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Azad v. Tokio Marine HCC-Medical Insurance Services LLC

United States District Court, N.D. California

July 14, 2017

MOHAMMED AZAD, et al., Plaintiffs,


          PHYLLIS J. HAMILTON United States District Judge

         Defendants' motions to dismiss and strike came on for hearing before this court on June 28, 2017. Plaintiffs appeared through their counsel, Rachel Geman, Jay Angoff, Michael Flannery, and David Slade. Defendants Tokio Marine HCC - Medical Insurance Services, LLC (“HCC”) and HCC Life Insurance Company (“HCC Life Insurance”) appeared through their counsel, M. Scott Incerto and Gerard Pecht. Defendant Health Insurance Innovation, Inc. (“HII”) appeared through its counsel, Garry O'Donnell and Daniel Herling. Defendant Consumer Benefits of America (“CBA”) appeared through its counsel, Renata Hoddinott. Having read the papers filed by the parties and carefully considered their arguments and the relevant legal authority, the court hereby GRANTS each of the defendants' motions to dismiss with leave to amend, and DENIES HCC's and HII's motions to strike, for the following reasons.


         A. The Complaint

         This case was filed on February 7, 2017 by plaintiffs Mohammed Azad and Danielle Buckley. Dkt. 1 (“Compl.”). Federal jurisdiction is premised on diversity. Plaintiffs bring a putative class action against HCC, a seller of short-term medical insurance, and three other entities who allegedly worked with HCC: HCC Life Insurance, HII, and CBA. Compl. ¶¶ 5-7.

         HCC contracted with plaintiffs to provide them short-term medical insurance policies (“STMs” or “STM policies”). Compl. ¶¶ 8-9. HCC Life Insurance was the underwriter on plaintiffs' polices. Compl. ¶ 16.

         Plaintiffs allege that defendants falsely represented that the STM policies provided reasonable coverage and fair claim processing. In reality, HCC misled policyholders about the scope of the coverage and made it unreasonably difficult to make a claim. Plaintiffs allege that HCC had a common policy and practice of marketing their polices in a misleading manner, delaying and refusing to pay claims, providing deliberately unhelpful customer service, and obstructing policyholders' claims. Specifically, the named plaintiffs allege that they were told to submit burdensome medical records, and had the payment of their claims delayed and denied in bad faith.

         1. Allegations Relating to Plaintiffs Azad and Buckley

          Azad purchased an STM policy “marketed and offered jointly between HCC and HII” on December 8, 2015. Compl. ¶¶ 19, 22. In December 2015, Azad suffered three health incidents that required visits to the emergency room. Compl. ¶ 25. HCC refused to pay the claims until Azad provided “all medical records, provider notes, and labs” from the past five years. Compl. ¶ 26. When Azad contacted HCC customer service to attempt to provide sufficient information to process his claims, he found that “[n]o matter how much information he provided, he was always told to provide more.” Compl. ¶ 27. Frustrated with HCC's refusal to pay, Azad cancelled his policy in March 2016 and ended up paying his medical bills himself. Compl. ¶ 28.

         Buckley's husband purchased an HCC STM policy for his family on April 1, 2016. Compl. ¶ 29. In June 2016, Danielle Buckley was diagnosed with a staph infection and received treatment at an Accelerated Urgent Care clinic. Compl. ¶ 31. HCC refused to pay the claim, demanding Buckley's medical records from the past five years. Compl. ¶ 33. HCC then informed Buckley that it only needed records from her family doctor, and said that it would contact the doctor. Id. However, Buckley continued to receive bills, and on July 27, 2016, she received a letter demanding that “all requested information must be submitted” before her claim would be processed, without specifying the information HCC sought. Compl. ¶ 35. Buckley subsequently received notification that her claims had been closed “due to a lack of requested information.” Compl. ¶ 36. Buckley ultimately paid her medical bills herself, and cancelled her HCC policy in September 2016. Compl. ¶¶ 37-38.

         2. The Allegedly Deceptive Brochure and Application Form

         The complaint alleges that HCC's marketing materials, application forms, and policies are misleading. Compl. ¶¶ 39-57. HCC's STM policies contain a “host of exceptions to coverage that are not articulated to consumers prior to or during the application process.” Compl. ¶ 40. The “most unconscionable” of the exceptions is the “carveout” for preexisting conditions, which is “applied with absurd results.” Compl. ¶ 41.

         As an example of HCC's misleading marketing, plaintiffs describe an “exemplar brochure” (the “Brochure”). The Brochure lists a variety of events-such as inpatient or outpatient treatment at a hospital-that are “purportedly covered” by the policies. Compl. ¶ 43. The Brochure indicates that an applicant is “eligible” if she answers no to a series of medical questions. Compl. ¶¶ 44-45. Plaintiffs allege that “an applicant would reasonably conclude that any exclusions [for preexisting conditions] would be cabined to the subject matter” of the specific medical conditions that the Brochure and application form ask about. Compl. ¶¶ 45-46. Moreover, plaintiffs allege that “when read together, each of HCC's customer-facing representations (the Brochure and the application form) limit exclusions to those enumerated.” Compl. ¶ 49. Because HCC does not limit its claim denials to these specific enumerated conditions, plaintiffs allege that the Brochure and application form are misleading, “amount[ing] to fraud.” Compl. ¶ 49.

         To support their fraud accusations, plaintiffs note that HII has received cease-and-desist letters from three states, which have accused HII of selling STM insurance “through unlicensed brokers and/or through misinformation and deception.” Compl. ¶ 51. HCC and HII refer to their brokers as “Producers.” Compl. ¶ 39. Plaintiffs allege that defendants' deceptive practices consist of the following: “(i) Producers issue policies without requiring policyholders to sign the policies; (ii) Producers represent to prospective policyholders that the policies will meet their needs, and fail to disclose that Defendants routinely attempt to deny most claims on the basis of pre-existing conditions or other grounds; (iii) Defendants make the policies difficult to locate on the HCC website, thereby preventing current and potential policyholders from conducting any meaningful review of their policies; and (iv) Defendants use intentionally vague language, as to further hinder any efforts by policyholders to understand the scope of their coverage; for example, neither the plan brochures nor application forms explain the scope of the policies' exclusion for pre-existing conditions.” Compl. ¶ 54.

         3. Allegations Regarding HCC's Customer Service

         Plaintiffs further allege that HCC trains its customer service representatives to obstruct policyholders by giving them the “runaround, ” refusing to help, and referring claimants to HCC's “highly confusing” website. Compl. ¶¶ 58-72. The “majority (if not all) customer service calls to HCC are transferred to Global Response (‘Global'), a third party contractor.” Compl. ¶ 59. Plaintiffs allege that HCC and/or HII are vicariously or directly liable for the acts of Global. Compl. ¶ 72.

         HCC's customer service representatives are allegedly trained to “deceive, delay and obstruct policyholders” with the goal of frustrating them and discouraging them from seeking payment on their claims. Compl. ¶¶ 60-62. The representatives are “forced” to follow a “script provided by HCC” which is designed to “tell policyholders that their claims relate to pre-existing conditions, and to discourage them . . . without determining whether the claim is likely to be excluded.” Compl. ¶ 62.

         As evidence of the alleged policy of obstruction, plaintiffs rely on a “whistleblower” statement from a former representative, who states that “we had no way to contact HCC directly . . . so we had no way to get [customer] issues addressed beyond what you could find out for yourself.” Compl. ¶ 63. The representatives were trained to “aggressively refer callers to the HCC website instead of helping them.” Compl. ¶ 65. However, the HCC website is “unreasonably difficult to navigate” and “highly confusing.” Compl. ¶ 67.

         As the former representative explained, “internally it was obvious that the name of the game is runaround. . . . It really felt like everything was designed to be so cumbersome that the customer would either get frustrated and give up or they could stall long enough to not have to pay out on the claim. I even think the idea was to get us so frustrated that we'd blow the customers off or just tell them we had received documents just to get them to go away. The whole idea here is that we're a legal buffer between HCC and [policyholders].” Compl. ¶ 67.

         4. Allegations Against HII and CBA

         The complaint alleges that HII is a “close affiliate of HCC, cooperating in the sale, administration, and/or servicing of HCC policies, with knowledge of HCC's practices.” Compl. ¶ 17. Azad's plan was “offered and marketed jointly between HCC and HII, ” and HII once described itself as a “partner” of HCC. Compl. ¶¶ 22, 55. However, “[t]he full nature and extent of cooperation and interaction between HII and HCC is unknown to Plaintiffs and can only be determined through discovery.” Compl ¶ 17.

         Plaintiffs allege that CBA “purports to be an organization devoted to ‘providing quality discount services and benefits to its members, '” utilizing “group buying power” to negotiate discounted prices for its members. Compl. ¶ 18. The sole substantive allegation against CBA is paragraph 57, which states that: “Defendants work with CBA in providing short-term insurance plans to consumers. HCC's application form instructs the applicant that the insurance sought is ‘issued to the Consumer Benefits of America Association and underwritten by HCC Life Insurance Company.' This is because HCC wishes to sell its insurance product as a group product, instead of an individual product subject to more stringent consumer protection regulation.” Compl. ¶ 57.

         5. Class Allegations and the Causes of Action

          Plaintiffs seek to represent a Rule 23 class of all “individuals who have purchased HCC health insurance policies from Defendants in the State of California, and/or all California residents for whom HCC denied their insurance claim, since a date to be ascertained through discovery.” Compl. ¶ 82. As circumstantial evidence that plaintiffs' experiences were “typical, ” plaintiffs point to a number of highly negative reviews of HCC posted online. Compl. ¶ 73.

         Plaintiffs assert five claims: (1) violations of the California Unfair Competition Law (the “UCL claim”); (2) violation of the California False Advertising Law (the “FAL claim”); (3) breach of contract; (4) breach of the implied duty of good faith ...

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