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Nick DiCello
Nick DiCello
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Post Claim Underwriting: Canceling Insurance Coverage When It's Needed Most

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Insurance coverage is supposed to provide peace of mind. Peace of mind that an unfortunate event will not bankrupt you. Indeed, when we buy insurance, in reality we are paying for the carrier’s promise to pay. All of us hope we will never be required to call upon our insurance providers to make good on that promise. However, we feel our premum is money well spent toward peace of mind that we and our loved ones will be “covered” if and when we need coverage.

Unfortunately, however, having a policy issued and paying monthly premiums may not be enough to afford us the peace of mind we paid for. That is because some companies engage in what is known as “post claim underwriting,” a process by which the insurance company waits until a claim has been filed to obtain relevant background information and make underwriting decisions, which should have been made when the application was made not after the policy was issued, and then either deny a claim as one that would not have been covered had all relevant information been known at the time of application, or cancel (rescind) the policy on the basis that the insured made a material misrepresentation on the application for insurance.

Insurance companies are in the business of assessing risk. Before issuing coverage, an insurer is supposed to undewrite the risk, i.e., investigate and assess information to determine the nature of the risk sought to be insured, including whether to accept the risk or decline the risk. In the context of individual medical insurance coverage, a reasonable investigation during underwriting should focus on the applicant’s health history and medical conditions. Indeed, people with serious health conditions are not likely to find affordable health insurance because insurers are reluctant to insure a “bad risk.” Underwriting/assessment of the risk to be insured should be done before a policy is issued and before a loss is incurred and claim made. Some insurance companies, however, perform little or no underwriting/investigation during the application process, and instead only engage in underwriting after a claim is made with an eye toward avoiding payment of the claim on account of a misrepresentation about one’s health history on his or her application. This is called post claim underwriting. It is illegal in some states, and as this practice becomes more widely exposed it is being derided as unfair and impermissible. Post Claim Undewriting Article.

Insurers who engage in post claim undewriting eliminate the cost associated with thorough investigations, which in the context of health insurance can be costly and time consuming (requesting, paying for and reviewing medical records, acquiring medical examinations). Instead the insurer only reviews a relatively brief insurance application which asks some questions about health history and makes the decision to insure only based upon the information provided in the application without reviewing any actual medical records. Given that the average consumer cannot recall or is unaware of all of his or her medical conditions or pertinent test results, reliance exclusively on an applicant’s ability to accurately recite his or her complete medical history and condition is unreasonable. Insurers engaging in post claim underwriting issue policies in reliance only on the information included in the application and begin collecting monthly premiums. Then when a claim is submitted, the insurer, for the first time, collects medical records (conducts underwriting) to determine if there is a discrepancy between the information disclosed on the application and the true facts pertaining to one’s health history or medical conditions (misrepresentations). The insurer then canels the policy back to its effective date on account of a material misrepresentation or omission that if properly disclosed on the application would have resulted on no coverage being issued. The decision to rescind coverage is made based upon information that the insurance company had access to and should have reviewed at the time of the application (most applications for health insurance require the applicant to execute a medical records release and to identify his or her physicians).

This practice can have catastrophic consequences for insureds. First, for people who are switching insurance carriers, had the company informed the applicants it was not going to offer coverage based on information gathered during the undewriting process, the applicants could maintain their coverage in place and not cancel it in reliance on issuance of the new policy. Also, the applicant may have been able to secure coverage elsewhere if informed during the application proces that he or she would not be accepted, instead of later being forced to try to seek coverage after his or her health status has changed significantly and coverage much more difficult, if not impossible, to find.

The insurer decides when to conduct underwriting, not the applicants. Indeed, most applicants appropriately believe that once a policy is issued, and after having signed a medical recoreds release, that the insurance company performed a reasonable investigation and reviewed records. Insureds are shocked to learn that the carrier never reviewed any medical records until after a claim was submitted. The post claim underwriting practice is an opportunistic one that can have devistating consequences for consumers.

Insurance companies are obligated to conduct thorough investigations of pertinent background facts related to the risk being considered. Insurers are in the business of assessing risk. That assessment should be perfmored before coverage is issued. That assessment should be based on objective medical information contained in medical records, not on information solicited from an insurance agent pursuant to an often times confusing application, and from an applicant’s memory. Accordingly, insurance companies should be precluded from denying claims and canceling coverage when they elect not to conduct a thorough evaluation of the risk prior to issuing coverage.

If you believe you have had claims denied or your insurance coverage canceled/rescinded on the basis of a misrepresentation or omission on your application for insurance, you may be a victim of post claim underwriting and you should contact an attorney.