Health Insurance: When Is a Denial of a Claim Bad Faith in California

January 30, 2012, by Thomas Lewellyn

insurance policy.jpegIn 2009, Jerry Brown, then the attorney general of the State of California, started an investigation into the claims practices of the seven largest health plans in the state. This followed a report by the California Nurses Association that California Health Insurers reject one in five medical claims.

The report found that 22% of all claims from 2002 to 2009 were rejected. The rate of rejection ranged from a high of 39.6% for PacifiCare to 6.5% for Aetna. Aetna Blue Cross, the largest for profit health plan in the state was mentioned as denying 28% of their claims.

Doctors complained that the insurers often delay, shortchange or deny legitimate claims. Legally speaking, this is called "insurance bad faith." Delays or denials of legitimate claims such as these can lead to poor medical outcomes including death.

In California, the laws regarding an insurance company's obligations are clear and well established. Every insurance contract includes a promise of good faith and fair dealing implied by law - meaning the promise is there whether its stated in the contract or not. That means that an insurance company can't do anything that would prevent you from receiving the benefits of the policy that you paid for. It can't unreasonably withhold payments. It can't unreasonably delay payments. It can't unreasonably deny payments. The law also says that the insurance company can't put their own interests above that of its policy holders.

The courts recognize that when people buy health insurance policies, they are buying peace of mind. They are purchasing the assurance that if they get hit with large medical bills their insurance company will be there to protect them. Therefore, the insurance companies also have a legal obligation to do a proper investigation before denying a claim.

When insurance companies fail to meet these important legal obligations and someone's medical condition worsens, or someone dies because of it the insurance company is liable for damages for bad faith insurance practices.

Most commonly we see the following tactics by insurance companies that are trying to avoid their legal obligations to their policyholders:

• Objections that the treatments are experimental
• Objections that the treatments are not medically necessary
• Objections base on post claims underwriting (i.e. going back to your health insurance original application to find any mistake or omission which they now try to use against you to deny the claim)
• Delays and delays in the hope of wearing down the claimant


The proof of these bad faith claims is in the pudding--the claims file. Every phone call, every decision from the claims adjuster at the bottom up through the supervisory level is recorded in the claims file. As an Alameda bad faith insurance lawyer, when a client contacts me after being denied coverage for their health claim, the first thing that I do is to obtain a complete copy of the claims file. Next is the underwriting file. This file shows what coverage the person applied for, the application, and will show whether the benefits sought fall within the type of coverage that the insured sought.

In going through these documents and numerous others, I ask questions such as whether the insurer followed its own policies and procedures, whether it followed the law as set forth in the insurance code; whether it met industry standards in denying the claim; whether it gave as much consideration to its insured's interests as its own. Unfortunately, with the growing number of denials of claims, we often find that the answer to these questions is "no."

The attorney general's investigation appears to be ongoing, so I don't have the results of that available right now. But there is no doubt in my mind, that as insurance company profit margins get smaller, we will see more and more unjustly denied health insurance claims.

Resources:

HMO Claims-Rejection Rates Trigger State Investigation, Los Angeles Times, September 4, 2009