Insurer must pay $9 million for canceling policy Health Net dropped coverage for woman undergoing cancer treatment

A Southern California woman who had her medical coverage canceled as she was undergoing treatment for breast cancer was awarded more than $9 million Friday in a case against one of California's largest health insurers.

Patsy Bates, 52, a hairdresser from Lakewood (Los Angeles County), had been left with more than $129,000 in unpaid medical bills when Health Net Inc. canceled her policy in 2004. The insurer contended Bates failed to disclose a heart condition and lied about her weight when she applied for the policy in July 2003.

But arbitration judge Sam Cianchetti ordered Health Net to pay her medical bills, plus $8.4 million in punitive damages and $750,000 for emotional distress.

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"It's hard to imagine a situation more trying than the one Bates has had to endure," Cianchetti wrote in his findings. "The rug was pulled out from underneath, and that occurred at a time when she is diagnosed with breast cancer, one of the leading causes of death for women."

Health insurers have come under fire from state regulators, attorneys and advocates for using mistakes or omissions in a member's application to justify canceling coverage after a policyholder becomes ill.

Friday's award marked the first punitive damages ordered by a judge in a case against an insurer for rescinding policies. Hundreds of cases in California have been settled quietly in confidential agreements.

"This punitive award will do more than anything to stop the shameful practice of post-claiming underwriting," said Bates' attorney, William Shernoff. "Other health insurers will obviously have to hear the message that the practice of canceling people's health insurance after they become sick will not be tolerated by the public."

Health Net officials released a statement Friday saying the insurer will rescind no policies in the future without a binding, third-party review process.

Health Net also said it would conduct a review of its practices and the way its brokers and agents are trained. The company said it is working with state regulators and will make additional announcements in the coming weeks.

Friday's award capped a difficult week for the insurer, which included being sued by the Los Angeles city attorney on claims of unlawful and deceptive business practices in connection with its rescission practices. City Attorney Rocky Delgadillo also said the company illegally ran an incentive program in which it paid bonuses to an administrator for meeting policy-cancellation targets.

Bates, a mother of two, said she screamed when she heard about the damage award.

"I don't have anger toward the company," said Bates, whose cancer is in remission but who has some health problems. "I hope what they're saying is true, and that they're going to change their policies and take care of the people they insure."

Bates had previously been insured with another company but was persuaded to switch to a Health Net policy after an agent suggested she could save money.

She said she had undergone surgery to remove a tumor and had received her first two chemotherapy treatments when doctors stopped treating her because her bills were going unpaid.