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:
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.