NOTE: The North Carolina Commissioner of Insurance has issued a regulation which outlaws post claims underwriting. This practice is therefore illegal in North Carolina. An out-of-state issue with post claims underwriting is reviewed in the brief below. Our insurance dispute lawyers in Raleigh thought this would serve as a clear real-life example of how consumers are affected by unexpected insurance practices. The brief was written by California lawyer Sharon Arkin of the Arkin and Glovsky law firm and the case is Hailey v. CA Physicians Service dba Blue Shield of CA.
Health insurance Company Blue Shield of CA "rescinded" a health insurance policy after the policyholder made a claim for medical care expenses. The company claimed that the policy holder misrepresented his health history on his application for coverage and that it was therefore justified in rescinding the policy.
Rescission is a legal term that means to nullify and void a contract and refund monies paid as if the contract was never in effect.
The basic unfairness of this tactic is that the policy holder relied upon the health insurer to examine the risk of issuing the policy (that is, "underwriting" the policy) before the policy was issued. If the policy holder knew that Blue Shield of CA was not going to honor its policy, he would have obtained insurance from another health insurance company. The health insurance company therefore placed the policy holder in the dangerous position of not having any health insurance for himself and his family.
The policy holder sued Blue Shield of CA in the state of California in an effort to get the company to pay his health expenses and to reinstate his health insurance policy.
Blue Shield of CA had access to all of the policy holders medical information before it issued the policy and apparently ignored it.
This tactic puts the insurance company in a "heads I win, tails you loose" position. If a claim is never made the insurance company collects the premium without accepting any risk. If a claim is made, the insurance company escapes liability for the claim by claiming that the policy holder misrepresented his health history; the health history that the insurance company knew about or should have known about all along.
United Policyholders has filed an amicus brief on behalf of the policy holder and argued that the insurance company engaged in illegal post-claim underwriting. Insurers must evaluate (underwrite) risks before they issue a policy. It can not process applications, accept premiums, bind coverage, issue policies, and then use information it had access to but ignored prior to issuing the policy, as a basis to later deny claims.
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