Hailey v. California Physicians Services

In 2000 Cindy Hailey (plaintiff) applied to the California Physicians Service’s Blue Shield of California (Blue Shield) (defendant) for health insurance for herself, her husband, and their son. However, Cindy only included information about her own health on the application and failed to disclose that her husband suffered from obesity, hypertension, reflux issues, and other impairments. In December 2000, Blue Shield reviewed Cindy’s application and enrolled the Haileys into the premier coverage plan. In February 2001, Cindy’s husband was hospitalized for stomach issues. The hospitalization prompted Blue Shield to investigate Cindy’s application for fraud. Blue Shield determined that Cindy had willfully misrepresented her husband’s health status. In March 2001, Cindy’s husband was hospitalized again after an automobile accident. In June 2001, Blue Shield informed Cindy that it was rescinding the Haileys’ health insurance because of Cindy’s willful misrepresentation. Blue Shield informed the Haileys that their coverage was retroactively canceled and made a reimbursement request. The Haileys filed an action in a California trial court against Blue Shield for breach of contract and breach of the implied covenant of good faith and fair dealing. In response, Blue Shield filed a cross-complaint to recover the money that it claimed the Haileys owed. Blue Shield also sought a declarative judgment on the legality of rescinding the healthcare contract due to Cindy’s intentional misrepresentation. The trial court granted summary judgment in Blue Shield’s favor on all claims and held that the Haileys owed Blue Shield $104,194 in damages. The Haileys appealed.