United States District Court, N.D. California
ORDER GRANTING DEFENDANTS' MOTIONS TO DISMISS
WITH LEAVE TO AMEND; DENYING HCC'S AND HII'S MOTIONS
TO STRIKE Re: Dkt. Nos. 48, 49, 58, 60
PHYLLIS J. HAMILTON United States District Judge
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
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.
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. ¶
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.
Allegations Relating to Plaintiffs Azad and Buckley
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.
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.
The Allegedly Deceptive Brochure and Application
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.
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.
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. ¶
Allegations Regarding HCC's Customer Service
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.
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.
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.
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.
Allegations Against HII and CBA
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
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.
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. ¶
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 ...