June 1998 Bulletin

21 states study insurer liability laws

Many would prohibit hold harmless clauses

Twenty-one states have introduced legislation on insurer liability this year. Most legislation requires managed care plans to exercise ordinary care when making health care treatment decisions in addition to specifically requiring enrollees to exhaust all formal appeals mechanisms and provide notice prior to take action.

Many states have begun to combine insurer liability legislation with a prohibition against hold harmless clauses; the clauses could force physicians to care for patients even if a plan went bankrupt.

According to the Academy's department of state society relations, which monitors state legislative activity, California AB (Assembly Bill) 2436 requires managed care plans to exercise ordinary care when making health care treatment decisions or be liable for harm to enrollees. SB 512 shifts liability for denials of care to health insurers when such denials are the proximate cause of injury and allows insured enrollees to sue such insurers for injury.

In Florida, HB 1547 establishes exclusive liability of managed care organizations and authorizes civil actions against managed care organizations under certain circumstances. The Iowa House Committee on Commerce and Regulations has HB 2463 which provides that a third-party payer has the duty to exercise ordinary care when making health care treatment decisions and is liable for damages for harm to an insured or enrollee approximately caused by its failure to exercise such ordinary care.

In Maryland, HB 1020 allows that under certain circumstances an enrollee may bring a health care malpractice action against a managed care plan for damages arising out of the plan's failure to approve a covered service or benefit. The New Hampshire House Commerce Committee has HB 1628 which requires managed care plans to exercise ordinary care when making health care treatment decisions and be liable for damages for harm to enrollees. Enrollees must exhaust all grievance procedures and appeals provided by the managed care plan before taking action.

HB 677 in the Ohio legislature also requires managed care plans to exercise ordinary care and be liable for damages for harm to enrollees. The bill also prohibits indemnification and hold harmless clauses. Similar bills have been introduced in Pennsylvania (HB 2455) and Tennessee (HB 2529, SB 2514 and SB 2515).

In Virginia, HB 874 establishes a cause of action for persons who suffer damages as a result of a health maintenance organization's failure to exercise ordinary care in making health care treatment decisions; permits enrollees to file claims directly with the court and enrollees are not required to follow the procedures governing the medical malpractice review panel or the utilization review process.

Insurer liability legislation in Colorado, Indiana and Mississippi died in committee.

Two states have already have laws allowing consumers to sue health plans for medical malpractice-Texas and Missouri. New Mexico has defined health plan liability through legislation that becomes effective July 1. Unlike the Texas and Missouri legislation, the New Mexico law does not eliminate the "corporate practice of medicine" doctrine as a defense for health plans. The law also does not allow consumers to sue health plans for medical malpractice. Dissatisfied enrollees can sue their health plans for breach of contract if they believe the insurer has not met the provisions of the patient protection act.


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