Third District Court Judge Robert Faust ruled last month that while Daniel Clyne misrepresented and omitted health information from his application to be added to his wife's policy, Regence failed to thoroughly review it. The company's rescission violated state law, he ruled.
"Regence cannot turn a blind eye to ascertaining facts about a potential insured, extend coverage to that insured and then claim misrepresentation as a basis for seeking to avoid payment under the policy," Faust wrote in the order.
Federal law allows insurance companies to retroactively revoke, or "rescind" an individual policy, if they discover an applicant has made "material misrepresentations" about their health history.
The judge has not yet determined damages. Attorney Brian King said the Clynes, who have about $200,000 in unpaid medical bills, have suggested now Regence settle the case.
The Clynes lost their coverage in February 2004 - two months after Daniel's first surgery to remove a benign brain tumor. Regence claimed he failed to disclose information about pre-existing medical conditions, including asthma, sarcoidosis and an esophageal ulcer.
"He didn't just lie - he lied egregiously," said Regence spokeswoman Tauni Everett, adding that Daniel claimed on his application he had no medical history at all.
In their lawsuit, however, the Clynes said that had the company's underwriters done their job, they would have discovered Daniel had previously been declined for insurance - and that he had even placed calls to customer service to talk about it.
"The haphazard, cursory nature of Regence's initial underwriting is what the court is clearly worried about," King said.
Everett disagreed.
"He [the judge] has said it would be so easy for you to find this information and it's right at your fingertips, which is not true," she said.
Daniel's application was received several years prior to the company automating its system; the underwriters, she said, would have had to manually go back and find it. The customer service call logs the judge also referenced are not linked to Regence's underwriting system, making a particular client's call history difficult to track down.
"And I think beyond that, [the judge] is also suggesting maybe we gather the applicant's medical records prior to accepting them - we're talking months of work then to accept an applicant," Everett said.
