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Large STM insurer faces class action lawsuit over systematic denial of claims

Insurance Forums Staff

A new lawsuit alleges that the largest carrier of short-term medical insurance plans employed marketing and claims processing procedures that were purposely engineered and uniformly applied to delay and deny valid claims, rendering their products effectively worthless and violating federal and state law in the process.

Lieff Cabraser Heimann & Bernstein, LLP partners Rachel Geman and Elizabeth J. Cabraser, with co-counsel, have filed a multi-state class action lawsuit in Indiana federal court alleging that HCC Medical Insurance Services, LLC HCC Life Insurance Company, and Health Insurance Innovations, Inc. (“Defendants”) have “cheated the plaintiffs” — consumers of short-term insurance plans who have incurred sometimes catastrophic medical expenses — “by routinely and systematically refusing to pay promised insurance benefits, including through the common vehicle of post-claims underwriting,” according to a Jan. 3 release from the law firm.

The named plaintiffs are residents of South Portland, Maine, Box Elder, South Dakota, and Post Falls, Idaho.

Nature of the HCC Medical Insurance Fraud Lawsuit

The lawsuit arises out of Defendants’ sale of short-term medical (“STM” or “short-term”) insurance plans. Short-term insurance provides limited coverage that is targeted to particularly vulnerable buyers, and that is exempt from certain consumer protections contained in the Affordable Care Act (ACA).

According to the release, Defendant HCC has historically been the largest short-term insurer in the U.S., contracting with policyholders to provide Defendants’ STM products which products are underwritten through HCC Life. Defendants began jointly developing, marketing, selling, and administering HCC’s short-term insurance plans in July 2013, at the latest, and continued to do so until at least May 2017. Defendants developed, marketed, sold, and administered STMs in at least 45 states.

“HCC and HII colluded to prey on consumers when they are at their most vulnerable,” said plaintiffs’ attorney Rachel Geman, a partner in Lieff Cabraser’s New York office. “The large bills come fast and furious, and, rather than getting basic protection, people face an intentional, demoralizing, and confusing run-around.”

Plaintiffs’ counsel Jay Angoff, a partner at Washington, D.C.-based Mehri & Skalet, oversaw the implementation of the ACA during the Obama Administration, and said that “the ACA was intended to prevent the types of practices this lawsuit challenges.”

“Given the volatile state of the health insurance landscape there’s a real danger that, left unchecked, bad actors like HCC and HII will flood the marketplace with these deficient insurance products,” said David Slade, an attorney with the Little Rock-based firm Carney Bates & Pulliam, an attorney for plaintiffs. “Households will be at a higher risk than ever of being tricked into buying these plans,” noted plaintiffs’ attorney Michael Flannery, a partner with the Washington, D.C.-based firm Cuneo Gilbert & LaDuca LLP.

Allegations in the Class Action Fraud Complaint

The class action complaint alleges that Defendants enter into STM contracts that purport to have only limited, well-defined exclusions of coverage, such as pre-existing condition exclusions for health issues occurring in periods ranging from six months to two years prior to the effective date of the policy. But, notwithstanding these commitments (and other prompt pay obligations), Defendants delay and deny valid claims by seeking burdensome (often completely irrelevant) health records stretching back as much as five years, and spanning across all of an insured’s healthcare providers, regardless of their relation to the claim or the ailment. As the complaint notes:

Defendants violate the law through employing an undisclosed and unlawful “five-year look-back,” through which they: (1) extend their pre-existing conditions exclusion well beyond the contracted-to period of six, twelve, or twenty-four months, in search of a condition to use as the basis to deny a valid claim; (2) engage in post-claims underwriting, in search of a condition that would have made the policyholder ineligible for Defendants’ insurance in the first place; and (3) delay policyholder claims to the point of constructive denial, by claiming they are constantly in need of difficult to obtain and legally irrelevant medical records and/or by pretending not to have medical records already in their possession.

The five-year look-back is not disclosed to prospective purchasers of HCC’s insurance, so the first time policyholders are made aware it is only after they have suffered the distress of a recent hospitalization or other medical incident. Further, Defendants scour policyholders’ medical records for evidence of any preexisting condition during a much longer, undisclosed time period—the previous five years—and deny policyholder claims based on medical conditions suffered well before the disclosed period, whether or such conditions are remotely related to the current medical incident.

When Defendants obtain medical records from policyholders through the five-year look-back, they then use these records to seek out purported medical conditions that would have made the policyholder ineligible for HCC’s insurance in the first place. Once such a condition is found, Defendants use it to justify denial of the policyholder’s claim or the complete rescission of the policy. This practice is commonly known as “post-claims underwriting.” (Complaint, page 7). Many states have explicitly made such practices unlawful.

Finally, many policyholders who attempt to provide Defendants with the documents requested, either directly or through their health care providers, are prevented from doing so by Defendants’ intentionally dilatory claims processing procedures.

Defendants’ practices have come under scrutiny by various state regulators, and certain defendants are facing a multi-state market conduct examination. Plaintiffs assert that Defendants’ conduct violates the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1961 et seq., the law of contract in each state in the multi-state classes, and the state statutory and common law of the states where the named plaintiffs and class representatives reside.

Relief sought in the HCC Medical Insurance Fraud Lawsuit

The lawsuit seeks monetary and equitable remedies for the class, including treble damages based on the fraudulent and damaging nature of the conduct, and an order requiring Defendants to immediately cease their unlawful, deceptive, and obstructive practices. Plaintiffs also seek the establishment of a common fund for the payment of medical expenses incurred by Plaintiffs and the Class as a result of Defendants’ practices.



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