Health Net ordered to pay $9 million after canceling cancer patient's policy

The punitive damage award is the first of its kind and has prompted the giant medical insurer to scrap practices that have recently come under fire.

By Lisa Girion
Los Angeles Times

February 22, 2008

A breast cancer patient whose medical coverage was canceled by her insurer was awarded more than $9 million today in a case against Health Net Inc., one of the state's largest for-profit insurers.

The award issued by an arbitration judge was the first of its kind and prompted Health Net to announce it was scrapping its cancellation practices that are under fire from state regulators, patients and the Los Angeles city attorney.

Arbitrator Sam Cianchetti, a retired Los Angeles County Superior Court judge, found that Health Net violated numerous state laws in canceling Patsy Bates' policy and declared the company's actions "despicable."

Cianchetti also blasted the company for tying employee bonuses to the number of policies canceled and the amount of money saved.

"It's difficult to imagine a policy more reprehensible than tying bonuses to encourage the rescission of health insurance that keeps the public well and alive," he said in a 21-page opinion.

Woodland Hills-based Health Net responded by announcing substantial changes, including a pledge that it would not cancel policyholders "in the future without first seeking approval from a binding external third-party review process."

Bates, a mother who owns a Gardena hair salon, screamed with delight when she heard the news, said William Shernoff, the Claremont lawyer who represented her.

"The punitive damage award will do more than anything else to stop the shameful practice of canceling health insurance after people become seriously ill," Shernoff said.