California court rules against insurer over policy cancellations

Doctors and lawyers involved in the issue say that if it stands, the ruling could pressure health plans to change their practices.

By Amy Lynn Sorrel, AMNews staff. Jan. 21, 2008.

A California appeals court ruling may bode well for physicians and patients in their fight against alleged illegal policy cancellations by health insurance companies.

A three-judge panel of the 2nd District Court of Appeal unanimously ruled that the practice of reviewing individuals' applications after they have submitted claims and then pulling the coverage based on alleged errors "is flatly prohibited" under state insurance laws. The Dec. 4, 2007, decision gave the green light to a patient's class-action lawsuit alleging that Blue Shield of California tried to dodge claims by looking for supposed misstatements or omissions on patients' policy forms after approving treatment.

The ruling comes amid heavy scrutiny of various health plans' cancellation practices by state insurance regulators. Also, physicians and hospitals have turned to the courts.

The California Medical Assn., along with a group of hospitals, is suing Blue Cross of California to block alleged similar tactics. Blue Cross declined to comment on the case.

Physicians and lawyers involved in the issue say the recent decision signals that the courts are paying attention and are willing to hold insurers accountable.

"This is a good sign for patients and doctors," said CMA spokeswoman Karen Nikos. "The court has spoken and said that taking insurance away from patients is wrong, and we look forward to seeing [the Blue Shield] case go forward with this sentiment."

Not only are patients left uncovered when insurers pull policies, but doctors also are left uncompensated for authorized care they had provided in good faith, Nikos said. "It's a complete breakdown of the physician-patient relationship when patients have their insurance wrongfully taken away."