Insurance Claims and Bad Faith Law Blog

UPDATE: California Arbitrator Awards Attorney's Fees Too.

    A previous post in this space addressed an Arbitration Award in a California Arbitration.  The Arbitration of the Insurance issues apparently including Good Faith and Fair Dealing or not, was demanded by the Health Insurance Company, Health Net Inc.  The agreed Arbitrator is a retired California Judge.  The California Arbitration resulted in an Award of over $9.4 Million, $8.4 Million of which was a Punitive Damages assessment against Health Net.  See the post here, on February 23, 2008.

    On February 28, 2008, a follow up newspaper report published in the Los Angeles Times Online seems to call into question what remedies or options, if any, Health Net and its Attorneys may have to appeal or even question the Arbitration Award:  Lisa Girion, "Penalty Cuts Insurer Profit/Health Net Lowers Its Earnings After a Judge Awards $9.4 Million to a Cancer Patient Whose Policy Was Canceled" (Los Angeles Times Online, Thursday, Feb. 28, 2008).

    As the linked newspaper report's headline reflects, Health Net is filing documents with the Securities and Exchange Commission reflecting that the Arbitration Award has lowered its reportable net income for 4Q 2007, from $123.4 Million to $116.9 Million.

    The newspaper also reports that the California Arbitrator has awarded the Policyholder her Attorney's Fees, in an amount to be determined.

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California Arbitrator Assesses $8.4 Million in Punitive Damages Against Health Insurer.

    The Health Insurance Company in question is Health Net Inc.  The entire Arbitration Award is reportedly over $9 Million.  $8.4 Million of the award is an assessment for Punitive Damages.  The Health Insurer insisted on resolving the dispute only by Arbitration.   Here is a brief but totally accurate outline of the case.

    The Health Insurance Company canceled a Policyholder while she was receiving expensive chemotherapy treatments.  The evidence reflected that the expense of chemotherapy was the motivation for cancellation.

    Documents generated by Health Net itself were made available to the Arbitrator.  The documents showed that Health Net paid bonuses to employees who met "a cancellation quota and for the amount of money saved."

    This practice did not sit well with the Arbitrator, a retired California State Court Judge, who wrote:  "'It's difficult to imagine a policy more reprehensible than tying bonuses to encourage the rescission of health insurance that keeps the public well and alive.'"  Quoted in "Health Net Ordered to Pay $9 Million After Canceling Cancer Patient's Policy/The Punitive Damage Award is the First of its Kind and has Prompted the Giant Medical Insurer to Scrap Practices That Have Recently Come Under Fire" by Lisa Girion (Los Angeles Times Online, Saturday, February 23, 2008).

    The purpose of Punitive Damages assessments may be furthered by this award, for in the same newspaper article it is reported that other Health Insurers are about to change their own practices in this regard.

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Bond Insurers Owe Duties, to ... Who, Exactly?

    Do Bond Insurance Companies owe Fiduciary Duties, breach of which is Bad Faith and fulfillment of which is Good Faith and Fair Dealing? 
    If so, do they owe them to:  Shareholders?  Policyholders?  Claimants on the Bonds that the Bond Insurance Companies issued Policies to Insure?  Anyone?
    To ask the questions is only the beginning.  The answers are perhaps not as easy to develop.  See generally Commentary by Joe Mysak, "Buffett Plan Saves Muni Market, Dooms Ambac, MBIA" (Bloomberg .com, Wed., February 13, 2008).
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