Health Insurer Waives Right to Rescind Policy

By April 27, 2015 May 3rd, 2018 Insurance Blog

William Hoang

In DuBeck v. California Physicians’ Service (2015) 234 Cal.App.4th 1254, the Court of Appeal analyzed whether a health insurer waived its right to rescind its policy.

On February 11, 2005, the insured visited the Revlon/UCLA Breast Center as she developed a lump in her breast. Thereafter, she was diagnosed with breast cancer after consulting with a breast surgeon.

On February 16, 2005, the insured submitted an application to an insurer. On her application, she stated that her last visit with a physician was in September 2004 and that the physician did not find anything. She also answered “no” to questions pertaining to whether she received any prior professional advice or treatments or had any symptoms related to breast problems.

In April 2005, the insurer issued a policy to the insured.

In September 2006, approximately 17 months after issuing the policy, the insurer cancelled the policy claiming the insured had made material misrepresentations in her application. The cancellation letter expressly stated that the insurer was electing to cancel coverage prospectively, rather than rescind the policy, and that any claims for covered services incurred prior to the cancellation would be covered.

Two years later, the insured filed suit against the insurer for breach of contract and bad faith, among other things. The insurer asserted as an affirmative defense its right to rescind the policy, voiding it ab initio, because the insured had willfully misrepresented or concealed material facts in her application.

The Court of Appeal held that the insurer had waived its right to rescind. The Court reasoned that in waiting over two years to assert a right to rescind, while assuring the insured of her right to coverage during the period the policy was in effect and retaining her premiums for such coverage, the insurer had engaged in conduct “so inconsistent with the intent to enforce the right as to induce a reasonable belief that it had been relinquished.” Moreover, the Court found that the insurer’s lack of diligence and failure to investigate suspicions regarding the insured’s representations in her insurance application caused prejudice to the insured and provided a second and independent basis for rejecting its claimed right to rescind.