Class-Action Suit Says Nationwide Life Sold Unauthorized Fix

A proposed class-action lawsuit has been filed against Nationwide Life Insurance Co. alleging the company sold unauthorized fixed-indemnity health insurance plans to Washington residents that didn't provide them with adequate medical coverage when they needed it.

Filed in U.S. District Court in Seattle, the suit says Nationwide Life deceptively sold the plans to nearly 470 Washington residents without approval from the Washington State Office of the Insurance Commissioner.

According to the suit, Nationwide wasn't licensed to sell health insurance in Washington before Aug. 27, 2008. After that date, the state insurance department authorized the company to sell "certain limited fixed-indemnity health insurance plans" but the approval didn't extend to its existing unauthorized health plans.

These plans didn't comply with Washington laws mandating certain minimum benefits and coverage but instead provided a small, flat-fee payment when an insured was hospitalized or received some medical treatment, the complaint says.

Elizabeth Stelzer, a spokeswoman for Ohio-based Nationwide, said the company isn't commenting until it has had time to fully review the case.

One of the plaintiffs, Ruth Bjorklund, through her employer, enrolled herself, her husband, her teenage son and her adult disabled daughter in one of Nationwide's health plans, which took effect Oct. 1, 2006, the suit says. She paid Nationwide about $6,000 a year in premiums.

In May 2007, Bjorklund was diagnosed with a brain tumor and her physician recommended immediate surgery. She contacted Nationwide to submit a claim for coverage but learned the plan was a fixed-indemnity plan and wasn't "creditable coverage," the suit charges. She incurred more than $135,000 in uncovered medical expenses, the complaint says.

Until July 22, 2007, sales of fixed-indemnity plans were illegal in Washington state unless sold as supplemental coverage to comprehensive health insurance, the suit says. After that date, the sale of these plans as primary insurance was only allowed with required disclosures and after authorization by the Washington insurance department, the suit says.

"Many -- if not most -- of Mrs. Bjorklund's medical expenses would have been covered if Nationwide had sold Mrs. Bjorklund a health plan that complied with Washington law," the complaint alleges.

The proposed class is defined as all Washington residents who bought fixed-indemnity health insurance plans from Nationwide between April 16, 2003 and Aug. 27, 2008 and all state residents who bought these plans from Nationwide since Aug. 27, 2008 in which the plans weren't approved by the Washington Office of the Insurance Commissioner.

The suit cites violations of the Washington Consumer Protection Act. The plaintiffs want the federal court to order Nationwide to rescind the unauthorized health plans and refund their premiums. They also seek triple damages up to $10,000 for each violation of the act.

In November, AARP said it would suspend marketing and sales of several fixed-benefit indemnity plans offered by UnitedHealthcare after Sen. Charles Grassley raised concerns about the plans (BestWire, Nov. 12, 2008).

Grassley, R-Iowa, a ranking member of the Senate Finance Committee, maintained the plans fail "to limit policyholders' exposure to the potentially high cost of a serious illness," according to a statement he issued. The AARP marketing materials, he said, include examples of medical expenses, but the examples are misleading and don't reflect how a policy would work in a typical situation. (BestWire, Nov. 12, 2008).

Nationwide Life Insurance Co. currently has a Best Financial Strength Rating of A+ (Superior).

(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)

Copyright (C) 2009 by A. M. Best Company, Inc.