Los Angeles Daily Journal

LOS ANGELES, CA — A Blue Cross class-action settlement over its practice of retroactively canceling individual policies is being panned by plaintiffs’ attorneys and consumer advocates who note the agreement offers no chance that plaintiffs’ insurance policies will be reinstated.

“The plaintiffs are — to use a technical term — screwed,” said attorney Sharon Arkin, because most insurers will not offer policies to individuals who have been denied coverage.

Her Pasadena firm, Arkin & Glovsky, is involved in two class actions against Blue Cross over retroactive cancellations.

Blue Cross had a policy of canceling individual policies retroactively after a review of the individual’s health history questionnaire revealed inconsistencies or misrepresentations. The review usually was triggered by the processing of large medical bills, and the cancellations, called rescissions, meant the insurer would not pay for medical services it had approved. The practice has led to a flurry of lawsuits — individual and class actions — against Blue Cross and a $1 million fine from the Department of Managed Health Care.

The May 10 settlement is the first class action to settle. Horton v. WellPoint BC, 34182.

William Shernoff, a Claremont-based insurance bad-faith attorney, negotiated the settlement with Blue Cross, which was represented by Kurt Peterson of Reed Smith and Gary Urwin of Hogan & Hartson.

Under the settlement, class members have three options. They can ask Blue Cross to review their rescission based on the new willful-misrepresentation standard. If Blue Cross determines the rescission was not appropriate, it will “process and adjudicate eligible medical claims” and reimburse the plaintiff for medical claims paid before the rescission.

If Blue Cross maintains its decision to rescind, the plaintiff can ask retired Judge Edward Panelli, who oversaw the settlement, to review the decision.

The second option is to accept $1,000 from Blue Cross and drop all claims against the company.

A third alternative is to opt out of the settlement and retain the option to pursue an individual suit against Blue Cross.

Under no circumstances will Blue Cross reinstate policies.

Arkin said she considers reinstatement important enough that she would not settle her lawsuits without it.

“I would be willing to go to trial over it,” she said.

At least three other class actions are pending against Blue Cross in different courtrooms.

The settlement has yet to be approved by a judge. A hearing for preliminary approval is set for June 4.

The agreement also mandates Blue Cross pay Shernoff and co-counsel Randy Curry attorney fees up to $1.45 million and remit $25,000 each to the two named plaintiffs.

Shernoff, of Shernoff Bidart Darras, acknowledged that Blue Cross had refused to negotiate over reinstatement. But he did call the settlement “a major breakthrough,” because Blue Cross agreed to adopt a new standard — based on willful misrepresentation of an individual’s health history — to determine whether a cancellation is appropriate, as well as redrafting a less-confusing health history questionnaire.

“It’s not easy to get a big corporation to change their whole business practice,” Shernoff said. “I think it will minimize any new rescissions because it is really hard to show intentional misrepresentation.”

Amy Dobberteen, senior counsel at the Department of Managed Health Care, said, “The settlement goes a long way in helping the consumer, since it contains the intentional misrepresentation standard we have always maintained the law required.”

The department also helped rewrite Blue Cross‘ simpler health history questionnaire and will provide independent review of future rescissions in the event consumers appeal future Blue Cross decisions.

Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights said, “Blue Cross is now agreeing to live by the letter of the law.

“But the fact that they will not reinstate rescinded policies is absolutely reprehensible. Those people are now uninsurable unless the DMHC, as the regulator, requires Blue Cross to reinstate.”

Even the new standard may not be adopted permanently.

In response to the settlement, Blue Cross stated, “[We] expressly reserved our right to contest a requirement for intentional misrepresentation, while recognizing the DMHC will only allow filings with that language at this time. Rescissions are rare and difficult for all involved but are a necessary part of the underwriting process to safeguard against fraud and misrepresentation.”

“I don’t think this purported settlement is very good,” said Glenn Solomon of Hooper, Lundy & Bookman.

Solomon represents a class of physicians and hospitals who are suing Blue Cross over bills that went unpaid because of retroactive cancellations. He also filed a motion to intervene in Shernoff’s suit in December.

“The statute already says it requires willful misrepresentation,” he said. “For Blue Cross, it will buy them peace for almost nothing.”

Solomon further accused Blue Cross of “judge shopping” and said the insurer is “attempting to divide and conquer.”

Shernoff responded that he believed Solomon is not “understanding the process.”

“I think they’re worried that, if this settles, they don’t have anything to intervene in,” he said. “We wish them well on their suit.”