Saturday, November 14, 2009

Woman sues after insurance company rejects surgery claim, rescinds her policy

insurance company

A Loudon woman is suing Celtic Insurance Co., claiming it dropped her coverage when she needed it the most.

Penny Young says the company rescinded her $360-a-month policy in April, four months after she underwent knee surgery, accusing her of "material misrepresentation" on her original application.

Young, 60, said the company refused to pay the claim and demanded repayment of any previous claims since her individual policy went into effect on May 1, 2008.

The company's actions have resulted in about $20,000 in unpaid claims, Young said, and many, many sleepless nights.

She and her husband worried they would be forced to sell their home to pay the medical bills, Young said, adding that they have charged most of her medical payments to a credit card.


"It was devastating," she said of Celtic's decision to rescind her policy. "All of a sudden they weren't paying the claims. It really came to the point of being scary."

According to Young's attorney, Charles Douglas III of Concord, Celtic was engaging in a practice called post-claim underwriting, which is illegal in some states.

But Celtic wants Young's suit dismissed, saying such underwriting is permissible in New Hampshire. The company was simply abiding by state law, according to a motion filed by Manchester attorney Stephen Judge, who represents the company.

In pleadings filed in Merrimack County Superior Court, Celtic said Young acknowledged making material misrepresentations on her application by not fully disclosing previous medical problems. According to Celtic, Young failed to disclose a medical history that included bone loss, ostopenia of the right hip, degenerative disc disease, anxiety, hemorrhoids, and mild glaucoma.

Douglas said Young didn't disclose some past medical conditions because she wasn't asked for that information.

"None of that has anything to do with her knee surgery," Douglas said.

Young, an office manager, did her best filling out Celtic's online application, trying to decipher medical language on the application, Douglas said.

"(Celtic) didn't ask for it," he said of some of the information on Young's medical history, "and they could have received all the data they wanted prior to underwriting the policy. They should make those decisions before they write a policy, not after a claim is made."

Celtic was happy to take Young's money and give her a health-insurance policy, Douglas said, but once she made a substantial claim, the insurer suspended payment and enlisted the help of a data-mining company to come up with whatever information it could use to justify rescinding the policy.

Delayed request

Douglas said it was more than six months after Young's application was supposedly carefully reviewed by Celtic and coverage was in effect that she received a request to authorize an investigation into her medical records dating back to 2005.

According to Young's suit, Celtic hired Management Research Services, a data-mining company based in Wisconsin, to do the records search.

"The timing and manner of MRS's investigation into Ms. Young's medical history is indicative of the practice of illegal post-claim underwriting. Such an investigation into Ms. Young's medical history should have and could have been done prior to Ms. Young's termination of coverage by Harvard Pilgrim and arrival at Celtic as a new policy holder," Douglas wrote in the suit.

Young switched from Harvard Pilgrim because Celtic offered lower rates on single policies and her employer didn't offer group coverage, Douglas said.

Douglas said state lawmakers are unlikely to try to stop insurance companies from engaging in post-claim underwriting because the companies can contribute to their political campaigns.

"This will be the first case to determine if post-claim underwriting is illegal in New Hampshire," Douglas said.

In post-claim underwriting, Douglas said, an insurer knowingly approves an inflated number of applicants to obtain income from new policy holders whose applications are not properly investigated before their approval. Once insured individuals file claims, he said, the insurer tries to avoid paying, and only then conducts extensive post-claim investigations in search of any reason to rescind the policy.

Insurance companies have every right to examine an applicant's medical history, Douglas said.

"What they can't do is wait until there's a claim, then do data mining to come up with something that is not a fraud, but say, 'You didn't tell us this or that' when it is not a material misrepresentation," he said.

Douglas said he wants a judge to certify Young's lawsuit as a class action in the three states where post-claim underwriting is illegal and Celtic writes policies -- Mississippi, California and Wyoming.

"These are folks in the same situation, namely that they have bought the insurance. They thought they were covered, and then have a claim for something that's more than a sore throat, and that's when (companies) do post-claim underwriting," Douglas said.

New Hampshire law

But according to Celtic's motion to dismiss Young's suit, New Hampshire law is on its side.

"The state Legislature has made a clear policy choice to allow insurers to void insurance contracts within two years of their issuance because of material misrepresentations on applications, and even later in the event of fraudulent misstatements."

The New Hampshire Insurance Department backed Celtic.

"Celtic Insurance Co. obtained medical information "¦ that indicates you received treatment prior to the signing of your enrollment card that was not disclosed, for one or more conditions, that had they known of they would have not provided you health insurance coverage," wrote Barbara Anderson, of the Insurance Department's consumer services division, in a letter to Young dated April 22.

Douglas, a former state Supreme Court judge and U.S. representative, criticized the Insurance Department. "They did what they usually do: that is side with the insurance company," he said.

Douglas accused the department of being too cozy with insurance companies it regulates because they fund the department.

That allegation infuriated Roger Sevigny, the state's insurance commissioner.

"I find these allegations offensive because they call into question the integrity of my dedicated staff," Sevigny said.

The 2007 audit by the Legislative Budget Assistant found the department is effectively providing protection to New Hampshire consumers, Sevigny said.

Overall, the department last year recovered $1,224,338 in restitution on behalf of consumers who filed complaints and imposed $1,113,400 in administrative fines and penalties, he said.

And, he added, the Public Utilities Commission, Pease Development Authority, Banking Department, Highway Safety Department, Employment Security, Fish & Game, and the Sweepstakes Commission also are funded in whole or in part by regulated parties.

Sevigny said federal lawmakers are looking into post-claim underwriting nationwide. If health-care reform passes nationally, he said, post-claim underwriting won't be an issue if insurance companies are required to cover everyone.

Young said that what hurt most about having her policy rescinded was practically being accused of lying on her application, which she filled out in the spring of 2008. It was approved as of May 1, 2008, and she had her knee surgery last December.

"As a born-again Christian, it is so important for me to be totally honest," she said. "I had no intention whatsoever of being misleading."

Her health-care provider, Penacook Family Physicians, sent Celtic a letter supporting Young, saying she was an honest woman with only benign diagnoses that presented no significant health risk.

It didn't help. On April 17, Celtic told Young the company was retroactively terminating her coverage and demanding that she repay $1,639.60 -- the difference between the premiums she paid, $4,331.48, and what the company had paid out to that point, $5,971.08

Young, who has found a new insurance company, said her brush with Celtic Insurance Co., has caused her to be circumspect in talking with health-care providers, fearful anything she says can be used against her in the future.

"It's very upsetting. They (Celtic) are so cold-hearted. They are turning people's lives upside down," Young said.