Post-claims underwriting is the practice of cancelling a health insured’s policy for supposed omissions of information in the insured’s original application for coverage after the policyholder submits a claim, usually a major claim. Blue Cross has recently come under fire for post-claims underwriting activities in California, where such a practice is illegal. Many lawsuits have been filed against Blue Cross for denial of coverage for medical claims under their post-claims underwriting practices. If you have a policy with Blue Cross and believe it was unfairly cancelled (rescinded), leaving you with medical bills that should have been paid by Blue Cross, your first step is to determine if, in fact, your policy was rescinded, and if so, was it rescinded for improper reasons. See Blue Cross Lawsuits: How to Tell if Your Health Insurance Policy Was Rescinded for more information about this important first step.

What to do – What not to do

Assuming that you have correspondence from Blue Cross indicating that the policy has been rescinded on the basis of misrepresentation or non-disclosure, there are at least four things you should do to contest (challenge) the rescission, before a lawyer is required:

(1) DO NOT CASH THE PREMIUM REFUND CHECK. Although not fatal to being able to sue the insurance company in every case, cashing the refund check or draft may be construed as an acceptance of the carrier’s attempt to rescind (in legal terms, an “accord and satisfaction”). While the temptation to cash a premium refund check is great, particularly if you are left with outstanding medical bills that are not going to be paid by the health insurer, you should hold on to the check and not cash it if at all possible.

(2) Respond in writing to the insurance company telling them why you believe no omission or misrepresentation was made. Unfortunately, doing so will not change the carrier’s decision most of the time. But promptly writing the carrier back shows that you (a) disagree with its decision, (b) intend to stand up for your rights, and (c) have not simply accepted its determination. All such things will be of assistance in the event that a lawsuit formally contesting the rescission becomes necessary.

(3) Be sure to question whether the doctor has been accurately quoted by the insurance company. A recent rescission involved a case where the insurer was claiming that the applicant did not disclose a history of diabetes. Failure to disclose such a medical condition would indeed have been a serious omission. However, although medical records obtained by the insurer did show an isolated episode of elevated blood sugars (hyperglycemia), the applicant was never advised by his doctor that he had diabetes. Upon checking with the doctor, the insured found out that no such diagnosis was ever made and, in fact, the doctor was more than willing to tell that directly to the insurance company. Although not always easy (as doctors are busy people), most physicians will be willing to assist their patients in explaining treatment and diagnoses to insurance companies, particularly if the doctor appreciates that his or her bill is more likely to be paid if the policy is reinstated. Obtain copies of your medical records (you are entitled to them). Examine them. Do they say what the insurance company claims they say? Is the doctor willing to assist you in your fight with the insurance company? Find out and be proactive. Ask the doctor to write to the company on your behalf.

(4) Almost every denial of a claim or rescission will suggest that you have the right to contact your state’s Department of Insurance or Department of Managed Care for their assistance. Do it. Write a letter or submit a complaint to the appropriate agency (the Department of Insurance will likely advise you who you need to contact). Although the percentage of complaints that receive favorable attention is relatively small, making a complaint may help you overturn the determination, and will certainly be beneficial in the event that a lawsuit is needed (and may also help others who have lodged similar complaints). Stand up for your rights.

Finally, if your response to the carrier and/or that of your doctor doesn’t work, and your complaint to the Department of Insurance is not acted upon, contact a lawyer. The fact is that not every rescission is actionable. An insurance lawyer should be able to advise you whether what was allegedly omitted or misrepresented provides the insurance company adequate grounds to rescind, or, on the other hand, whether you have a case against the insurer for wrongful rescission.

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What to expect if you win

If you do retain a lawyer, sue and win, what can you expect to receive? If the rescission was unfounded, you may be awarded the benefits that would have been paid if the policy had not been canceled (e.g., the medical bills that the carrier sought to avoid paying in the first place), any damages naturally flowing from the wrongful act (consequential damages), and get the policy reinstated. If the Court or jury decides that the rescission was undertaken in bad faith, you may also receive damages due to any emotional distress that you have suffered because of the wrongful rescission. The amount of consequential damages will depend, at least in part, on the nature of the problems or distress caused by the wrongful act. Some questions that may provide a little guidance as to consequential damages include: were the denied medical bills sent to collection? Did they result in judgments against you? Has your credit been damaged? You may also be awarded the attorney fees that you were required to expend to pursue the lawsuit contesting the rescission.

Finally, if the Court or jury finds that the action of the insurance company was unreasonable, undertaken in bad faith and “despicable,” you may be awarded punitive damages designed to punish or make an example of the offending insurance company. Unfortunately, such damages are rarely awarded. Here again, an attorney knowledgeable in insurance bad faith cases can properly advise as to whether punitive damages are a real possibility.

If you think your insurance policy has been wrongly rescinded contact an insurance lawyer versed in insurance matters.

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