In newer life insurance, disability insurance, and health insurance polices (less than 2 years old) insurers attempt to avoid paying claims by performing what is known as “post claim underwriting.” When you purchase a health, disability or life policy, you fill out an application that asks questions about you and your family’s health, give the insurer a medical authorization, and sometimes undergo a medical exam. Instead of using the authorization to get the applicant’s medical history before wrting the policy, the insurance company waits until a claim is made. At that time, they obtain your medical records to determine if your statements on the application for insurance was 100% absolutely accurate. If not, then the insurance company rescinds (retroactively cancels) the policy, refunds your premiums, and denies your claim.
On the surface, it sounds reasonable for an insurance company to rescind a policy where the insured obtained the policy through material misrepresentations. But, the insurance company’s applications are full of run-on sentences, ambiguities, and traps for the applicant, who is filling out a form that asks for detailed medical information going back 10 years or more while the agent is telling you “we only need the important stuff.”
A policy holder’s honest mistake, inadvertent errors, and other inconsistencies about his medical history in the application should not be a basis to deny claims. Particularly, where the inconsistencies are apparent on the face of the application but the insurer does not investigate the flaws until after a claim is made.
Blue Cross of California has taken a positive step in avoiding the inequities of post claim underwriting in their health insurance policies. Blue Cross has agreed, pursuant to the settlement of a class action lawsuit, to rescind policies only where there is a finding of a willful misrepresentation in the application. Blue Cross has also agreed to use a new application form designed to minimize mistakes.
Hopefully, this is a step that all insurers will take or the legislature will require insurance companies to take in the future.