Insurer’s Cancellation of Health Coverage After Cancer Diagnosis Results in $9M Award

What if you thought you had insurance, were paying your monthly premiums, got sick and got treatment – and then were notified that your insurance was being canceled retroactively, leaving you with huge medical bills?

That’s what happened to Patsy Bates, a 52-year-old grandmother. Patsy was diagnosed with stage-3 breast cancer in September of 2003. She had surgery, and then in the middle of chemotherapy she was notified that her policy had been canceled. She was left with nearly $200,000 in bills.

Badgered by bill collectors, Patsy found an attorney who sued the insurance company. In the process, internal company documents were disclosed showing that Health Net had paid employee bonuses for meeting a cancellation quota and for the amount of money saved.

Patsy was awarded more than $9 million on February 23, 2008 in her case against Health Net Inc, one of the largest for-profit insurance companies.

Calling Health Net’s actions “egregious,” Judge Sam Cianchetti ruled that the company acted in bad faith. “Health Net was primarily concerned with and considered its own financial interests and gave little, if any, consideration and concern for the interests of the insured,” Cianchetti held.

Health Net Chief Executive Jay Gellert ordered an immediate halt to cancellations and, as reported in The Times, the company would be changing its coverage applications and retraining its sales force. “I felt bad about what happened to her,” he said. “I feel bad about the whole situation.” Gellert said he would move quickly to “give people the confidence that they can count on their policy.” Specifically, he pledged to stop all cancellations until an external review process could be established to approve all cancellations.

As an advocate for the disabled, I was pleased with the judge’s strong denunciation of the way Health Net carried out Bates’ cancellation. The big money award was exactly the kind of message necessary to get the attention of greedy insurance companies. People work hard to earn their employment benefits including medical and disability insurance plans and they expect the benefits to be there when they need them. It is reprehensible for a company to take away those benefits for the sole purpose of increasing profits. When health or disability benefits are erroneously denied the carrier is liable to the disable person under the Employee Retirement Income Security Act of 1974 (ERISA) or in some instances under state law for bad faith. The same state law bad faith remedy is available to those wrongfully denied their health insurance benefits– like Patsy Bates.


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