LA city attorney sues Health Net over cancellations

LOS ANGELES, Feb 21 (Reuters) - The Los Angeles city attorney has sued Health Net Inc (HNT.N) on behalf of all Californians, accusing the state's fourth-largest health insurer of illegally canceling policies to avoid paying large claims.

The lawsuit, filed late on Wednesday by City Attorney Rocky Delgadillo, also accuses Woodland Hills, California-based Health Net of false advertising regarding "individual and family" policies held by about 135,000 individuals.

The lawsuit contends that, since 2002, Health Net has improperly denied benefits to more than 1,600 seriously or critically ill individuals and has delayed payments for care for "thousands" more.

Delgadillo's lawsuit comes as state regulators clamp down on what they described as claims violations and illegal policy cancellations by California's largest insurers.

Health Net spokesman David Olson said the city attorney's claims duplicate those already addressed by state regulators.

"We view this lawsuit as reflective of a culture of blame and not a culture of solutions, which is what we need," Olson said.

Delgadillo says Health Net's application is purposely confusing and ambiguous, asking consumers "to make judgments about their medical conditions that few ... are competent to make."

The application "is essentially a trap" that allows Health Net to later cancel policies on the grounds they contain errors or omit pre-existing conditions, the lawsuit said.

The company does not properly train agents to fill out the applications, then fails to investigate whether they contain errors until large claims are filed, the lawsuit said.

Delgadillo also accused the company of incentivizing agents and its underwriting department with quotas and bonuses to find ways to cancel policies or delay paying for costly treatments.

Olson said the company had made payments in 2002 to employees who reached policy cancellation targets, but had voluntarily canceled that practice.

"The company asserts that this is not happening now and that the city attorney's lawsuit is addressing an issue that has been put to bed," Olson added. (Reporting by Gina Keating; Editing by Andre Grenon)