DEPARTMENT OF INSURANCE
To Whom It May Concern:
The following document includes the revised version and, following immediately, the unrevised version of the "PUBLIC REPORT OF THE TARGETED MARKET CONDUCT EXAMINATION OF THE CLAIMS PRACTICES OF THE BC LIFE & HEALTH INSURANCE COMPANY".
The unrevised version, dated May 4, 2007, was published in error. The revised version has the final changes made by the Field Claims Bureau examiner and is dated July 19, 2007.
The Department apologizes for any confusion caused by the release of the unrevised report.
REVISED PUBLIC REPORT OF THE TARGETED MARKET CONDUCT EXAMINATION
OF THE CLAIMS PRACTICES OF THE
TABLE OF CONTENTS
July 19, 2007
The Honorable Steve Poizner
Insurance Commissioner
State of California
45 Fremont Street
San Francisco, California 94105
Hereinafter referred to as BC Life & Health or the Company.
This report is made available for public inspection and is published on the California Department of Insurance web site ( www.insurance.ca.gov) pursuant to California Insurance Code section 12938.
"This revised report was adopted in replacement of the report adopted on 6/6/07. The previous report included a criticism of one file which the Department intended to withdraw and had other typographical errors which have been corrected in this revised report."
SCOPE OF THE EXAMINATION
The targeted examination covered the claims rescission and handling practices of the aforementioned Company during the period January 1, 2004, through February 28, 2006. The examination team was informed prior to the examination that lawsuits had been filed against the Company with respect to the rescission and post claim underwriting of health insurance contracts. The examination team focused their evaluation on Company policies and operating procedures to determine if the Company was complying with its contractual obligations in the policy forms, the provisions of the California Insurance Code (CIC), the California Code of Regulations (CCR), and case law. This report contains only alleged violations of Section 790.03 and Title 10, California Code of Regulations, Section 2695 et al. The alleged violations of other relevant laws which resulted from this examination are included in a separate report which will remain confidential subject to the provisions of CIC Section 735.5.
To accomplish the foregoing, the examination included:
The examination was conducted primarily at the offices of the Company in Woodland Hills, California
The report is written in a "report by exception" format. This targeted report does not present a comprehensive overview of the subject insurer's practices. The report contains only a summary of pertinent information about the lines of business examined and details of the non-compliant or problematic activities or results that were discovered during the course of the examination along with the insurer's proposals for correcting the deficiencies. When a violation is discovered that results in an underpayment to the claimant, the insurer corrects the underpayment and the additional amount paid is identified as a recovery in this report. All unacceptable or non-compliant activities may not have been discovered. Failure to identify, comment on or criticize activities does not constitute acceptance of such activities.
Any alleged violations identified in this report and any criticisms of practices have not undergone a formal administrative or judicial process.CLAIM SAMPLE REVIEWED AND OVERVIEW OF FINDINGS
The examiners reviewed files drawn from the category of Closed Rescinded and Denied Claims for the period January 1, 2004, through February 28, 2006, commonly referred to as the "review period". The examiners reviewed a total of 93 BC Life & Health claim files. The examiners cited 67 claim handling violations of the Fair Claims Settlement Practices Regulations and/or California Insurance Code Section 790.03 within the scope of this report. Further details with respect to the files reviewed and alleged violations are provided in the following tables and summaries.
The following is a brief summary of the criticisms that were developed during the course of this targeted examination related to the violations alleged in this report. This report contains only alleged violations of Section 790.03 and Title 10, California Code of Regulations, Section 2695 et al. In response to each criticism, the Company is required to identify remedial or corrective action that has been or will be taken to correct the deficiency. Regardless of the remedial actions taken or proposed by the Company, it is the Company's obligation to ensure that compliance is achieved. There were no recoveries discovered within the scope of this report.
ACCIDENT AND DISABILITY1. In 32 instances, the Company failed to effectuate prompt, fair and equitable settlements of claims in which liability had become reasonably clear. In 30 instances, the Company failed to effectuate prompt handling of a claim. The examiners' note that the majority of the delays occurred in the 2004 and 2005 claims sample that was reviewed. Because the window period for claims reviewed ended on February 28, 2006, the examiners were unable to determine if this trend continued.
The other two circumstances are described as follows: in one rescinded policy, the rescission letter referred to a medical condition that was clearly stated on the application and the Company had failed to request relevant medical information prior to offering coverage. In the second instance, an insured revealed a medical condition to the agent who assisted in completing the application and who assured the applicant there would be no problem posed by the applicant's stated medical condition. Later on, when the insured presented a claim for treatment of that condition, the Company then requested medical information and upon receipt of that information, rescinded the policy.
The Department alleges these acts are in violation of CIC §790.03(h)(5).
Summary of Company Response: In response to the issue of promptness, the Company explained that in 2005 they discovered they did not have adequate staffing for the work demanded of the Medical Investigation Unit. This created a backlog of cases to be reviewed. This problem was researched and steps were taken to remedy the understaffing. Staffing has been increased from 5 to 21 staff members and the Company indicates that the process has been improved as a result.
In response to the alleged invalid rescissions in the other two instances: in the first unfair rescission the Company feels that there was nothing unfair about the rescission. For the policy rescinded wherein the agent assisted in completing the application the Company states, "This condition once diagnosed, is a declination." The last two files with issues are unresolved which may result in further administrative action.
2. In 27 instances, the Company failed to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under its insurance policies. The examination team found that the Company failed to promptly setup its rescission investigation activities in 27 files. This process includes the medical investigation, the sending of notices to the insureds, and the time taken to make a decision to rescind. The Department alleges these acts are in violation of CIC §790.03(h)(3).
Summary of Company Response: In response to the issue of promptness, the Company explained that in 2005 they discovered they did not have adequate staffing for the work demanded of the Medical Investigation Unit which created a backlog of cases to be reviewed. This problem was researched and steps were taken to remedy the understaffing. Staffing has been increased from 5 to 21 staff members and the process has improved as a result.
3. In four instances, the Company failed to represent correctly to claimants, pertinent facts or insurance policy provisions relating to a coverage at issue. In four instances the Company rescinded the contract in breach of the terms of its own contract with the consumer and misrepresented the terms of its contract as a result. The application form that was appended to 60 of the 64 rescission files reviewed included language which indicates that the Company will not rescind the contract unless the consumer intentionally provided false or incomplete material information. The following excerpt is quoted from a BC Life and Health contract:
"Rescission of Membership"
"I have provided a complete history of material information that will be considered in the acceptance or denial of this application. I understand that if I intentionally provided incomplete or false material information Blue Cross may revoke my coverage. This means Blue Cross will cancel membership as if it never existed. Also, after approval for membership, if material information is discovered by Blue Cross that was not provided to the Plan prior to the effective date of the policy, Blue Cross may deny coverage."
It is noted that the examiners did not allege a violation in situations where the facts supported a determination of an intentional misrepresentation based on the documents reviewed. In such files, citations were not made despite the Company's failure to produce an overt statement identifying willfulness in either the file or in correspondence to the consumer. In the instances that were cited, the Company failed to prove that the consumer intentionally provided incomplete or false information and therefore coverage was rescinded in contravention to the terms of the contract. The Department alleges these acts are in violation of CIC §790.03(h)(1).
Summary of Company Response: "The Company did not misrepresent the terms of the contract because the contract clearly states that the Company may rescind the coverage if the applicant "intentionally provided incomplete or false material information." The Company contends as long as the medical records show the consumer had prior knowledge of a condition not revealed on the application there was intent.
This is an unresolved issue that may result in further administrative action.
4. In two instances, the Company failed to maintain all documents, notes and work papers in the claim file. In the two instances, the manager responsible for approving the rescission did not sign-off on the documentation. The Company was unable to provide the examiners with the name of the approving manager. The Department alleges these acts are in violation of CCR §2695.3(a).Summary of Company Response: The Company agrees with the citation and explains that emphasis will be placed on complete file documentation going forward with its staff.
5. In one instance, the Company persisted in seeking information not reasonably required for or material to the resolution of a claim dispute. In one instance the company failed to conduct and pursue a thorough, fair and objective investigation of a claim. In the one instance, a bi-polar dependent stated he had taken illegal drugs and abused alcohol. There was no other corroboration of this statement in the file. The Company failed to verify this information with the treating physician and made a decision to rescind the policy. The Department alleges this act is in violation of CCR §2695.7(d).
Summary of Company Response: The Company disagrees they failed to verify with the treating physician, the Company states since they were not provided the names of other treating physicians they could only utilize the medical information provided by the dependent child.
This is an unresolved issue that may result in further administrative action.6. In one instance, the Company failed to provide the written basis for the denial of the claim. The Department alleges this act is in violation of CCR §2695.7(b)(1). The Company failed to state the specific reason for the rescission and that failure resulted in a reversal of the rescission after review by the Company's legal department.
Summary of Company Response: The Company states, "The original retro-cancellation letter was not worded correctly and therefore the policy was reinstated and the claims were paid."
UNREVISED
PUBLIC REPORT OF THE TARGETED MARKET CONDUCT EXAMINATION
OF THE CLAIMS PRACTICES OF THE
TABLE OF CONTENTS
May 4, 2007
The Honorable Steve Poizner
Insurance Commissioner
State of California
45 Fremont Street
San Francisco, California 94105
Hereinafter referred to as BC Life & Health or the Company.
This report is made available for public inspection and is published on the California Department of Insurance web site ( www.insurance.ca.gov) pursuant to California Insurance Code section 12938.
The examiners reviewed files drawn from the category of Closed Rescinded and Denied Claims for the period January 1, 2004, through February 28, 2006, commonly referred to as the "review period". The examiners reviewed a total of 93 BC Life & Health claim files. The examiners cited 67 claim handling violations of the Fair Claims Settlement Practices Regulations and/or California Insurance Code Section 790.03 within the scope of this report. Further details with respect to the files reviewed and alleged violations are provided in the following tables and summaries.
2. In 32 instances, the Company failed to effectuate prompt, fair and equitable settlements of claims in which liability had become reasonably clear. In 29 instances, the Company failed to effectuate prompt handling of a claim. The examiners' note that the majority of the delays occurred in the 2004 and 2005 claims sample that was reviewed. Because the window period for claims reviewed ended on February 28, 2006, the examiners were unable to determine if this trend continued.
The other three circumstances are described as follows: in one rescinded policy, the rescission letter referred to a medical condition that was clearly stated on the application and the Company had failed to request relevant medical information prior to offering coverage. In the second instance, an insured revealed a medical condition to the agent who assisted in completing the application and who assured the applicant there would be no problem posed by the applicant's stated medical condition. Later on, when the insured presented a claim for treatment of that condition, the Company then requested medical information and upon receipt of that information, rescinded the policy. In the third instance, the Company rescinded the insurance contract in error. The Company's Medical Investigation Unit had miscalculated the period of time between the last treatment and the effective date of coverage. They did not reinstate coverage even when the error was brought to the Company's attention. The Department alleges these acts are in violation of CIC §790.03(h)(5).
Summary of Company Response: In response to the issue of promptness, the Company explained that in 2005 they discovered they did not have adequate staffing for the work demanded of the Medical Investigation Unit. This created a backlog of cases to be reviewed. This problem was researched and steps were taken to remedy the understaffing. Staffing has been increased from 5 to 21 staff members and the Company indicates that the process has been improved as a result.
In response to the alleged invalid rescissions in the other three instances: in the first unfair rescission the Company feels that there was nothing unfair about the rescission. For the policy rescinded wherein the agent assisted in completing the application the Company states, "This condition once diagnosed, is a declination." In the final alleged unfair rescission the Company agrees with the criticism and states, "In reviewing the medical records for this member, it appears that the next treatment for the ovarian cyst was after the original effective date. This applicant had met the Medical Underwriting Guidelines for this condition."
Two of the three specific files with issues are unresolved which may result in further administrative action.
Summary of Company Response: In response to the issue of promptness, the Company explained that in 2005 they discovered they did not have adequate staffing for the work demanded of the Medical Investigation Unit which created a backlog of cases to be reviewed. This problem was researched and steps were taken to remedy the understaffing. Staffing has been increased from 5 to 21 staff members and the process has improved as a result.
Summary of Company Response: The Company agrees with the citation and explains that emphasis will be placed on complete file documentation going forward with its staff.
5. In one instance, the Company persisted in seeking information not reasonably required for or material to the resolution of a claim dispute. In one instance the company failed to conduct and pursue a thorough, fair and objective investigation of a claim. In the one instance, a bi-polar dependent stated he had taken illegal drugs and abused alcohol. There was no other corroboration of this statement in the file. The Company failed to verify this information with the treating physician and made a decision to rescind the policy. The Department alleges these acts are in violation of CCR §2695.7(d).
6. In one instance, the Company failed to provide the written basis for the denial of the claim. The Department alleges this act is in violation of CCR §2695.7(b)(1). The Company failed to state the specific reason for the rescission and that failure resulted in a reversal of the rescission after review by the Company's legal department.
Summary of Company Response: The Company states, "The original retro-cancellation letter was not worded correctly and therefore the policy was reinstated and the claims were paid."
