California Insurance Lawyer Blog

Some things make no sense. Consider the following where a bill to protect California consumers passes the legislature by an overwhelming majority, has no adverse fiscal impact on the State whatsoever, yet get's vetoed by the Governor with an explanation that cannot be justified....

FOR IMMEDIATE RELEASE
Sept. 30, 2010
Contact: Chris Shultz, 916-319-2009 office, 916-601-2521 mobile

Dave Jones’ legislation to ban “discretionary clauses” in life and disability insurance policies vetoed by Governor

Veto maintains playing field tilted against consumers

SACRAMENTO – Today the Governor vetoed legislation by Assemblymember Dave Jones (D-Sacramento) to help injured workers get a fair hearing when fighting insurance companies in court.

Assembly Bill 1868 would have banned discretionary clauses in life and disability insurance policies, and leveled the playing field between insurance companies and consumers by ensuring that individuals who have been denied benefits by their insurance companies get a fair hearing in court.

“These discretionary clauses reserve authority to insurance companies to determine benefits and policy interpretation,” said Jones. “Prohibiting discretionary clauses would have leveled the playing field between insurance companies and consumers by simply ensuring that individuals who have been denied benefits by their insurance companies get a fair hearing in court. Once again, the Governor sides with insurance companies and against reform.”

Discretionary clauses reserve authority to insurance companies to determine benefits and policy interpretation. Inclusion of these clauses in insurance policies has the effect of lessening the intensity of judicial review in claims denial cases to an “abuse of discretion” standard, which is an insurmountable standard for consumers to meet.

Under current law, insurance company decisions to deny benefits are upheld as long as they are grounded in any reasonable basis, even when a judge is convinced the plaintiff is in fact disabled. This is in direct conflict with a basic principle of California law that contracts are interpreted against the drafter, and not against unsophisticated consumers who do not have the opportunity to bargain for favorable terms in their employer-provided insurance policies.

The State Senate approved the bill 23-12 and the bi-partisan vote in the Assembly was 64-11.

The California Mental Health Parity Statute requires health insurance policies which cover mental illness to cover severe mental illness under the same terms and conditions as physical illness. Anorexia nervosa and bulimia nervosa are included in the definition of severe mental illness.

Almost every insurance company in California agrees that this statute requires health insurance policies to cover residential treatment of eating disorders. But, one large California insurance company - Blue Shield - has a specific exclusion for residential treatment in its policies and refuses to cover residential treatment for any eating disorder.

We currently have a case pending in the Ninth Circuit Court of Appeal challenging Blue Shield’s position. The Blue Shield policy in that case covers three levels of treatment for physical illness: inpatient, skilled nursing, and outpatient. For severe mental illness, however, the policy only covers two levels of treatment: inpatient and outpatient. How can the policy possibly cover physical and severe mental illness under the “same terms and conditions” - which is what Mental Health Parity requires - when an entire level of treatment is not covered for severe mental illnesses such as eating disorders?

The Patient Protection and Affordable Care Act (PPACA) was signed into law on March 23, 2010, and will have significant impacts on individuals and business. This is the largest piece of legislation that has passed since Congress enacted Medicare/Medicaid in 1965. Although the law is complex and different parts of it take effect at various times over the next several years, certain important provisions go into effect September 23, 2010, and the law will provide access to health insurance to a great number of presently uninsured Americans.

Some of the changes we will see:

★ Insurers will not be allowed to rescind health insurance coverage except where the insurer can show fraud or misrepresentation of a material fact by the insured (for example, the insured lied on an application about her/his health). It is still unclear what legal standard will apply to fraud determinations.

★ Group health plans and health insurers offering either group or individual coverage must eliminate lifetime limits and annual limits on the dollar value of benefits for participants and beneficiaries, starting September 23, 2010. (For plan years prior to 2014, group plans or health insurers may establish restricted limits, without significant impact on premiums).

★ PPACA will require insurers to pay for certain preventive care measures, such as vaccinations, annual check-ups, and breast cancer screenings, without charging co-pays.

★ PPACA sets minimum standards for appeals processes for denied claims, with which all health insurers must comply. The law lays out these standards, which include both internal and external review processes, notice to enrollees in a ‘culturally and linguistically appropriate manner’, and an opportunity to the enrollee to present evidence and testimony in support of her/his appeal. The external review process must include consumer protection standards laid out in the National Association of Insurance Commissioners’ Uniform External Review Model Act.

★ The insurer should provide notice to non-English speakers in their primary language.

★ Effective September 23, 2010, insurers cannot exclude children under age 19 with pre-existing conditions, from their family’s policy. Insurers must rescind pre-ex condition exclusions which may exist in current policies.

★ By 2014, insurers will no longer be able to deny coverage on the basis of pre-existing conditions. In the meantime, a high-risk insurance pool is available for people with pre-existing conditions to sign up within 90 days of PPACA’s enactment.

It’s important to keep informed about this new federal legislation and how it will be implemented and potentially impact you. We will periodically report here on new developments, and you can always check out the Wikipedia article on the subject.

The illegal rescission of health insurance policies is big business in the insurance industry and allows insurers to evade payment of millions of dollars of legitimate claims thereby amassing millions of dollars in improper profits. For many years, health insurers in California have exploited the vagueness of laws relating to rescission by drafting deliberately deceptive applications and then using those applications against their insureds when a claim is submitted.

Insurers are required to use the application process to conduct underwriting on any potential policy to be issued. However, in order to begin collecting premiums immediately without conducting time consuming underwriting investigations, insurers deliberately issue policies with incomplete information knowing that if a claim is submitted, the insurer can rescind based upon any little omission in the application. While insurance companies can legally rescind a health insurance policy after issuance if the insurer later finds that there was a material misrepresentation or omission on the application, more and more frequently, insurance companies are stretching the rules in an attempt to avoid liability for legitimate, but expensive claims.

The insurers require consumers to answer medical questions that are designed to be confusing and induce mistakes. Insurers do nothing to make sure consumers understand the questions being asked and do nothing to follow up on the information disclosed. That is–until the insured makes a claim. Then the insurer begins to scour the medical records looking for anything that it can characterize as a “pre-existing” condition. This is a practice known as post claim underwriting and is prohibited by California law for health insurers and health care services. Despite this, most insurers have a special unit tasked with conducting rescission investigations and even set annual rescission quotas for those units.

In reality this practice hurts people when they most need their insurance. For example, individuals that have suffered catastrophic car accidents resulting in broken bones and brain injuries have been denied coverage because they failed to disclose they had a muscle spasm in their back ten years prior to seeking coverage. This practice is particularly egregious because often insurers will not investigate the grounds for coverage until the policy has been in place for many years, paying small claims and leading the insured to believe that everything is fine. Only when the insured submits a potentially large claim does the investigation commence. Often this is when the insured is seriously ill with cancer or other life threatening illness. Then, the insured, while fighting for their life is targeted for cancellation by its insurer when they can least afford it.

This practice has led the California Insurance Commissioner Steve Poizner to enact new regulations designed to combat illegal rescissions. In announcing the new regulations, which went into effect on August 18, 2010, Poizner commented, “[K]eeping your health insurance can literally be a matter of life and death, and I have zero tolerance for insurers who sue pretexts to illegally rescind policies.”

The new regulations are designed to put the onus of underwriting squarely on the insurers before they start collection premiums. The regulations prohibit insurers from rescinding policies if they were not in compliance with specific underwriting practices and restrict health condition and health history questions on applications to those that are strictly necessary for medical underwriting. The regulations also require all questions on health insurance applications to be clear, specific and understandable and require the use of new and improved health questionnaires that must be approved by the Department of Insurance. Questions cannot contain confusing language and double negatives or compound questions. Consumers are also allowed to indicate if they are unsure or cannot remember certain health information. In addition, because many insurance agents never even have potential insureds review their application, the new regulations require that agents attest if they help applicants with a health insurance application and require that consumer be given a copy of their application to check for discrepancies. For full text of the new regulations, go to this link:
http://www.insurance.ca.gov/0400-news/0100-press-releases/2010/upload/nr112rescissionregs.pdf

While this practice has been particularly egregious in the health insurance context, insurance carriers are now beginning to conduct rescission investigations of life policies, homeowners policies, and liability policies. If you have been a victim of rescission, and believe that this rescission was improper, contact us and we can help you to review the insurer’s decision.

One of the recurrent problems we encounter in handling disability claims is the use by insurance companies of biased “independent medical examination” (IME) doctors or medical reviewers to support the company’s denial of disability claims. Two of our recent cases present excellent examples of this practice. They both involved doctors who we call “fibro deniers,” because they purport to believe that the universally accepted diagnosis of fibromyalgia either is not a “real” disease or, if it is, it never causes a disability.

The first case involved Dr. Kyle Boone, a Los Angeles area neuropsychologist who is often retained by insurance companies to do “independent medical examinations” of disability claimants. Dr. Boone was employed for many years by the Los Angeles County Department of Health, but also maintained an active private practice doing neuropsychological assessments, which she continues today. Fifty to sixty percent of Dr. Boone’s private practice has been devoted to neuropsychological evaluations in civil cases, where she is retained eighty percent of the time by the defense. In addition, Dr. Boone does neuropsychological evaluations for disability insurance companies, including Northwestern, Unum Provident and Berkshire Life, and for referral agencies like Global Services Group, which are retained by insurance companies to perform neuropsychological evaluations. In the over ten years that Dr. Boone has been doing disability evaluations, she has never done an evaluation on behalf of the person claiming the disability.

One of Dr. Boone’s long-time areas of interest has been the purported identification of “malingerers.” She is the editor of a recent book on malingering entitled “Assessment of Feigned Cognitive Impairment,” continues her research on the subject, and considers herself an expert on the detection of non-credible symptoms in the context of a neuropsychological assessment. However, Dr. Boone not only has an interest in malingering, she has a bias toward finding it, particularly in a patient who has been diagnosed with fibromyalgia.

In her report on our client, Dr. Boone opined: “The diagnosis of fibromyalgia is highly controversial, with many authors providing data indicating a link to somatoform conditions.” At her deposition, Dr. Boone went further. She testified that, in every patient diagnosed with fibromyalgia who she has tested, she has found a psychological basis for their symptoms. She also testified that, in every fibromyalgia patient she has tested, she has found that they were over-reporting their symptoms. She further testified that every fibromyalgia patient she has tested had a somatoform disorder or was malingering, or both. Finally, when asked whether she had ever concluded that a patient whose primary diagnosis was fibromyalgia had an organic basis for their symptoms, Dr. Boone refused to answer the question. We retained a board-certified clinical neuropsychologist who is a professor in the Department of Psychiatry at UCLA to review Dr. Boone’s report and he concluded:

Continue reading " The “Fibro Deniers”— How Insurance Companies Use Biased IME Doctors and Medical Reviewers to Deny Fibromyalgia Disability Claims " »