A couple of weeks ago I commented on a series of lawsuits filed by William Shernoff, a well known plaintiff’s lawyer in Southern California, against Blue Cross of California. He alleges that Blue Cross of California makes it a regular practice to rescind coverage on individual insurance policies where large medical expenses are incurred shortly after the policies go into effect. When that occurs, Blue Cross makes it a practice to go through an insured’s medical records looking for any discrepancy between the representations made by the insured in the application and their medical history. If there are any misstatements, omissions, or inconsistencies at all, Blue Cross rescinds. The L.A. Times has an article in today’s paper discussing the cases Shernoff has filed. Those cases have prompted the California state departments of insurance and managed healthcare to open investigations of Blue Cross of California.
Blue Cross’ actions violate California state insurance law. According to the article, insurers in that state may rescind only if they can show a misstatement on an application was made with some intent to deceive the insurer. Not all states are like California. In some, an insurer is allowed to rescind if there is any material misstatement made in the application, regardless of whether the applicant intended to deceive the insurer or even knew that the statement in the application was inaccurate.