California Supreme Court Upholds Commissioner’s Regulatory Actions Against PacifiCare

January 4, 2019

The California Supreme Court let stand an appeals court decision upholding California Insurance Commissioner Dave Jones’ Fair Claims Settlement Practices Regulations, paving the way for millions of dollars in fines.

The decision ends years of legal wrangling over the regulations that implement the Unfair Insurance Practices Act, which prescribe how insurance companies must process insurance claims.

The Supreme Court upheld a decision last year from the California Court of Appeal, 4th Appellate District, in a case involving California Department of Insurance examinations of PacifiCare Life and Health Insurance Company’s claims-handling.

The CDI examinations reportedly uncovered evidence of numerous unfair claims practices, which included wrongful denials for life-saving treatment for people battling serious illness and claim payment denials for providers and hospitals.

According to the CDI and Jones, PacifiCare was using such practices because the insurer was focused on maximizing profits after the 2015 “botched $9 billion acquisition of PacifiCare” by UnitedHealthcare.

The department examinations also reportedly uncovered evidence the company was aware of the egregious issues.

Under the California Insurance Code, these unfair acts or practices include misrepresenting what medications or treatments an insurance policy covers, failing to promptly pay claims where liability is reasonably clear and forcing claimants to file lawsuits to get full payment.

The Insurance Code allows the commissioner to impose fines of up to $5,000 each time an insurer commits an unfair act or practice on a consumer, or up to $10,000 each time if the insurer did so willfully.

Based on departmental examination results and following an administrative hearing that took three years, Jones found PacifiCare committed 908,547 separate violations of the UIPA, and he imposed fines aggregating $173.6 million in penalties. On behalf of PacifiCare, UnitedHealthcare sued the commissioner, arguing that none of its harmful conduct violated the Insurance Code.

PacifiCare argued that insurers are immune from fines for committing these unfair acts, unless the commissioner is also able to show that the insurer knew it had committed the acts frequently enough to constitute a “general business practice.”

The court of appeal rejected the argument. The court also rejected PacifiCare’s argument that the commissioner must prove an insurer had “actual knowledge” of its illegal conduct and held that it was within the commissioner’s authority to hold the insurer responsible if its agents or employees were aware of facts that would cause a reasonable person to know of the violations.

“UnitedHealthcare purchased PacifiCare and imposed cost-cutting measures that destroyed PacifiCare’s claims-handling processes and its arguments in litigation that insurance companies should be allowed to willfully harm consumers as long as they don’t do it too often, reflect a gross disregard of the lives and well-being of the consumers who paid for the promise of coverage,” Jones said in a statement. “Customers have no choice but to rely on the integrity of their health insurance companies. PacifiCare breached that trust. By any measure, 908,000 violations reflect a general business practice of violating consumer protection laws.”

Related:

Topics Carriers California Legislation

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