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Thursday, January 12, 2012
Rescission cases give way to other health insurance litigation
By MandyJackson
Daily Journal Staff Writer
Federal health care reform may have put the final nail in the coffin for most legal disputes over insurance coverage for preexisting conditions, but plaintiffs’ lawyers say litigation over other coverage issues is alive-and-kicking inCalifornia.
A recent class-action settlement and an appellate decision in another case last month may represent the last gasps for lawsuits over rescission, a previously hot area of health care litigation in the state. But lawsuits between health insurers and their customers that dispute the “medical necessity” of expensive treatments are building up steam.
On Dec. 28, California’s 1st District Court of Appeal affirmed a Lake County Superior Court decision to grant summary judgment in favor of Blue Shield of California in a rescission lawsuit. John M. Hagan v. California Physicians’ Services dba Blue Shield of California Life and Health Insurance Co. A130809 (Cal. App. 1st Dist., Dec. 28, 2011).
On the same day, Blue Shield announced, without accepting any blame, that it would pay $2 million to settle a separate class action filed by the city of Los Angeles in 2008 that sought up to $1 billion in fines and restitution for people whose health insurance was rescinded.
As rescission lawsuits wind down, plaintiffs’ attorney William M. Shernoff, a senior partner at Shernoff Bidart Echeverria LLP whose firm litigated hundreds of rescission cases, said more people are hanging on to their health insurance, but insurers are refusing to pay for treatments they deem not medically necessary.
“We see cases where the doctors are prescribing treatments, surgeries or hospitalizations they feel are necessary to treat the patients and the insurance companies are overruling them,” Shernoff said.
There have been several high-profile cases of payment denials involving autism and eating disorder patients who allege violations of California’s Mental Health Parity Act, which requires insurance coverage for mental health conditions on par with physical ailments.
Shernoff and plaintiffs’ attorney Scott C. Glovsky, of the Law Offices of Scott Glovsky in Pasadena, said they are handling cases that involve a wide array of physical and mental health treatments that insurers said were not medically necessary.
“The reality is that the health insurers and the health plans know that the less treatment they provide, the more money they can make,” Glovsky said. “Once something like rescissions is curtailed … then they turn to other issues like medical necessity.”
The Patient Protection and Affordable Care Act, the federal health care reform law that passed in March 2010, requires all individuals to obtain health insurance by 2014. That means there may be even more work for plaintiffs’ attorneys if the reform law is upheld by the U.S. Supreme Court after oral arguments in March. With more insured people, Shernoff said there will be more disputes over what insurers must cover.
“Politicians think that all you need is insurance and everything will be OK,” he said. “Just because you have insurance, that doesn’t mean they have to pay.”
The federal health care reform law’s September 2010 prohibition on rescinding individual insurance policies, except in cases of fraud or misrepresentation of material facts, hammered home the fight against rescission that began in California.
Court decisions in the state defined limits on the practice and Assembly Bill 2470, which went into effect on Jan. 1, 2011, aligned state law with the federal ban on rescission.
The California Department of Insurance confirmed lawyers’ speculation that the practice of rescission is on the decline in the state. Only 88 individual health insurance policies were rescinded in 2010, down from 118 in 2009, and 318 in 2008.
The number of rescission complaints filed with the department remained fairly stable since 2008: six in 2011, three in 2010, nine in 2009, and five in 2008.
However, California’s Department of Managed Health Care reported a marked decline in rescission complaints against health maintenance organizations, or HMOs: 11 in 2008, one in 2009, five in 2010 and none in 2011.
John M. LeBlanc, a partner at Barger & Wolen LLP in Los Angeles who defends health insurers, said there has been a decline in new rescission lawsuits in his practice. But he said there will always be at least a few rescission lawsuits in the trial courts because people who lose insurance coverage over allegations of fraud will feel wronged, regardless of the reasons their health plans were rescinded.
He represented Blue Shield in its recent victory in Hagan and in other cases decided in the insurer’s favor by state appellate courts.
The 1st District said Hagan and his wife should have disclosed preexisting conditions that included Lori Hagan’s uterine fibroids on their application for insurance coverage and that Blue Shield did not have to prove the Hagans lied or omitted information on purpose.
“I would think that the result of some of the litigation in the last few years has had a deterrent effect on lawsuits,” LeBlanc said.
Several rescission lawsuits settled out of court and only one lawsuit, litigated by Shernoff, resulted in a verdict favoring a plaintiff.
Health Net paid $13 million in 2009 to settle two rescission lawsuits, including one filed by Shernoff and one that – like the recent litigation settled between Blue Shield and the city of Los Angeles – was filed by former Los Angeles City Attorney Rocky Delgadillo. State regulators also negotiated settlements in 2008 with several insurers, including Health Net and Blue Shield, to curtail rescission.
mjackson@dailyjournal.com
