Section 2274.56 - Factual Showings Required of Insurers in Order to Demonstrate that a Rescission or Cancellation is Lawful Under Insurance Code Section 10384(a) An insurer must submit evidence that a rescission or, if based on information submitted on or with the application, a cancellation was not or is not due to the insurer's failure to complete medical underwriting and resolve all reasonable questions arising from written information submitted on or with the application before issuing the policy or certificate. In addition to providing information about the insurer's underwriting of the coverage proposed to be rescinded, an insurer may submit information pertaining to any internal or external review conducted prior to or after the rescission. To establish that it completed medical underwriting, and that it resolved all reasonable questions arising from written information submitted on or with the application, before issuing the policy or certificate, the insurer shall submit evidence of the following to the extent, if any, that the insurer undertook to perform the indicated activity: (1) That the insurer followed its medical underwriting guidelines prior to issuance of the policy proposed to be rescinded;(2) That the insurer sought to obtain the applicant's PHR (Personal Health Record), if available;(3) That the insurer sought health history information from external verifiable sources other than the information provided by the applicant on the health history questionnaire;(4) That the insurer obtained and evaluated commercially available medical underwriting information for the applicant, which may include commercially available claims data, claims data from prior insurers, if available, or commercially available pharmaceutical information;(5) That the insurer checked the applicant's current or prior claims history with the insurer and its affiliates;(6) That the insurer sought the applicant's medical records or an attending physician's statement if required by its medical underwriting guidelines;(7) That the insurer checked the applicant's health history information obtained from all sources for inconsistencies;(8) That the insurer underwrote the self-reported health information in light of the applicant's status as a layperson not schooled in medicine unless the insurer has documentable grounds to believe the applicant has formal medical training;(9) That if the insurer was alerted to the need to check with the assisting agent when applicable, it contacted the agent and obtained information if the agent indicated awareness of any information not disclosed on the health insurance application which may be material to the insurer's underwriting of the application;(10) That the insurer identified questions arising from the totality of information obtained from various sources about the applicant's health history and took appropriate follow-up measures to resolve any inadequate, unclear, incomplete, conflicting or otherwise questionable or inconsistent material information on the application prior to issuing a policy while applying its underwriting guidelines, including but not limited to, contacting the applicant by phone or mail to resolve inconsistencies and obtain missing or needed information;(11) That the insurer: (A) reviewed the applicant's responses in, or submitted with, the application and identified all responses contained within the application or information submitted with the application that appear to be:1. Inconsistent, ambiguous, or incomplete,2. In conflict with information reported elsewhere on the application, or3. In conflict with any other information the insurer was aware of or in the insurer's possession, including but not limited to medical records, PHR data, prior claims history or an application submitted for coverage provided by the insurer on an earlier date, or information provided by an assisting agent; and(B) resolved any questions arising from the review pursuant to Subparagraph (a)(11)(A) of this Section 2274.56.(12) That the insurer obtained clarification from the applicant, as reasonable and necessary, to resolve all inconsistencies and questions prior to issuing a health insurance policy and documented such resolution and explanation of such inconsistencies and questions; and(13) That the insurer resolved any inconsistencies it identified as a result of performing the activities referenced in paragraphs (a)(10) through (a)(12) of this section. The additional information necessary to resolve all reasonable questions or omissions may include, but is not limited to, information obtained through: (A) the insurer's further communication with the applicant,(B) a review of medical records and other sources of health history or health status information for each individual who has applied for insurance coverage, or(C) a commercial pharmaceutical or medical information database.(b) Under no circumstances shall subdivision (a) of this section be construed to create a requirement that an insurer must engage in each of the activities enumerated in paragraphs (a)(1) through (a)(13) of this section in order to complete medical underwriting and resolve all reasonable questions arising from written information submitted on or with the application.(c) An insurer seeking to rescind, or to cancel on the basis of information submitted on or with the application, a policyholder's, certificate holder's or other insured's health insurance coverage must submit all available evidence that the rescission or cancellation investigation preceding the rescission or cancellation complied with the requirements of Section 2274.78.(d) In addition to the evidence submitted by the insurer pursuant to subdivisions (a) and (c) of this section, to demonstrate the lawfulness of a rescission the insurer shall submit evidence supporting its allegation that the applicant either performed an act or practice constituting fraud, or made an intentional misrepresentation of a material fact, to induce the issuance of coverage. The insurer shall submit evidence that the terms of the policy to be rescinded expressly prohibited fraud or intentional misrepresentation of a material fact and that the applicant was warned of this provision.(e) To demonstrate an allegation of fraud, the insurer shall submit all available evidence of the following factual assertions:(1) The insured provided a false answer on an application for health insurance coverage;(2) The insured provided the false answer knowing of its falsity or with reckless disregard for its truth or falsity. In the case of omission of a required answer to a material question, the insured omitted the answer knowing of its necessity or with reckless disregard;(3) The insured provided the false answer or omitted a necessary response for the purpose of inducing the insurer to grant the health insurance coverage; and(4) The insurer granted such coverage in reliance upon the false answer or omission and would not have otherwise granted such coverage.(f) To demonstrate an allegation of intentional misrepresentation of material fact, the insurer shall submit all available evidence of the following factual assertions:(1) The insured made a misrepresentation in an application for health insurance coverage either by answering a question untruthfully or by omitting the required information;(2) The insured knew the facts necessary to answer the question truthfully or provide the information requested at the time he or she completed the application;(3) The insured answered the question untruthfully or omitted the requested information deliberately, and not due to mistake, inadvertence, carelessness, negligence or other innocent reason;(4) The untruthful answer or omitted information was material to the insurer's acceptance of the risk in that it influenced the insurer's acceptance of the risk; and(5) The application form and terms of coverage clearly and expressly warned applicants that an intentional misrepresentation of material fact in the application process, including subsequent requests for information, could result in later rescission of coverage.(g) In cases involving cancellation on the basis of information submitted on or with the application and in cases involving rescission, Department staff shall, after reviewing the information received pursuant to paragraph (c)(1) of Section 2274.55 and any information received pursuant to subdivision (a) of Section 2274.58, determine whether the evidence, considered as a whole, establishes that the insurer has satisfied the requirements of Insurance Code section 10384.(h) In cases involving cancellation on the basis of information submitted on or with the application and in cases involving rescission, the assigned administrative law judge shall, after any hearing pursuant to Section 2274.59, determine whether the evidence, considered as a whole, establishes that the insurer has satisfied the requirements of Insurance Code section 10384.Cal. Code Regs. Tit. 10, § 2274.56
1. New section filed 11-20-2013; operative 1-1-2014 (Register 2013, No. 47). Note: Authority cited: Sections 10273.7 and 12926, Insurance Code; CalFarm Ins. Co. v. Deukmejian, 48 Cal.3d 805 (1989) and 20th Century Ins. Co. v. Garamendi, 8 Cal. 4th 216 (1994). Reference: Sections 10273.4, 10273.6, 10273.7, 10384, 10384.17 and 10713, Insurance Code.
1. New section filed 11-20-2013; operative 1-1-2014 (Register 2013, No. 47).