Blue Shield Rescinds Coverage After Man Has Near Fatal Accident, Lawyer Alleges

Blue Shield of California pulled the insurance rug from under a Cypress couple once his medical bills from a car wreck mounted to more than $500,000, an attorney told jurors Wednesday.

But an attorney for Blue Shield said Cindy Hailey tried to deceive the company by not being frank about her husband Steve's medical history on the application.

A jury of eight men and four women will decide claims in a lawsuit filed by 47-year-old Steve Hailey, and his 46-year-old wife, who now live in Oklahoma, against the insurer.

A key issue will be whether Blue Shield waited too long to rescind coverage -- granted on Dec. 15, 2000 -- after an in-house investigation led the company to believe Cindy Hailey left key information off the application.

The company rescinded coverage on June 1, 2001 -- not just canceling the coverage, but rolling it back entirely, plaintiff attorney Michael Nutter said. That left the couple with bills from a nearly fatal automobile accident Steve Hailey suffered on March 19, 2001 -- which occurred after Blue Shield had already launched an investigation.

The husband was hospitalized for two months, and he got out just days before the June 1, 2001, rescission letter went out, Nutter said.

The bills for the accident would reach more than $500,000, Nutter said. Later, Blue Shield sued the couple to recoup $104,000 it paid out before the coverage was rescinded.

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Nutter told the jury that Cindy Hailey rejected the coverage offered by her employer, because a doctor who had treated her chronic condition was not in the network.

She applied to Blue Shield to continue with her doctor and sought coverage for both her husband and her teenage son, he said.

"She filled (the form) out while believing the application requested medical history only as to her," Nutter said. "It was not a model of clarity, but confusing and ambiguous."

Nutter said insurance broker Timothy Patrick went over several of Cindy's answers and added some information, but he never spoke to Steve Hailey or the couple's son, Scott.

Had Blue Shield notified the Haileys of the rescission sooner, Cindy Hailey would have asked to be covered by her employer's insurance, and the accident expenses would have been covered, Nutter said.

"Blue Shield gave Cindy a confusing and ambiguous application," Nutter said. Then "it looked after its own interest without regard for the effect on Steve and Cindy.

"Blue Shield owed a fiduciary duty to them ... It agreed to insure them and the Haileys agreed to pay them."

Blue Shield attorney John LeBlanc told jurors that the case was about something else.

"The evidence of deceit is overwhelming," LeBlanc said. "The Haileys concealed and misrepresented critical information from Blue Shield. The evidence shows the Haileys had motivation long before the auto accident."

LeBlanc said that Steve Hailey, who was a machinist with his own business -- and reliant on his wife's employment coverage -- suffered health problems stemming from his youth.

In the 1990s, Steve Hailey had heart problems, shortness of breath and acid reflux problems, LeBlanc said. Hailey also was diagnosed as obese and took numerous prescription drugs, and none of those problems was noted on the application, he said.

One question Cindy Hailey answered about her husband was his weight, LeBlanc said, putting it at 240 when he weighed at least 290 at the time.

His acid reflux caused him to sleep propped up on four pillows, LeBlanc said. He sought emergency care at a Los Alamitos hospital for swallowing difficulties about two weeks before Cindy Hailey filled out the application, LeBlanc said.

LeBlanc insisted that Patrick, a broker for 20 years, asks "in every single situation" about the applicant's medical conditions and the medical conditions of anyone else to be covered under the same policy.

Displaying the application on a screen, LeBlanc pointed out questions that address "you and any applying family members."

LeBlanc said the investigation into the Hailey's case began in February 2001, a month before the accident, and the investigator concluded that, if Blue Shield was aware of Hailey's medical history, coverage would not have been approved.

After the coverage was rescinded, LeBlanc said, Blue Shield offered an alternative policy with a different premium, but, if accepted, would have "paid expenses back to the beginning."

LeBlanc said the company "meets and exceeds industry standards in every way."

The 4th District Court of Appeal ruled that insurers should not wait for illness or injury before verifying a client's medical history in an application, because they lose the option of canceling the policy unless they can prove the inaccurate information was supplied intentionally.
 

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