Wednesday, December 16, 2009
C.A. Says City May Sue Blue Cross Over Rescissions
By SHERRI M. OKAMOTO, Staff Writer
Blue Cross of California Inc. may be liable for allegedly unlawful rescission practices after a ruling yesterday from this district’s Court of Appeal rejecting the insurer’s argument that the Los Angeles city attorney lacks standing to pursue unfair competition and false advertising claims against it.
Div. One upheld Los Angeles Superior Court Judge Anthony J. Mohr’s decision overruling the insurer’s demurrer to the city attorney’s complaint, explaining that the regulatory and enforcement authority of the California Department of Managed Health Care did not preclude the suit.
In April 2008, then-City Attorney Rocky J. Delgadillo filed suit against Blue Cross, its parent Wellpoint Inc., and its managed health care service plan, alleging that the companies were engaged in a scheme to renege on policies for those diagnosed with medical conditions subject to expensive treatment.
Delgadillo alleged that Blue Cross would undertake no efforts to determine the accuracy of an applicant’s statements before issuing coverage but would launch an investigation aimed at rescinding that coverage whenever it received a claim for benefits associated with certain costly medical conditions.
Blue Cross moved to strike certain allegations in the complaint and demurred to the complaint on multiple grounds. Mohr overruled the demurrer in its entirety.
Seeking a writ of mandate, Blue Cross argued that the Knox-Keene Act barred Delgadillo’s claims, that the trial court should abstain from deciding the claims in the complaint, and that the Department of Insurance and Department of Managed Health Care had primary jurisdiction over the dispute.
Writing for the appellate court, Justice Frances Rothschild rejected all of the company’s arguments.
The city attorney, she explained, has express statutory authority to file suit on behalf of the public under the unfair competition and false advertising laws unless some other statute provides otherwise. By failing to identify any statute providing to the contrary, Rothschild reasoned, Blue Cross implicitly conceded that no such statute exists.
As the Department of Managed Health Care conceded the same, the agency’s view that the Knox-Knee Act divested the city attorney of authority to pursue the claims alleged in the complaint was not entitled to deference, the justice said.
Turning to Blue Cross’ abstention argument, Rothschild noted case law permitting a trial court to abstain from adjudicating a suit that seeks equitable remedies if granting the requested relief would require that trial court to assume the functions of an administrative agency or interfere with the functions of an administrative agency.
Abstention may also be appropriate in cases involving complex economic policy or if granting injunctive relief would be unnecessarily burdensome for the trial court, Rothschild said.
None of these circumstances were present in this case since the city attorney was “asking the court to perform an ordinary judicial function, namely, to grant relief under the UCL and the FAL for business practices that are made unlawful by statute,” the justice reasoned.
She further concluded that the requested relief would not interfere with the functions of the Department of Insurance or the Department of Managed Health Care and would not impact the settlement agreements Blue Cross had previously reached with the Department of Managed Health Care.
If injunctive relief were granted, the justice added, such a remedy would not be burdensome for the trial court to enforce because the issuance of an injunction does not impose on the issuing court any active role in monitoring compliance.
Joined by Presiding Justice Robert M. Mallano and Justice Victoria G. Chaney, Rothschild also said that Blue Cross’ primary jurisdiction argument “fails at the threshold” because the insurer did not identify any issues the trial court ought to refer to the Department of Insurance or Department of Managed Health Care for agency determination.
The attorneys involved in the case on appeal were Richard S. Odom, Kathleen A. Waters, Thomas M. Peterson and Molly Moriarty Lane of Morgan, Lewis & Bockius and Assistant City Attorneys James W. Colbert III and Anthony M. Miera.
The case is Blue Cross of California, Inc. v. Superior Court (People), B215035.
Copyright 2009, Metropolitan News Company