2010 ICA Annual Education Conference

1. MEDIATING DISPUTED
HEALTH INSURANCE
CLAIMS
ICA Annual Education Conference – October 4,
2010

2. MEDIATING DISPUTED
HEALTH INSURANCE CLAIMS
2
Mariam Zadeh Nancy T. Poblenz, RN, BSN, DDS, JD,
Mediator CPHRM
First Mediation Corporation Director Litigation and Loss Prevention
16501 Ventura Boulevard, Suite 606 CHRISTUS Health - Risk Management
Encino, CA 91436 Direct Dial 281.936.3673
Tel: 818.784.4544 Fax: 818.784.1836 Mobile 281.788.5441
Email: mzadeh@firstmediation Email: nancy.poblenz@christushealth.org
Robert R. Pohls Forrest Latta
Pohls & Associates Burr & Forman LLP
10940 Wilshire Boulevard, Suite 41 West I-65 / Service Road N.
1600 Colonial Bank Centre, Suite 400
Los Angeles, California 90024 Mobile, Alabama 36608
Tel: 310.694.3092 Fax: Tel: 251.345-8212 Fax: 251.345.9696
310.694.3093 E-mail: forrest.latta@burr.com
Email: rpohls@califehealth.com

3. MEDIATING DISPUTED
HEALTH INSURANCE CLAIMS
3
Preparing for Litigation – In-House Perspective
 Step 1: Document Retention and Litigation Hold Notice
 Step 2: Evaluate the Claim File
 Step 3: Evaluate the Writing Agent
 Step 4: Coordinate with Outside Counsel
STOP, LOOK and LISTEN!
 Early Case Assessment
 Jurisdiction/Forum-Selection
 Evaluate Plaintiff’s Counsel
 Establish a Case Budget

4. MEDIATING DISPUTED
HEALTH INSURANCE CLAIMS
4
Preparing for Litigation – Outside Counsel Perspective
 Step 1: Collect Information
 Step 2: Evaluate Claim Handling
 Step 3: Develop a Litigation Strategy
 Step 4: Identify the Client’s True Objectives
 Are there case-specific goals?
 What settlement terms are essential?
 Are there other business considerations?

5. MEDIATING DISPUTED
HEALTH INSURANCE CLAIMS
5
Preparing for Mediation – Practice Tips
 Understand the Expectation Gap
 Adjust the parties’ needs and expectations
 Adjust the plaintiff attorney’s needs and
expectations
 Remember the 3 most important jury motivators:
 Fear: Evidence of pattern or practice
 Anger: Arrogance, mistakes or incompetence
 Love: A worthy plaintiff who has been imperiled
If all 3 are present, plaintiff will win BIG.
If any 1 is missing, plaintiff may win small.

6. MEDIATING DISPUTED
HEALTH INSURANCE CLAIMS
6
Preparing for Mediation – A Mediator’s Perspective
 Know When to Stop Trying the Case at the Mediation
 Identify and Remove the Non-Monetary Road Blocks
 When Needed, Ask to Talk to Plaintiff's Counsel
Directly
 “Make Nice” with the Folks Next Door
 When All Else Fails … Find Ways to Keep the Dialogue
Open

7. MEDIATING DISPUTED
HEALTH INSURANCE CLAIMS
7
Preparing for Mediation – A Mediator’s Perspective
 Prepare Early by exchanging benefit and damage
calculations
 Every Plaintiff has a Story … Let them tell it
 The Mediator is an Ally … Collaborate Together in
Caucus
 Timing is Everything … Be Strategic About the Pace of
the Process
 Read In Between the Lines

8. MEDIATING DISPUTED
HEALTH INSURANCE CLAIMS
8
Background Facts – Communications with Agent
• Surviving Insured owns and operates a restaurant in San
Francisco
• Surviving Insured and Deceased Insured applied for
coverage with Insurance Company on April 6, 2007
• Surviving Insured told Agent she was planning to marry
in a few weeks and wanted health insurance in place for
her and her fiancé before their honeymoon
• Agent suggested coverage through an association group
policy offered to members of the local Chamber of
Commerce

9. MEDIATING DISPUTED
HEALTH INSURANCE CLAIMS
9
Background Facts – Application
• Agent reviewed and completed a short form application
with Surviving Insured
• In the application, Surviving Insured denied any
symptoms of (or treatment for) any health conditions
• Surviving Insured signed the application in Agent’s
presence, immediately below pre-printed text which
stated that each statement in the application was “true
and correct to the best of [her] knowledge and belief”
• Insurance Company issued the policy standard without
riders or rate ups, effective April 15, 2009

10. MEDIATING DISPUTED
HEALTH INSURANCE CLAIMS
10
Background Facts – The Deceased Insured’s Injury
• Surviving insured and Deceased Insured were married
on
June 1, 2009
• After their wedding, Surviving Insured and Deceased
Insured held a private reception at Surviving Insured’s
restaurant
• Around 6 p.m., Deceased Insured lost control of his
motorcycle, drove off the road and sustained serious
head injuries
• Deceased Insured was airlifted from the scene of the
accident to Hospital

11. MEDIATING DISPUTED
HEALTH INSURANCE CLAIMS
11
Background Facts – Claim for Deceased Insured’s Medical
Care
• Deceased Insured died 2 days after admission to
Hospital as a result of the head trauma he suffered in the
accident
• Deceased Insured had received $35,000 in hospital care
and services
• In June 2009, Hospital submitted Deceased Insured’s
bills to Insurance Company
• Intoxication exclusion provides: “No benefits are
payable for losses which result, directly or indirectly, from
the insured’s intoxication.”

12. MEDIATING DISPUTED
HEALTH INSURANCE CLAIMS
12
Background Facts – Surviving Insured’s Depression
• Surviving Insured suffered severe depression in the
months after Deceased Insured’s death
• In October 2009, Surviving Insured was lethargic,
contracted a fever and went to a local acute care facility
• When Surviving Insured’s renal function continued to
worsen, she was transferred to Hospital
• At admission, Hospital contacted Insurance Company to
verify that Surviving Insured had coverage
• Insurance Company verified coverage, but refused to
guarantee payment

13. MEDIATING DISPUTED
HEALTH INSURANCE CLAIMS
13
Background Facts – Evidence of Pre-Existing Condition
• Surviving Insured was discharged from Hospital on
October 6, 2009
• Discharge Summary: “Never take acetaminophen-
containing products again since her current and past
hospitalizations both were likely due to chronic
acetaminophen toxicity.”
• On March 28, 2010, Hospital faxed Surviving Insured’s
bills to Insurance Company for payment
• Insurance Company begins claim investigation by
requesting medical records from Surviving Insured’s
internist and other providers

14. MEDIATING DISPUTED
HEALTH INSURANCE CLAIMS
14
Background Facts – Claim for Surviving Insured’s
Depression
• Insurance Company denied Surviving Insured’s claim
due to lack of information about a possible pre-existing
condition
• Denial letter also mentioned Hospital’s failure to provide
written notice of claim within the 90-day period required
by the policy
• Surviving Insured, Estate of Deceased Insured and
Hospital filed their complaint 3 weeks after receiving
Insurance Company’s denial letter

15. MEDIATING DISPUTED
HEALTH INSURANCE CLAIMS
15
Background Facts – Claims Against the Insurer
 By Surviving Insured (and Deceased Insured’s
Estate)
• Breach of Contract
• Breach of Implied Covenant of Good Faith and Fair
Dealing
 By Hospital
• Negligent Verification (Hospital)
• Fraud
• Unfair Competition

16. MEDIATING DISPUTED
HEALTH INSURANCE CLAIMS
16
Surviving Insured’s Claim for Breach of Contract
• Exclusion: “Expenses that result from care or
treatment of a Pre-Existing Condition will not be
covered as Covered Charges.”
• Pre-Existing Condition: “a Sickness or Injury for
which a person has during the 6 months just prior
to his enrollment date under this plan: a) received
medical care, advice, or treatment; or b) had drugs
or medicines prescribed whether taken or not; or c)
had diagnostic tests ordered whether performed or
not.”

17. MEDIATING DISPUTED
HEALTH INSURANCE CLAIMS
17
Surviving Insured’s Claim for Breach of Contract
• Insurer’s Position:
• Surviving Insured’s claims were incurred for Vicodin and
acetaminophen abuse
• Surviving Insured had pre-application history of “Vicodin
and acetaminophen abuse”
• Surviving Insured’s Claims were properly denied on the
basis of the Insurance Certificate’s pre-existing condition
exclusion
• Surviving Insured’s Position:
• No evidence of pre-existing condition
• Post-Claim Underwriting

18. MEDIATING DISPUTED
HEALTH INSURANCE CLAIMS
18
Post-Claim Underwriting – Plaintiffs’ Perspective
 If the insurer has a right to investigate the
applicant’s eligibility, it should not be allowed to
ignore important information until a claim arises.
 By then, the applicant will have relied on the
issuance of a policy by not seeking insurance from
another source.
 If the insurer is allowed to rescind the policy based
on information discovered after the claim arises, the
applicant may have no opportunity to obtain any
coverage for the loss.

19. MEDIATING DISPUTED
HEALTH INSURANCE CLAIMS
19
Post-Claim Underwriting – Insurer’s Perspective
• Contacting all applicants to thoroughly review
application responses is time consuming
• Contacting Healthcare providers is expensive and time
consuming
• Must distinguish post-claim underwriting from post-
claim investigation
• Every applicant has a duty to disclose material facts
• Surviving Insured gave no information in application
• No opportunity to investigate undisclosed health
history

20. MEDIATING DISPUTED
HEALTH INSURANCE CLAIMS
20
Possible Rescission Claim
• On application, Surviving Insured represented that she
had not taken any prescription drugs during the prior 5
years
• Surviving Insured also represented that in the prior 5
years, her medical care had been limited to annual
consultations with her OB/GYN – all of which were
“Normal”
• Surviving Insured signed application which stated that
the representations and statements made in the
application were “true and complete to the best of [her]
knowledge and belief”

21. MEDIATING DISPUTED
HEALTH INSURANCE CLAIMS
21
Possible Rescission Claim
• Surviving Insured had an undisclosed health history of
Vicodin and Soma use and low-back pain and
fibromyalgia
• Surviving Insured’s undisclosed pre-application
medical history was material to the Insurance
Company’s risk assumed: Insurance Company would
not have issued coverage for Surviving Insured if this
history had been disclosed on the application

22. MEDIATING DISPUTED
HEALTH INSURANCE CLAIMS
22
Possible Rescission Claim
 “If a representation is false in a material point, whether
affirmative or promissory, the injured party is entitled to
rescind the contract from the time the representation
becomes false.” Cal. Ins. Code §359
 Whether the representation was intentionally or
unintentionally false does not alter the injured party's right
to rescind the policy. Telford v. New York Life Ins. Co., 9
Cal.2d 103, 105 (1937); Contra, Union Bankers Ins. Co. v.
Shelton, 889 S.W.2d 278, 282 (Tex. 1994) [In Texas, an
“intent to deceive must be proved . . . to cancel a health
insurance policy within two years of the date of its issuance
when the cancellation is based on the insured’s
misrepresentation in the application.”].

23. MEDIATING DISPUTED
HEALTH INSURANCE CLAIMS
23
Possible Rescission Claim
 Insured has a duty to read the contract and the
application in accordance with her representations and to
report to the company any misrepresentations or
omissions.” Telford v. New York Life Ins. Co., 9 Cal.2d
103, 107 (1937); See also, Lunardi v. Great-West Life
Assurance Co., 37 Cal.App.4th 807, 826 (1995).
 Insurers therefore have an “unquestioned right” to rely on
the person who would be insured “for such information
as it desires as a basis for its determination to the end
that a wise discrimination may be exercised in selecting
its risks.” Robinson v. Occidental Life Ins. Co., 131
Cal.App.2d 581, 586 (1955).

24. MEDIATING DISPUTED
HEALTH INSURANCE CLAIMS
24
Possible Rescission Claim
 Hailey v. California Physicians’ Service, Case No.
G035579 (Cal. App. 2007)
 Cal. Health & Safety Code Section 1389.3 prohibits
“post-claim underwriting” – a practice involving a plan’s
failure to “complete medical underwriting and resolve all
reasonable questions arising from written information
submitted on or with an application.”
 Cal. Health & Safety Code Section 1389.3 gives a health
care service plan the duty “to make reasonable efforts to
ensure it has all the necessary information to accurately
assess the risk before issuing the contract.”

25. MEDIATING DISPUTED
HEALTH INSURANCE CLAIMS
25
Bad Faith Claim
• A mere refusal to pay benefits due under a policy is not, by
itself, bad faith.
See, California Shoppers, Inc. v. Royal Globe Ins. Co. 175
Cal.App.3d 1, 15, 54 (1985)
• An insurer’s actions constitute a breach of the implied
covenant only if:
 benefits are due under the policy and
 the insurer withheld the benefit unreasonably and
without proper cause
California Shoppers, supra, 175 Cal.App.3d at 15, 54; See
also, Gruenberg v. Aetna Ins. Co., 9 Cal.3d 566, 573-575
(1973).

26. MEDIATING DISPUTED
HEALTH INSURANCE CLAIMS
26
Bad Faith Claim
 If reasonable or based on a legitimate dispute, a mistaken or
erroneous withholding of benefits does not expose the insurer to bad
faith liability.
 Tomaselli v. Transamerica Ins. Co., 25 Cal.App.4th 1269, 1280-81
(1984)
 Opsal v. United Services Auto. Ass’n, 2 Cal.App.4th 1197, 1205-06
(1991)
 Lunsford v. American Guar. & Liab. Ins. Co., 18 F.3d 653, 656 (9th
Cir. 1994)
 A delay in payment does not breach the implied covenant if insurer
was investigating a genuine issue.
 Fraley v. Allstate Insurance Co., 81 Cal.App.4th 1282 (2000)
 Estate of Grant v. State Farm Life Ins. Co., No. 05-CV-02389

27. MEDIATING DISPUTED
HEALTH INSURANCE CLAIMS
27
Hospital’s Claim for Fraud/Negligent Verification
• A medical provider has standing to sue for damages when
relying on an insurance company’s verification of health
insurance benefits. See, Herman Hospital v. National
Standard Ins. Co., 776 S.W.2d 249, 253 (Tex. App. – Houston
[1st Dist.] 1989, no writ); Memorial Hospital v. Northbrook Life
Ins. Co., 904 F.2d 236, 246 (5th Cir. 1990).
• A Party cannot justifiably rely on pre-contractual
representations that are directly contrary to the parties’
written, integrated agreement. Hadland v. NN Investors life
Ins. Co., 24 Cal App.4th 1578 (1994); Hackethal v. National
Casualty Company, 189 Cal.App.3d1102 (1987).

28. MEDIATING DISPUTED
HEALTH INSURANCE CLAIMS
28
Hospital’s Unfair Competition Claim
 California Business & Prof. Code §17200, et seq.
• enacted to protect consumers and competitors by
promoting fair competition in commercial markets for
goods and services [See, Kasky v. Nike, Inc., 27
Cal.4th 939, 949 (2002)]
• generally prohibits any “unlawful, unfair or fraudulent
business act or practice” [Cal. Bus. & Prof. Code
§17200]
• virtually anything that can properly be called a
business practice and, at the same time, is forbidden
by law can serve as a predicate for an action under
the UCL [Smith v. State Farm Mut. Auto. Ins. Co., 93

29. MEDIATING DISPUTED
HEALTH INSURANCE CLAIMS
29
Hospital’s Unfair Competition Claim
 Original standing requirements
• “Actions for any relief pursuant to this chapter shall
be prosecuted exclusively . . . by the Attorney
General or any district attorney or by any county
counsel . . . or any city attorney or by any person
acting for the interests of itself, its members or the
general public.” [Former Cal. Bus. & Prof. Code
§17204]
• A private plaintiff who suffered no injury could sue to
obtain relief for others [See, Stop Youth Addiction,
Inc. v. Lucky Stores, Inc., 17 Cal.4th 553, 561 (1998)]

30. MEDIATING DISPUTED
HEALTH INSURANCE CLAIMS
30
Hospital’s Unfair Competition Claim
 Proposition 64
• Only plaintiffs who have suffered an injury in fact and have
lost money or property as a result of unfair competition may
prosecute claims under the UCL [Cal. Bus. & Prof. Code
§17204]
• Private parties may bring representative action only if comply
with class action certification requirements [Cal. Bus. & Prof.
Code §17203]
• Applies to all cases pending on (or filed after) November 2,
2004
 Californians for Disability Rights v. Mervyn’s LLC, Case
S31798 (Cal. 2006)
 Starr-Gordon v. MassMutual Life Ins. Co., Case No. C03-

31. MEDIATING DISPUTED
HEALTH INSURANCE CLAIMS
31
Estate’s Claims for Breach of Contract/Bad Faith
• Toxicology report revealed that Deceased Insured’s blood
alcohol content at the time of the accident was 0.15 – nearly
twice the legal limit
• Intoxication exclusion provides: “No benefits are payable for
losses which result, directly or indirectly, from the insured’s
intoxication.”
• Insurance Company denied claims based on the intoxication
exclusion
• Intoxication Exclusion did not require proof that Deceased
Insured’s intoxication was the sole proximate cause of the
accident, but only a proximate cause of the accident
Ober v. CUNA Mutual Society, 645 So.2d 231 (La. Ct.

32. MEDIATING DISPUTED
HEALTH INSURANCE CLAIMS
32
Possible Claims Against Agent
• Fraud
• Negligent Misrepresentation
• Negligence
• Insurance agent acting within the course and scope
of his or he employment with a disclosed principal
insurer cannot be personally liable to the insured
• Lippert v. Bailey, 241 Cal.App.376,382 (1966)
 Surviving Insured and Deceased Insured had duty to
read insurance certificate upon receipt – Hadland
and Hackethal

33. MEDIATING DISPUTED
HEALTH INSURANCE CLAIMS
33
QUESTIONS?
Mariam Zadeh Nancy T. Poblenz, RN, BSN, DDS, JD,
Mediator CPHRM
First Mediation Corporation Director Litigation and Loss Prevention
16501 Ventura Boulevard, Suite 606 CHRISTUS Health - Risk Management
Encino, CA 91436 Direct Dial 281.936.3673
Tel: 818.784.4544 Fax: 818.784.1836 Mobile 281.788.5441
Email: mzadeh@firstmediation Email: nancy.poblenz@christushealth.org
Robert R. Pohls Forrest Latta
Pohls & Associates Burr & Forman LLP
10940 Wilshire Boulevard, Suite 41 West I-65 / Service Road N.
1600 Colonial Bank Centre, Suite 400
Los Angeles, California 90024 Mobile, Alabama 36608
Tel: 310.694.3092 Fax: Tel: 251.345-8212 Fax: 251.345.9696
310.694.3093 E-mail: forrest.latta@burr.com
Email: rpohls@califehealth.com