UPDATE 1-Health Net ordered to pay $9 mln to cancer patient

(Adds details, attorney, client, Health Net comments)

By Gina Keating

LOS ANGELES, Feb 22 (Reuters) - A California arbitrator ordered Health Net Inc (HNT.N: Quote, Profile, Research, Stock Buzz) to pay $9.4 million in damages and expenses for what he described as "reprehensible" conduct in canceling the policy of a cancer patient after she fell ill, according to documents made public on Friday.

The award to Patsy Bates, 51, included $8 million in punitive damages and raised concerns about the company's practice of retroactively canceling policies of individuals who make large claims and paying bonuses to underwriters for meeting cancellation targets.

Health Net said in a statement that, while it does not agree with some of arbitration judge Sam Cianchetti's conclusions, it will immediately adopt a review process for all policy cancellations.

The multimillion-dollar punitive damages award, the first in a so-called recision case, is sure to send a message to other large health insurers who face lawsuits over the practice, said Bates attorney William Shernoff.

"Let's see if these other big health carriers will change their practices, then we will have done something," Shernoff told Reuters. "Until this punitive damages award came down, nobody was doing anything."

Shernoff has three proposed class actions over retroactive cancellations pending in California courts against Health Net, Blue Cross and Blue Shield, as well as a case involving a newborn boy whose Health Net coverage was canceled after he was born blind and with cerebral palsy.

The Bates case brought to light a bonus system in which Health Net set annual policy cancellation targets that it described in terms of numbers of canceled policies and millions of dollars in savings in medical expenses.