A recently filed proposed class action1 accusing California health insurance giant Anthem Blue Cross of using a "bait and switch" scheme that offered insurance policy "renewals" that did not clearly disclose major policy changes offers a great example of why the law requires insurers to notify insureds of reductions in insurance coverage.

As an example, under California law, if coverage is reduced when the policy is "renewed," the insurer must provide adequate notice of the new exclusion, limitation, or reduction. The California Supreme Court has held that “no change may be made in the terms of the renewal policy without notice to the insured.”2

In the property insurance context, the California Insurance Code explicitly provides that an insurance company must, “at least 45 days prior to policy expiration,” provide notice in a renewal offer of “any reduction of limits or elimination of coverage.”3

California law also requires that when an insurance company changes, reduces, or limits the coverage or benefits of a policy upon renewal, the notice of such change must “be provided in a ‘plain, clear and conspicuous writing.’”4

To be conspicuous, the notice must be “displayed or presented” in a way that it would be “noticed” by a reasonable person.5 Examples of conspicuous notice “includes . . . a heading in capitals . . . larger type than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same size . . .”6

Moreover, the notice of reduction in coverage must be “specific.” Thus, “a general admonition to read the policy for changes is insufficient” and the failure to provide “adequate notice” renders the attempted reduction or limitation in coverage “ineffective.”7

The class action lawsuit against Anthem Blue Cross targets notices that Anthem recently sent to about 500,000 customers. The notices stated that "it’s time to renew your health coverage" and that "if you like your current plan, you can keep it."

The problem with the notifications was that the policies were eliminating certain types of coverage: such as out-of-network coverage, and the policies were being turned into exclusive provider organizations, or EPOs, as opposed to preferred provider organizations, or PPOs.

According to the suit, Anthem sent a corrective notice to customers on October 15. However, the notice still lacked sufficient clarity, and it was sent too close to the end of the 2016 benefit year, requiring Anthem to truly renew the existing plans for 2017.

The original notice made clear that the plans were ending out-of-network coverage and converting to EPO from PPO. But according to the suit, those changes were disclosed only in supporting materials, not cover letters that disclosed other changes such as premium increases.

1 Simon v. Blue Cross of California et al., case number BC639205, in the Superior Court of the State of California for the County of Los Angeles.
2 Industrial Indemnity Co. v. Industrial Accident Commission of California (1949) 34 Cal.2d 500, 506.
3 California Insurance Code §678(a).
4 Everett v. State Farm General Ins. Co. (2008) 162 Cal.App.4th 649, 663.
5 Broberg v. Guardian Life Ins. Co. of Am. (2009) 171 Cal.App.4th 912, 922-23.
6 Id. at 923.
7 Davis v. United Services Auto Ass’n (1990) 223 Cal.App.3d 1322.