On February 9, 2011, a California Court of Appeal ruled that Blue Shield’s health insurance policy afforded a three-year statute of limitation for an insured’s tortious breach of contract claim, rather than a shorter two-year period provided by state statute. Under California’s insurance statutes, an insurer may draft insurance provisions that are more favorable to the insured than as provided by statute. On the merits of this action, the insured alleged that Blue Shield improperly rescinded her health insurance policy after she received pre-authorization and underwent a surgical procedure. Blue Shield alleges the rescission was proper due to inaccuracies in the insured’s application. The Blue Shield policy at issue here does not appear to be governed by the State Health and Safety Code provisions applicable to health care service plans in California.

The insured bought a Blue Shield health insurance policy through an authorized insurance agent who assisted the insured with the application. Blue Shield pre-authorized a gastric bypass surgical procedure, and the insured underwent the surgery. Shortly thereafter in August 2006, Blue Shield rescinded the insured’s entire health insurance policy and declined to pay for her gastric bypass procedure. Blue Shield based the rescission on alleged material inaccuracies in the insured’s application. The insured alleged that the insurance agent was responsible for the inaccuracies in the application.

In July 2009, the insured filed suit against Blue Shield alleging breach of contract, contractual bad faith and tortious bad faith claims. The issue in this case was which statute of limitations applied to the tortious bad faith claim: the three-year statute from the California Insurance Code; the two-year statute from California Civil Code section 339; or the time period stated in this health insurance policy.

The trial court denied Blue Shield’s motion for summary adjudication solely with respect to the “tortious bad faith” claim, which argued that the two-year statute of limitations had expired pursuant to California Civil Code section 339. Blue Shield sought reversal from the Court of Appeal and to instead grant Blue Shield’s motion. In denying the writ, the Court of Appeal held that Blue Shield drafted and included a provision in the insured’s health care policy that was more favorable to the insured than was required by the Insurance Code. Here, the policy provided three years for the insured to bring an action for tortious breach of contract.

The Blue Shield policy at issue has a provision entitled “Commencement of Legal Action,” which provides:

“Any … action to recover … damages concerning the provision of coverage or benefits, the processing of claims, or any other matter arising out of this Plan, may be not be brought prior to the expiration of 60 days after written proof of claim has been furnished and must be commenced no later than three years after the date the coverage for benefits in question were first denied.” [Emphasis original].

Although the California Insurance Code enumerates several insurance provisions1 that must be included in a health insurance policy, one of these statutes provides that “the insurer may, at its option, substitute for one or more of such provisions, corresponding provisions of different wording approved by the commissioner which are in each instance not less favorable in any respect to the insured …“2 The court held this is exactly what Blue Shield did here – lengthened the time period to three years for the insured to sue on “any matter arising” from this health insurance plan.

This appellate decision discusses, but does not rule on, Blue Shield’s contention that the three-year Insurance Code statutes of limitations do not lengthen the two-year Civil Code limitations statute for tortious bad faith claims. Accordingly, we must await a future California appellate decision to address this issue.