MEGA Life and Health Insurance Company: Bad Faith Denial of Claims

Full Transcript: Free Advice Interview with Insurance Attorney Bob Scott

The following is a transcript of an interview with California insurance attorney , Bob Scott, conducted on March 28, 2007. Mr. Scott has over thirty years of experience as a trial attorney in California, specializing in all aspects of bad faith insurance litigation, including life, health and accident insurance and all attempted insurance policy rescissions or cancellations. Mr. Scott has represented a diverse range of clients, from individuals victimized by insurance companies to large banks and industrial companies. In this interview, Mr. Scott discusses the practices of MEGA Life and Health Insurance Company and the laws that govern insurance company behavior and the practice of bad faith denial of claims.

Free Advice: I’m speaking with Bob Scott, an attorney in Southern California, who has done extensive work representing plaintiffs against insurance companies who have wrongfully denied their claims. We’re going to talk about MEGA Life and Health Insurance Company today. Randy, can you tell me who is MEGA Life and Health Insurance Company?

Bob Scott: MEGA Life and Health Insurance Company is an insurance company that sells health insurance in 47 states. They sell a lot of policies here in California, as well. MEGA Life’s sister company, Midwest National Life Insurance Company of Tennessee, also sells policies in 47 states, including California. They are owned by an insurance holding company called Health Market, a Texas entity that used to be called UICI and was a Texas holding company on the New York Stock Exchange. In the last year, UICI was sold to a private equity company, and is no longer a public company. They continue to hold and own MEGA, as well as Midwest, but have changed their name to Health Markets.

Free Advice: How are they selling their health insurance product?

Bob Scott: Primarily, they sell through a group of agents who sell the policies and memberships through two organizations: one called NASE, (National Association of Self-Employed) and another called Alliance for Affordable Services. The agents advise insurance consumers that if they join either the NASE or the Alliance for Affordable Services, they are joining large groups of insurance consumers and can obtain group-like insurance at group-like premiums. They never advise the potential insureds that these so-called not-for-profit entities are actually controlled by health markets and their subsidiaries, MEGA and Mid-Life, Midwest.

Free Advice: Is it legal to sell health insurance this way?

Bob Scott: It is legal. However, in California and several other states, a group like this cannot be set up for the sole purpose of selling insurance, and we take the position that these organizations were set up specifically to sell insurance, which is illegal.

Free Advice: Is this considered insurance fraud?

Bob Scott: In our opinion, yes.

Free Advice: Is there anything else we should know about MEGA Life?

Bob Scott: MEGA Life and their sister company, Midwest, continue to sell these products after settling a multi-million dollar class action settlement whereby they were ordered to advise of the inner relationships between the holding company, these groups, and the insurance companies, so that people would really understand that these groups are not really independent, that they don’t necessarily have the consumers’ best interests at heart, and that the insurance companies are pulling off a fraud on these insurance consumers.

Free Advice: Are they continuing to market this way after that settlement?

Bob Scott: Yes, they are. They continue to market the same way. They’ve changed some of their advertising materials and presentation materials, but even the new materials attempt to mislead the public.

Free Advice: Do the insurers wrongfully deny claims for those insured under the associations you’ve mentioned?

Bob Scott: In our opinion, yes. They continue to fraudulently market these policies as major medical policies, but they have limited schedules that limit payments, for instance, for a hospital stay or physician’s visit. I have clients who have thousands and thousands of dollars of medical bills and cases in which these companies are paying a small percentage of the medical bills. They claim to have paid all that is owed under the policies as written, but the people who have purchased these policies were misled to believe they had true major medical insurance coverage and would be protected.

Free Advice: How long has this been going on for?

Bob Scott: I’ve been doing these cases for several years. These associations were set up in the 1980s, so this has been going on for a long time.

Free Advice: How do I know if I have a bad faith insurance claim against MEGA Life?

Bob Scott: It involves a lot of research. You would have to contact an attorney to review these claims, the policies, and the advertising information, as well as the dates of application, to determine if you really have a case.

Free Advice: Would I base my case on the date of my application or the date when my claims were denied?

Bob Scott: It depends on the cause of action. Some of the fraud causes of action would start at the time of purchase, or at the time of application. However, a bad faith cause of action in a complaint would run from the date of the denial.

Free Advice: What is the California Department of Insurance doing about these types of claims?

Bob Scott: I don’t think they’re doing too much. I know that they opened an investigation, but I haven’t seen too many changes in the way that these companies are doing business here in California. There have been some changes in the departments since the elections. We have a new Insurance Commissioner, so I’m hoping that the Department of Insurance will continue their investigations and properly protect California insurance consumers.

Free Advice: How do I know if I’m buying one of these policies? If I have bought one of these policies, what do I do?

Bob Scott: If you bought one of these policies, it will feature the name of MEGA or the name of Midwest on the policy face sheet.

Free Advice: What are my remedies if I’ve been sold such a policy?

Bob Scott: It depends on whether claims have been made and whether you have been defrauded. You must have been a member of the class that has settled, which includes policies purchased between August 1, 1998, and May 14, 2004. However, I would recommend that you let an attorney make that determination.

Free Advice: Is there anything else that consumers should know?

Bob Scott: I don’t think so.

Free Advice: Thanks for your time.

Bob Scott: You’re welcome.