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Calif. Lawyers Group Sues Insurer For Refusing to Renew Policies

The Legal Intelligencer
By Pam Smith
September 2, 2003

The San Francisco Trial Lawyers Association is suing its health insurer for refusing to renew its policies.

About 200 of the association's members, and another 150 or so of their staff and family members, are on the brink of losing their health insurance. The group sued Health Net of California and its parent company, Health Net Inc., in San Francisco Superior Court on Monday for breach of contract. The group filed a motion Tuesday seeking a preliminary injunction to keep the company from terminating the members' coverage, which has been temporarily extended but is set to run out Nov. 30.

The "underlying conduct" of the insurance company is common, said Terrence Coleman, a partner at Pillsbury & Coleman in San Francisco, but lawsuits to challenge it are rare.

"When an insurance company says that they're going to cancel out coverage, nine times out of 10 - maybe even more than that - people accept that," said Coleman, a member of the association's board of directors, who is serving as the attorney in the suit. "But here they did that to a group of lawyers."

The group of about 500 trial lawyers, support staff and law students, which has been covered by Health Net since 1998, wants the court to force the insurer to renew two policies that cover about 350 people, Coleman said.

Health Net spokesman Brad Kieffer said the lawyers association doesn't meet the legal requirements for the plans at issue. He added that the state's department of managed health care agreed with his company's position, but declined to comment in more detail on the pending litigation.

Coleman said the insurance company informed the group in May that it would not renew its policies after July 1 because it had discovered the lawyers group didn't qualify as a "guaranteed association" under California state law. Coleman said the state protects such guaranteed associations from having their health insurance policies cancelled.

But Coleman counters that Health Net is obligated to renew the group's coverage anyway under contract. According to the complaint filed in Superior Court, terms outlined in the group's most recent policies say it can choose to renew the plans annually unless Health Net finds narrowly defined "good cause," such as a failure to pay premiums or a material change in the association's business.

The group maintains that no such "good cause" exists.

Health Net isn't offering the association another organization plan but has suggested members seek insurance for their firms or themselves as individuals, Coleman said.

The lawyer contends members would get fewer benefits for higher premiums under such plans. And many of the association's members are solo practitioners who would qualify only for individual plans subject to medical evaluation, he added.

Coleman also claims Health Net and other insurance companies are trying to divert customers out of association policies into ones governed by federal law. The association policies are protected by state regulations that allow insured customers to collect punitive damages if they successfully sue an insurance company that's refused to pay a claim, he said.

"What is going on in the industry is the death of these association-based policies," Coleman said.

Juliette Bleecker, the group's executive director, said she's been inundated by complaints from members concerned about finding replacement coverage.

"I have received numerous demands from members for a refund of membership dues," and many prospective members have said they wouldn't join because the health care coverage was no longer being offered, Bleecker attested in court papers. She predicted that the association will suffer a "sudden and significant" drop in membership that will jeopardize its existence if the health care plans aren't renewed.

A hearing on the motion for preliminary injunction is scheduled for Sept. 18 before Judge Ronald Quidachay.

This article originally appeared in The Recorder, a publication of American Lawyer Media.