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June 11, 2007

Blue Cross of California Agrees to Settle Rescission Class Action Lawsuit

Blue Cross of California recently entered a settlement agreement to resolve a class action lawsuit against the health insurer concerning the nature of its individual health insurance business practices. Blue Cross had been accused of using innocent mistakes on poorly worded insurance applications to rescind policies after insureds submitted costly claims. After concluding that it would lose money based on costly claims, the company allegedly undertook a campaign to find the slightest misrepresentations on the application for insurance and rescind the policy leaving individuals without coverage and with thousands of dollars in unpaid medical claims.

As a condition of the settlement, Blue Cross agreed to modify its health insurance application form to make it more readable and user friendly. Also, Blue Cross agreed to only rescind individual health insurance policies when policy applications contained intentional and wilful lies. In other words, insurers in California who make honest mistakes in an application for health insurance cannot have their policies taken away from them when they submit claims and need insurance the most.

According to the Los Angeles Times, Blue Cross of California agreed to a series of changes in business practices to help the consumer health insurance policy-holders:

The move is part of an effort to settle a class-action lawsuit on behalf of as many as 6,000 people canceled since late 2001. It is an about-face for Blue Cross in what had become known as "use-it-and-lose-it" health coverage because the cancellations were often triggered by patients' claims for treatment.

The insurer's new stance is aimed at ending rescissions based on policyholders' honest mistakes, inadvertent errors and other inconsistencies about their medical histories on applications for coverage. Consumers contend that the forms are purposely confusing, increasing the odds that applicants will make mistakes.

"This is a very significant consumer health victory ... something we believe they should have been following all along," said Cindy Ehnes, director of the state Department of Managed Health Care.

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Posted by healthinsurance at June 11, 2007 03:01 PM