HealthLawProf Blog

Editor: Katharine Van Tassel
Akron Univ. School of Law

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Monday, February 25, 2008

Nine Million Dollars!

Last week, the L.A. Times reported on an arbitration victory for a women in California against her health insurance company which had cut off her coverage in the middle of her chemotherapy treatment for breast cancer.  The cancellation appears to be related to a policy that rewarded insurance administrators based on the number of policies they canceled.  Needless to say, the cancellation and the reason that allegedly drove it, did not sit well with the Judge.   The LA Times' Lisa Girion states,

One of California's largest for-profit insurers stopped a controversial practice of canceling sick policyholders Friday after a judge ordered Health Net Inc. to pay more than $9 million to a breast cancer patient it dropped in the middle of chemotherapy.

Calling Woodland Hills-based Health Net's actions "egregious," Judge Sam Cianchetti, a retired Los Angeles County Superior Court judge, ruled that the company broke state laws and acted in bad faith.

"Health Net was primarily concerned with and considered its own financial interests and gave little, if any, consideration and concern for the interests of the insured," Cianchetti wrote in a 21-page ruling. (The LA Times has a link to the pdf version of the full decision) . . . .

The majority of the award -- $8.4 million -- was punitive damages, which are designed to teach the defendant a lesson. Such awards are highly unusual in private arbitration, the forum chosen by insurers and other companies to settle disputes. 

Health Net's lawyers had argued that Bates' suffering was minimal, a position that infuriated the judge.

The case was heard by a private judge, rather than a jury, because Health Net required Bates to agree to binding arbitration, a practice common among insurers.

"That's the point," said Carl Tobias, a law professor at the University of Richmond in Virginia. "Those kind of agreements that mandate arbitration tend to favor the bigger party or the interest with more economic clout."

The size of the award will require other insurers to take notice, he said.  "It sounds like he was just outraged," Tobias said of the judge. "He is sending a message."

Here is HealthNet's statement on its future policy adjustments as a result of this arbitration decision.   By the way, just in case you were concerned about the future viability of  HealthNet, it posted four quarter earnings that reflect a 46% increase from last year.

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