mental health or substance abuse disorder benefits. In other words, a group health plan cannot require a subscriber to meet one deductible for mental health/substance abuse disorder benefits and another deductible for medical/surgical benefits. Rather, a single deductible must be applied for all benefits provided by the group health plan for each coverage unit (i.e., for individual plan deductibles as well as family plan deductibles). 

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Concludes that Health Insurer Does Not Have to Physically Attach the Application to the Policy to Rely on Misrepresentations in Application to Support Rescission

by John M. LeBlanc and Jason C. Love

In Nieto v. Blue Shield of California Life & Health Insurance Company, ___ Cal.Rptr.3d. ___, 2010 WL 162027 (2010), the Court of Appeal considered whether Blue Shield Life – an California insurance company subject to the California Insurance Code – could rescind plaintiff Julie Nieto’s (“Nieto”) individual health insurance policy based on misrepresentations concerning her medical history contained in the application she submitted to Blue Shield Life.

The Court of Appeal affirmed the trial court’s grant of summary judgment in Blue Shield Life’s favor, concluding that Blue Shield Life had no statutory duty to physically attach Nieto’s application to the insurance policy, nor to conduct further inquiries beyond the application during the underwriting process to ascertain the truthfulness of Nieto’s representations in the application before it issued the policy.

In reaching this conclusion, the Court discussed its holding in light of the recent decisions in Ticconi v. Blue Shield of California Life & Health Ins. Co., 160 Cal.App.4th 528 (2008) and Hailey v. California Physicians' Service, 158 Cal.App.4th 452 (2007).

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The practice of paying different rates based on gender for the same insurance is called gender rating.  Effective January 1, 2010, health insurance companies and HMO's writing insurance in California will not be able to charge men and women different rates for the same type of insurance policy.  It has been reported that currently, California women pay anywhere from 5% to 30% more than male counterparts for equivalent insurance, even on policies without maternity coverage.   

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As reported by the Associated Press today, a House committee has voted to strip the health insurance industry of its exemption from federal antitrust laws as senators announced plans to take the same step.  The House Judiciary Committee voted 20 to 9 to repeal a law that exempted the health insurance industry from federal controls over certain antitrust violations, including price-fixing.

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In Williams v. Hilb, Rogal & Hobbs Insurance Services of California, Inc., __ Cal. App. 4th __, 2009 WL 2872403 (September 9, 2009), the court held that an insurance agent who portrays herself as having expertise in the particular insurance sought by an insured may owe the insured a heightened duty of care. Further, the failure of an insured to read the policy does not, as a matter of law, render the insured’s reliance on the agent’s advice unjustifiable.

This case involved a franchise business owner’s purchase of an “insurance package” that did not contain workers’ compensation insurance, which, under California law, is mandatory. The owners discovered their lack of coverage following a fire that severely injured an employee. The employee sued the owners who in turn sued the insurance agent for negligence for failing to provide the appropriate insurance necessary for their business. In her defense, the agent argued that she did not have a duty to volunteer additional or different insurance coverage and that insured was bound by the “clear and conspicuous” terms of the policy even if they failed to read or understand them. However, the court was not convinced by these arguments.

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In Dupree v. Holman Prof'l. Counseling Ctrs., ___ F.3d ___, 2009 WL 2245219 (9th Cir. July 29, 2009), the Ninth Circuit Court of Appeals held that an ERISA-governed health plan, which repeatedly asserted that non-contracted services were generally not covered, unambiguously excluded coverage of non-emergency treatment at a non-contracted residential treatment center. In doing so, the Ninth Circuit employed the well-established canon of contract interpretation, applicable in ERISA cases, that a contract should be read as a whole, giving effect to every part. The court rejected Plaintiff’s attempt to pick out policy provisions and read them out of context to find ambiguity where none exists.

Plaintiff’s employer contracted with Holman Professional Counseling Centers (“Holman”) for behavioral health insurance coverage. Holman agreed to provide behavioral health services “through Providers pursuant to the Schedule of Benefits” and that if enrollees chose to use non-contracted providers, they would do so at their own expense “except as otherwise provided in this Group Plan Contract.”

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Recently, in Broberg v. The Guardian Life Insurance Company of America, 171 Cal. App. 4th 912 (2009), the Court of Appeal for the Second Appellate District held that the "delayed discovery" rule, which applies to delay accrual of the statute of limitations for fraud causes of action until such time as the plaintiff discovers facts putting him on notice of the fraud, applies to unfair competition claims that are based upon alleged fraud. In so holding, the court added to the conflict in published decisions on the issue of whether the "delayed discovery" rule applies to unfair competition claims. See, e.g., Snapp & Associates Ins. Services, Inc. v. Robertson, 96 Cal. App. 4th 884, 891 (2002) (holding the "delayed discovery" rule does not apply to unfair competition claims).

In Broberg, David A. Powell purchased a $500,000 whole life insurance policy in 1993 from defendant The Guardian Life Insurance Company of America ("Guardian Life"). The Plaintiffs (Powell and the trustee of a related trust) alleged that Guardian Life's agent described the policy as so-called "vanishing premium" policy, i.e., one where, after a certain number of out-of-pocket premium payments were made, the policy itself would generate sufficient sums through its dividend and interest income to pay future premiums for the balance of his life. Claiming Guardian Life's marketing materials and its agent made false and misleading statements in 1993, when Powell purchased the policy, the plaintiffs alleged causes of action for fraud, negligent misrepresentation, unfair competition and false advertising under California's Unfair Practices Act (Business and Professions Code section 17200 et seq.) and violation of the Consumers Legal Remedies Act ("CLRA"), Civil Code section 1750 et seq.). The plaintiffs further alleged that Powell did not discover the deception until Guardian Life sent a bill for additional out-of-pocket premiums in 2004. The trial court sustained demurrers to the complaint, concluding disclosures in the policy and marketing materials were at least sufficient to give Powell inquiry, if not actual, notice of the alleged deception. The trial court determined the fraud, negligent misrepresentation and unfair competition causes of action accrued in 1993, when Powell purchased the policy and, therefore, those claims were time-barred under the three-year statute of limitations for fraud (see Code Civ. Proc.§ 338 (d)) and the four-year statute of limitations for unfair competition (see Bus.& Prof. Code § 17208). The trial court also concluded, based upon disclaimers in the documents, that the plaintiffs could not establish reliance as a matter of law. The trial court further determined that the CLRA claim was not viable, as the CLRA does not apply to insurance. (See Fairbanks v. Superior Court, 46 Cal. 4th 56 (2009) (holding the CLRA does not apply to insurance). Finally, although the trial court ruled that the allegations did not justify an unfair competition cause of action based on the "vanishing premium" theory, they were sufficient to state a claim amounting to an unfair and unlawful sales tactic.

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In Bosetti v. The United States Life Ins. Co., 175 Cal.App. 4th 1208 (2009), the California Court of Appeal addressed whether a standard, two-year benefits limitation on disabilities due to “mental, nervous or emotional disorder[s]” could serve to limit benefits payable to an insured disabled from depression and anxiety who also complained of interrelated physical impairments. The Bosetti court held that the limitation was ambiguous and was not applicable if the claimant’s physical problems contributed to her disabling depression or were a cause or symptom of that depression. The Bosetti court further concluded that the insurer’s denial of benefits based upon that two-year limitation was not in bad faith under the genuine issue doctrine.

Bosetti worked as an assistant director of adult education for a school district and first sought treatment after learning that her position would be terminated. Based upon the report of her treating physician and her complaints of depression and anxiety, she was put on temporary disability under her group policy. She thereafter applied for permanent disability benefits complaining of depression and fibromyalgia pain in her muscles, though her treating physician reported that her disabling impairment was solely mental or nervous in nature. After paying Bosetti’s benefits for two years, United States Life determined that she did not qualify for any additional benefits and could work in “any occupation”, which was the governing disability standard after two years. That determination was based primarily upon the two-year benefits limitation for mental or nervous disorders, the results of a functional capacity examination, and an independent physician consultation.

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The Court of Appeal recently interpreted the infertility treatment provisions of Health and Safety Code section 1374.55 in Yeager v. Blue Cross of California, __ Cal. Rptr. 3d __, 2009 WL 2033209 (July 15, 2009). Yeager sued Blue Cross, alleging that it violated its duty under section 1374.55 to offer coverage for infertility treatment in the group plan that Blue Cross provided through Yeager’s employer, Westmont College. Blue Cross moved for summary judgment, arguing that it complied with section 1374.55 by offering optional coverage of up to $2,000 a year for half the cost of each group member’s infertility treatment, which Westmont College declined to purchase for cost-related reasons. The trial court granted summary judgment, and Yeager appealed.

The Court of Appeal held that section 1374.55 – which states that “every health care service plan contract . . . shall offer coverage for the treatment of infertility . . . under those terms and conditions as may be agreed upon between the group subscriber and the plan” – merely obligated Blue Cross to offer coverage for infertility treatment, and left the amount and cost of that coverage to agreement between Blue Cross and Westmont College. Thus, the court agreed that Blue Cross complied with the statute.

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Earlier this week, House Democrats introduced H.R. 3200: America's Affordable Health Choices Act of 2009 that seeks to make affordable health care available to an estimated 97% of Americans.

The key components of the plan are as follows:

• The plan mandates that employers provide health care coverage to employees. Employers that fail to provide health care coverage will have to pay fees or penalties based on the employer’s payroll (e.g., 8% for payrolls of $400,000). The plan does provide some exceptions to such penalties and fees, including small business with payrolls under $250,000.

• The plan also mandates that individuals maintain health care coverage or pay penalties in the form of a new tax based on his or her income. Individuals that meet a “hardship” exception would be exempted from the penalty.

• The plan provides credits for low- and moderate-income individuals and families to help fund the purchase of health care.

• The plan would create government-sponsored insurance to compete with the private sector. Those needing health care could shop for plans in a government-operated “exchange,” in which private carriers could participate if they meet standard benefit requirements designed by the federal government.

• To subsidize the plan, a surtax ranging from 1% to 5.4% would be imposed on the top 1.2% of income earners.

• The plan would introduce new regulations that would prohibit health care plans and insurers from excluding coverage based on pre-existing conditions.

Barger & Wolen LLP will provide continuous updates as the bill progresses through the House and Senate.

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Watanabe v. California Physicians' Service, 169 Cal. App. 4th 56 (2008)

On February 25, 2009, the California Supreme Court denied a petition to review the Court of Appeal decision in Watanabe v. California Physicians' Service, 169 Cal. App. 4th 56 (2008). This decision let stand the opinion by Judge Flier which held Health Care Service Plans and plan providers are separately liable for their own acts or omissions under the Knox-Keene Health Care Service Plan Act of 1975 (the “Act”), notwithstanding the delegation of duties from one to the other.  Blue Shield of California, a Health Care Service Plan under the Act, delegated to the plan provider the task of initially determining whether a particular service or treatment was medically necessary (what is called a “utilization review”). Plaintiff sued Blue Shield on the grounds that it wrongfully delegated the utilization review to the plan provider and, as a result, should be vicariously liable for the provider’s failure to diagnose the Plaintiff’s brain tumor. The provider settled with the Plaintiff before trial which continued against Blue Shield. 

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Mintz v. Blue Cross of California, __ Cal. App. 4th __, 2009 WL 1019039 (April 16, 2009).

On April 16, 2009, the Second Appellate District in Mintz v. Blue Cross of California, found Blue Cross liable in negligence when acting as claims administrator for CalPERS, when its claims denial caused physical injury to the member. Blue Cross denied the member's treatment on the grounds it was experimental. The member appealed, and though Blue Cross advised the member of his contractual appeal rights, it failed to advise him of his statutory right to Independent Medical Review.

While the court held that the administrator, as representative of the insurer, may not be held liable for interfering with its principal's contract, and the denial of health insurance benefits, without more, is not the kind of extreme outrageous conduct necessary to state a claim for intentional infliction of emotional distress, the court did hold that the administrator owes a duty to the members to exercise due care to protect them from physical injury caused by its negligence in making benefit determinations.  

Judicial Opinion Available Here

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Barger & Wolen, LLP partner Robert J. McKennon discusses the requirement for regular and appropriate care in disability cases. Published by the Defense Research Institute, this article provides a solid background on the various factors the courts consider when reviewing a “regular care” or “appropriate care” provision.

Article is Available Here

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