DuBeck v. California Physicians' Service

Opinion

In September 2006, respondent California Physicians’ Service, doing business as Blue Shield of California (Blue Shield), canceled appellant Bonnie DuBeck’s medical insurance policy, claiming DuBeck had made material misrepresentations in her application and concealed that she had undergone a fine needle aspiration for a lump in her breast several days before submitting the application.^[1] At the time of cancellation, the policy had been in effect 17 months, and Blue Shield had paid medical claims unrelated

In September 2008, appellant filed the underlying lawsuit, alleging among other things that Blue Shield had failed to pay covered claims while the policy was in force. Blue Shield asserted as an affirmative defense its right to rescind the policy, voiding it ab initia. The trial court granted summary judgment in favor of Blue Shield on this defense. We hold that Blue Shield’s September 2006 decision to cancel, rather than rescind appellant’s policy, its affirmation of policy coverage up to that date and assurance that it would pay for services covered prior to the cancellation, its retention of appellant’s premiums, and its failure to assert a right to rescind until more than two years after it concededly had all the pertinent facts, constituted a waiver of its right to rescind as a matter of law. Accordingly, we reverse the grant of summary judgment.

FACTUAL AND PROCEDURAL BACKGROUND

A. Background Facts

Certain background facts are not in dispute. In October 2004, appellant physically injured her left breast when she ran into a cabinet. She developed a lump in the area where the injury occurred. On February 11, 2005, appellant visited the Revlon/UCLA Breast Center (Breast Center). She was examined by Sherry Goldman, a nurse practitioner, and the lump in her breast was subjected to a fine needle aspiration. That same day, appellant was given appointments in late February for a mammogram, ultrasound, and a consultation with Helena Chang, M.D., a breast surgeon.^[2] The lump proved to be cancerous, and in the months that followed, appellant underwent surgery and other medical procedures. In the course of her treatment for breast cancer, her doctors discovered she was also suffering from leukemia.

B. The Application

Certain aspects pertaining to appellant’s application for medical insurance also are undisputed. Appellant submitted the signed application to Blue

On another page, the applicant was asked to “provide details regarding the last physician visit you . . . had, regardless of the date . . . .” Appellant responded that her last such visit had been with Dr. Hasson Hassouri in September 2004 for an annual checkup, that he found nothing, and that her “present status” was “great.”

Page 7 of the application form asked for the applicant’s signature and stated: “I alone am responsible for the accuracy and completeness of the information provided on this application. I understand that neither I, nor any family members, will be eligible for coverage if any information is false or incomplete. I also understand that if coverage is issued, it may be canceled or rescinded upon such a finding.”

C. The Policy

Blue Shield issued a policy dated April 1, 2005. The policy contained cancellation and termination provisions stating: “This Agreement may be canceled by [Blue Shield] for false representations to, or concealment of material facts from, [Blue Shield] in any health statement, application, or any written instruction famished to [Blue Shield] by the Member at any time

E. The Complaint

Two years later, in September 2008, appellant initiated a lawsuit against Blue Shield. The operative second amended complaint, filed in September 2010 (SAC), alleged that commencing in April and May 2005, Blue Shield began receiving claims for the medical services being provided to appellant, which Blue Shield rejected as falling under the preexisting condition exclusion of the policy. According to the SAC, by no later than August 2005, when appellant began to be monitored by Blue Shield’s medical management department, Blue Shield knew or should have known that appellant had been seen for the breast condition on February 11, 2005. However, it was not until August 27, 2006, that Blue Shield commenced the formal investigation culminating in the September 8, 2006 letter of cancellation. By this time, appellant had been diagnosed with leukemia. The SAC contended that by delaying and canceling the policy, Blue Shield was able to collect and retain $19,600 in premiums, $5,450 more than it had paid to medical providers on appellant’s behalf.

Appellant asserted, among other things, that Blue Shield had no right to cancel because the cancellation/termination provisions in the policy were in smaller type than permitted by California regulations. The SAC further alleged that with respect to expenses incurred during the term of the policy, the waiting period for coverage of preexisting conditions should have expired six months after Blue Shield received appellant’s application on February 18, 2005, rather than six months after the date the policy issued. The SAC asserted claims for breach of contract, violation of the covenant of good faith and fair dealing, and intentional infliction of emotional distress.

On December 1, 2008, Blue Shield answered, asserting as an affirmative defense that the policy was subject to rescission, because appellant had willfully misrepresented or concealed material facts in her application, rendering the policy void ab initio.^[5]

Blue Shield further presented evidence that in July 2006, it received a request to cover services from out-of-network providers, prompting a referral for investigation to its eligibility review unit. In August 2006, its investigator, Paula Wells, requested appellant’s medical records from the providers who had rendered services to her since her coverage began in April 2005. In September 2006, Wells received records disclosing the Breast Center’s February 11, 2005 breast examination and fine needle aspiration. On September 8, 2006, Blue Shield sent the letter canceling appellant’s insurance policy.

2. Appellant’s Opposition

In her opposition, appellant presented evidence that she had undergone breast cancer surgery on April 6, 2005, less than a week after her policy issued, and that claims for bills connected to her treatment were thereafter sent to Blue Shield. The following month, a claim was submitted by the anesthesiologist. On June 7, Blue Shield sent appellant an explanation of benefits stating: “This claim involved conditions which may have existed prior to the patient’s enrollment. Processing has been suspended pending receipt of additional information requested. As soon as we receive this information, we will resume processing.”^[6] Appellant stated that if Blue Shield had promptly rescinded the policy, she could have applied for and obtained government-provided medical insurance coverage based on her low income. Appellant presented the deposition testimony of Blue Shield’s senior underwriter and investigator, Paula Wells, who stated it was Blue Shield’s “normal policy” to cancel, rather than rescind, a policy where the company learned of

In opposing the motion, appellant contended, among other things, that Blue Shield had waived its right to rescind by delaying for an unreasonable period of time — over two years — after admittedly learning that appellant’s application omitted information about the examination and fine needle aspiration she had undergone on February 11, 2005.

3. Trial Court’s Order

The trial court granted summary judgment, finding that appellant’s application for insurance contained material misrepresentations, and that such misrepresentations were willful. The court further found that Blue Shield undertook reasonable efforts to ensure that her application was accurate and complete at the time it issued the policy. The court concluded that Blue Shield was entitled to rescind, and that the policy was extinguished by such rescission.^[8] The court did not address the waiver issue. Judgment was entered in favor of Blue Shield. This appeal followed.

DISCUSSION

Appellant contends that Blue Shield waived its right to rescind by waiting well over a year after learning of circumstances supporting rescission, and thereafter electing to cancel, rather than rescind, her policy. As explained below, we conclude that as a matter of law, Blue Shield’s actions were wholly inconsistent with the assertion of a right to rescind.

A. Standard of Review

Summary judgment is granted when a moving party establishes the right to the entry of judgment as a matter of law. (Code Civ. Proc., § 437c, subd. (c);

Blue Shield maintained that position for over two years, neither disavowing its own affirmation of appellant’s policy coverage nor offering to return her premiums. Not until appellant filed suit challenging the decision to cancel and the coverage decisions made during the policy period did Blue Shield assert a right to rescind. It offered no evidence of new information obtained postcancellation, no explanation for the reversal of its earlier election to cancel, “rather than rescind,” and no justification for the disavowal of its earlier confirmation of coverage or for the retraction of its assurance that covered services incurred during the pendency of appellant’s policy would be paid for.^[9]

We conclude that Blue Shield’s conduct was wholly inconsistent with the assertion of its known right to rescind. It is undisputed that by September 8, 2006, Blue Shield was aware of the pertinent information and, consistent with its corporate policy, elected to cancel, rather than rescind, appellant’s policy. It communicated this election directly to appellant, along with assurances that the cancellation was “prospective,” leaving her entitled to all benefits of the policy from April 2005 to September 2006. Had Blue Shield asserted a right to rescind in 2006, appellant would not have incurred the effort and expense of attempting to enforce rights Blue Shield itself assured her she had, viz., the right to have “[a]ny claims for covered services incurred before [September 8, 2006,] . . . covered.” In waiting over two years to assert a right to rescind, while assuring appellant of her right to coverage during the period the policy was in effect and retaining her premiums for such coverage, Blue Shield engaged in conduct “ ‘so inconsistent with the intent to enforce the right as to induce a reasonable belief that it ha[d] been relinquished.’ ” (Pacific Business Connections, Inc. v. St. Paul Surplus Lines Ins. Co., supra, 150 Cal.App.4th at p. 525.)^[10]

Appellant underwent breast cancer surgery five days after the effective date of the policy, and her medical providers began submitting bills for her treatment to Blue Shield shortly thereafter. In its June 2005 explanation of benefits, Blue Shield stated that the breast cancer “may have existed prior to the patient’s enrollment” and that processing of the claim was suspended “pending receipt of additional information requested.” Yet by its own admission Blue Shield neither commenced an investigation nor obtained records confirming the date of appellant’s first breast cancer-related procedure for another year.^[11] By ignoring information that would have resolved the truthfulness of the representations in appellant’s application at an early stage and determining at that time whether to continue as her insurer, Blue Shield allowed appellant to incur substantial medical expenses and dissuaded her from investigating the availability of government assistance.^[12] Blue Shield’s lack of diligence in the early months of the policy and the apparent prejudice to appellant provide a second and independent basis for rejecting its claimed right to rescind.^[13]