News Archives - Page 26 of 37 - McKennon Law Group

Commissioner Poizner Releases Results of His Second Preferred Provider Organization Quality of Care Report Card (And it is Not Good)

Last week, Commissioner Poizner released the results of his second Preferred Provider Organization (“PPO”) quality of care report card. The results are not good news for consumers, and show that California’s PPOs have much work to do in meeting customer needs. According to Poizner:

“California PPOs rank in the middle of the pack compared with the national average, and show some of the lowest overall scores that California has ever seen. HMOs began reporting on quality in 2001, and I got PPOs to join the effort beginning last year. I am grateful for their cooperation, but this report card shows they will have to do better. This should be their wake-up call,” said Commissioner Poizner. “These results show that insurers have a lot of room for improvement, particularly in the area of customer satisfaction. As I promised when I came into office, consumers now have much more information to make choices that are best for them, and to pressure insurers to do better. We all need to use this data to make that happen.”

None of the six PPOs on the report card received the highest four-star rating, but Aetna, CIGNA HealthCare of California and United Healthcare (California) each received three stars overall for delivering quality clinical care. Anthem Blue Cross, Blue Shield of California and Health Net each received two stars overall in that category. Rating criteria included asthma care, checking for cancer, diabetes care and treatment of children. The ratings are based on a set of standard measures developed by the National Committee on Quality Assurance.

In addition to grades based on clinical best practices, the report also includes grades, for the first time, on customer satisfaction. While all PPOs got the mid-range 2-3 stars for getting care easily, all insurers except Aetna received the lowest, single-star rating for plan service. This is clearly the area of greatest concern for California consumers and where there is the greatest room for improvement. The Plan Service category includes customer ratings on things like helpful customer service, getting information about your costs and paying claims.

The PPO report card is available at http://www.insurance.ca.gov. The companion report card on HMOs will be released separately early next year.

McKennon Law Group PC Client Awarded $543,612.62 in Damages in Investment Loss Case – the First of its Kind in Hundreds of Pending Medical Capital Cases

In what appears to be the first FINRA arbitration award of its kind in the pending Medical Capital cases, McKennon│Schindler LLP client Eric Anderson was awarded $543,612.62 in damages (the full amount of his investment losses) for his massive losses caused by his financial advisor firm’s negligence and breach of fiduciary duties owed to Mr. Anderson.

Mr. Anderson looked forward to relaxing with his family and enjoying a well deserved retirement. After years of hard work and saving, Mr. Anderson had accumulated a sizable retirement fund which he intended to live off of for the rest of his life. These funds were entrusted with Cullum & Burks Securities, who managed both his finances and 401(k) retirement accounts. A Cullum & Burks’ agent and representative, Robert Clark took advantage of Mr. Anderson’s ignorance and pressured him into moving the entirety of his retirement funds into an extremely risky investment fund by Medical Capital Holdings. Clark ignored Mr. Anderson’s fragile financial situation and made this recommendation despite being told that this money was the sole means of support for him and his wife.

It turned out that Medical Capital Holdings, which provided financing to healthcare providers by purchasing the providers’ accounts receivables and making loans to those providers, was almost certainly a fraudulent ponzi scheme. The accounts receivables allegedly were packaged into notes and sold through private placements to investors. Approximately 20,000 investors purchased $2.2 billion in Medical Capital notes. Approximately $1 billion of the notes are in default, leaving investors like Mr. Anderson with massive investment losses. According to the SEC’s investigation, Medical Capital and its officers used the accounts as their personal piggy banks, improperly requesting and obtaining investor funds to pay themselves massive “administrative fees” of nearly $325 million which they used to purchase lavish personal perquisites, Medical Capital and its affiliates also invested in an array of non-medical projects that were placed under the personal supervision of Lampariello, including mobile phone and movie ventures, and commingled investor funds. Despite controlling hundreds of millions of dollars, the SEC and an appointed Receiver found that the Medical Capital entities operated without financial or accounting controls, failed to prepare financial statements in accordance with GAAP, failed to use audited financial statements, failed to perform annual appraisals of assets, and repeatedly obtained the Trustees’ permission to pay themselves fees based on a formula.

Ultimately, Mr. Anderson lost his entire life savings. What was initially touted by Clark as a “safe” investment was wiped out in a little over a year. The loss was so complete that Mr. Anderson, at age 68, was forced to study for and obtain his insurance license in order to start working again so that he could support his family. His dream of a leisurely retirement had been shattered.

MCKENNON LAW GROUP PC LLP filed an action on behalf of Mr. Anderson with the Financial Industry Regulation Authority (“FINRA”) against Cullum & Burks Securities and Robert J. Clark his financial advisors. MCKENNON LAW GROUP PC LLP, on behalf of Mr. Anderson, asserted claims for breach of fiduciary duty, unsuitability, failure to supervise, professional negligence, unjust enrichment, negligent and intentional misrepresentation, elder abuse, and violation of California Corporate Code section 25401. After a hearing and arbitration, the FINRA panel awarded Mr. Anderson the full amount of compensatory damages plus interest requested in the amount of $543,612.62. According to Robert McKennon, the lead attorney on the case, “this is the first of what is expected to be several other FINRA awards against financial advisors who sold Medical Capital investments to unsuspecting and vulnerable clients.”

Governor Schwarzenegger Vetoes AB 1868 That Would Have Banned Discretionary Clauses in Group Insurance Policies

Today Governor Schwarzenegger vetoed AB 1868 that would have banned discretionary clauses in group insurance policies. This is a disappointment to consumer groups but not to insurers who rely on them. Currently, the Department of Insurance bans them in group policies anyway. Here are the Governor’s comments on why it was vetoed:

To the Members of the California State Assembly:

I am returning Assembly Bill 1868 without my signature.

This bill would prohibit the Insurance Commissioner from approving any disability or

life insurance policy if it includes a provision that would reserve discretionary authority

to the insurer to determine eligibility for benefits, and voids certain provisions of a policy

or agreement if it provides or funds life insurance or disability insurance coverage.

This bill is unnecessary, as the Insurance Commissioner already has the authority to

prohibit the use of discretionary clauses.

For this reason I cannot sign this bill.

Sincerely,

Arnold Schwarzenegger

Disability Policy Discretionary Clauses Come Under Congressional Attack

Policyholder/Employee groups who have group disability insurance coverage through their employers and who find themselves operating in the byzantine world of ERISA have long criticized discretionary clauses contained in such ERISA policies. These often have the effect of giving insurance companies firmer ground to support claim denials because the “abuse of discretion” standard of review typically applies. This higher standard of review makes it more difficult for policyholders/employees to challenge disability claim denials.

California Governor Arnold Schwarzenegger has the opportunity to sign California Assembly Bill 1868 (“AB 1868”) and to prohibit these discretionary clauses. In the recent case of Standard Insurance Company v. Morrison, the Ninth Circuit Court of Appeals ruled that the California Insurance Commissioner has the authority to disapprove any disability insurance policies that contain discretionary clauses.

Arthur Postal of National Underwriter writes about such clauses in an article entitled “Disability Policy Discretionary Clauses Come Under Fire.” Here is a reprint of it:

WASHINGTON BUREAU — The long-term disability insurance (LTD) industry took a licking today during a Senate Finance Committee hearing.

Senate Finance Committee Chairman Max Baucus, D-Mont., said LTD insurers have doctors with conflicts of interest review claims.

“Many of these doctors are employed either by the insurance company or by companies that do a lot of business with the insurance company,” Baucus said. “These arrangements make it far too easy for the doctors to deny claims, terminate claims, or reject appeals.”

Ronald Leebove, a rehabilitation counselor who appeared for the American Board of Forensic Counselors, Springfield, Mo., said private group LTD policies fail to provide the protection insurers promise.

“There are many tricks and tactics used by the insurance companies to deny claims,” Leebove said.

Several witnesses talked about employers’ and insurers’ use of Employee Retirement Income Security Act (ERISA) provisions to give plan administrators’ discretion over LTD benefits decisions, and to ward off challenges of benefits determinations.

Mark DeBofsky, a partner at Daley, DeBofsky & Bryant, Chicago, a law firm, said the courts have gone against legislative intent and transformed ERISA into “a shield that protects insurance companies from having to face the consequences of unprincipled benefit denials and other breaches of fiduciary duty.”

In most cases involving LTD claim disputes, there is not even a trial, DeBofsky said.

“Instead,” DeBofsky said, “courts conduct reviews of claim records assembled and shaped by self-serving insurance companies without hearing any testimony whatsoever, under a procedure that gives more deference to the insurance company than a court would give a Social Security administrative law judge in its review of a Social Security disability benefit claim denial.”

Judge William Acker Jr., a senior district court judge in northern Alabama, testified that the “courts have not rescued ERISA” in its handling of long-term disability cases. “If anything, they have dug the ERISA hole deeper,” Acker said. “ERISA jurisprudence will stay as messed up as it is unless Congress reworks it.”

Paul Graham, a senior vice president at the American Council of Life Insurers (ACLI), Washington, defended disability insurers.

Disability insurance can be susceptible to fraud and abuse, and many states have passed regulations that require short-term disability (STD) insurance and long-term disability disability insurance companies to report instances of suspected fraud, Graham said.

“While fulfilling their contractual and regulatory responsibilities, insurers need to remain attentive to potentially fraudulent claims,” Graham said.

Therefore, he said, an eligibility determination, whether made by the insurance carrier or other fiduciary, is only valid for the information at that point in time and must be periodically re-evaluated to account for changes in the claimant’s condition.

Graham said a 2008 industry study that included a majority of group disability carriers found that 79% of submitted claims were approved.

Of those claims not approved, over 25% were not paid because the claimant recovered too quickly to collect benefits, Graham testified.

Court Affirms Bad Faith Verdict in Homeowner’s Insurance Case

In a new case from Division Three of the Fourth Appellate District, Chicago Title Insurance Company v. AMZ Insurance Services; Pacific Specialty Insurance Company, __ Cal. App. 4^th __ (September 9, 2010), the California Court of Appeal has given policyholders a good holding on the issues of when a policy binder becomes effective, when an agent acts on behalf of an insurer and what actions constitute bad faith.

Thomas and Cheryl Mustains (“Mustains”) successfully refinanced their home mortgage with an escrow closing date of October 12, 2005. One of the conditions by the lender was a new homeowner’s insurance policy was to be received and the premium paid for in escrow by Chicago Title. The Mustains’ loan officer contacted AMZ Insurance Services Inc. (“AMZ”) and McGraw Insurance Services (“McGraw”) to obtain the homeowner insurance policy. AMZ selected Pacific Specialty Insurance Company (“PSIC”) as the insurer. AMZ prepared an Evidence of Property Insurance (“EOI”), a computer generated form naming PSIC as the Insurer and the Mustains as the insureds for homeowner’s insurance, which was sent to Chicago Title. Unfortunately, an application from the Mustains was never completed, and the premium was not paid by Chicago Title. On November 11, 2005, the Mustains’ home burned down. Chicago Title reimbursed the Mustains for their loss, and in turn obtained an assignment of rights from the Mustains.

Chicago Title sued both PSIC and McGraw, the parent company of PSIC, for breach of insurance contract, bad faith, and declaratory relief . In a special verdict, the jury found:

1)     The EOI was not legally cancelled before the Mustain’s fire loss on 11/11/2005

2)     AMZ had actual or ostensible authority to prepare and issue the EOI on behalf of PSIC and McGraw

3)     PSIC and McGraw breached their obligation of good faith and fair dealing by failing to pay insurance proceeds to the Mustain’s under the EOI

4)     PSIC and McGraw breached their obligation of good faith and fair dealing by failing to properly investigate the Mustain’s fire loss; and

5)     PSIC and McGraw’s wrongful actions caused Chicago Title to bring the lawsuit against AMZ.

On appeal the Appellate Court affirmed, ruling in favor of Chicago Title. The central issue in this case was whether EOI issued by AMZ was an enforceable binder of homeowner’s insurance extending coverage from PSIC for a fire loss incurred by the Mustains. The EOI was an effective binder for which the loss of the house came within coverage. The court explained:

The trial court correctly instructed the jury. The existence and content of the EOI were undisputed. “Whether undisputed facts establish the existence of a binder is a question of law.” (Adams, supra, 107 Cal.App.4th at p. 451.)

The EOI on its face constituted a binder as a matter of law. It included all of the required elements for a binder under Insurance Code section 382.5, subdivision (a): The EOI identified the insurer (PSIC), the insureds (the Mustains), the (purported) agent executing the EOI (AMZ), the effective date of coverage, the binder number, and the address of the insured property. The EOI states, “[t]his is evidence that insurance as identified below has been issued, is in force, and conveys all the rights and privileges afforded under the policy.” Under “Coverage,” the EOI states, “See Supplemental Information Page(s),” which lists the coverages provided with the amounts of insurance and the deductible for each. The EOI recites the total annual premium as $776, and included with the EOI was an invoice to Chicago Title in that amount.

But the Appellate Court also found that despite the lack of notice of appointment with the Department of Insurance, AMZ’s acted as PSIC’s agent based on actual and ostensible agent theories. The issuance of the EOI by AMZ was not out the ordinary course of business between AMZ and PSIC, and PSIC had never complained about AMZ issuing the EOI prior to the receipt of the insurance premiums. The court explained its ruling that the lack of a notice of appointment was not controlling:

While the lack of a notice of appointment might subject AMZ to fines or a disciplinary proceeding, AMZ’s actions in issuing the EOI as a binder could bind PSIC if the facts otherwise support an agency relationship. “[Insurance Code section 1704, subdivision (a)] may simply impose further requirements on the conduct of an insurance agent, rather than establishing additional criteria for the creation of an agency relationship. In other words, it may be unlawful for an entity to act as an agent of the insurer without complying with section 1704[, subdivision ](a), but that entity would still constitute an insurance agent for the present purposes.” (Oakland-Alameda County Coliseum, Inc. v. National Union Fire Ins. Co. (N.D.Cal. 2007) 480 F.Supp.2d 1182, 1196.) We agree with this reasoning.

The Appellate Court also found that PSIC and McGraw acted in bad faith because they did no investigation into the Mustains’ claim, as there was evidence that an employee with PSIC concluded “the EOI issued to the Mustain’s escrow was legally inconsequential and not even worth forwarding to the PSIC claims department.” The court found that PSIC did not investigate whether its policy of authorizing AMZ to cancel a binder by stamping “void” on the EOI was lawful. The court also stated that “[t]he evidence supported the inference too that PSIC’s policies and practices for issuing EOI’s were created in bad faith to allow PSIC to try to evade liability precisely in the circumstances presented by this case.”

Insurance Commissioner Poizner Publicly Denounces Lawsuit Over Rescission Regulations

On July 19, 2010, Insurance Commissioner Poizner promulgated regulations designed to limit the practice of rescissions in the health insurance industry. See our blog article, New Regulations Take Aim at Policy Rescissions, on this. Last Monday, an insurance industry trade group filed a lawsuit in San Francisco to block the regulations, which would have been effective August 18, 2010. Poizner commented on the lawsuit stating: “I find it unconscionable that insurers would sue to keep the Department from stopping the horrific practice of illegal rescissions[.] Sometimes I think representatives in this industry have their heads permanently stuck in the sand. Illegal rescissions are a repugnant industry practice. In this current environment, this lawsuit is simply short-sighted and morally wrong.” The Association of California Life and Health Insurance Companies says the new rules would impose new costs and inconveniences on consumers and are unnecessary.

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