Rescission

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In contract law, rescission has been defined as the unmaking of a contract between parties.[1] Rescission is the unwinding of a transaction. This is done to bring the parties, as far as possible, back to the position in which they were before they entered into a contract (the status quo ante).

In court[edit]

Rescission is an equitable remedy and is discretionary. A court may decline to rescind a contract if one party has affirmed the contract by his action (see Long v Lloyd [1958] 1 WLR 753) or a third party has acquired some rights or there has been substantial performance in implementing the contract. Furthermore, because rescission is supposed to be imposed mutually upon both sides to a contract, the party seeking rescission normally must offer to give back all benefits he or she has received under the contract (an "offer of tender").

The US state of Virginia uses the term "cancellation" for equitable rescission. Furthermore, a minority of common law jurisdictions, like South Africa, use the term "rescission" for what other jurisdictions call "reversing", "overturning" or "overruling" a court judgment. In this sense, the term means to be set aside or made void, on application to the court that granted the judgment or a higher court. Applications to rescind a judgment are usually made on the basis of error or for good cause.

Most common law jurisdictions avoid all this confusion by holding that one rescinds a contract and cancels a deed (i.e., of real property), and treat rescission as a contractual remedy rather than a type of procedural remedy against a court judgment.

By private companies[edit]

In finance, law, and insurance, rescission is the termination of a contract from the beginning (as if it never existed), rendering it void ab initio. In 2008, one judge ruled that borrowers who refinanced into an adjustable-rate mortgage could force a bank to rescind mortgage loans if it acted similarly inappropriately.[2] Rescission is typically viewed as "an extreme remedy" which is "rarely granted".[3]

Insurance[edit]

Insurers have the right to rescind an insurance policy due to concealment, material misrepresentation, or material breach of warranty. Generally, to rescind, an insurer will send a notice to the insured and tender a check in the amount of the premium paid for the relevant policy period.

In health insurance and specifically the individual and small group insurance markets, rescissions have generally followed the diagnosis of an expensive-to-treat illness in the patient (policyholder), typically because of withheld information about a pre-existing medical condition.[4] Public awareness of this practice increased during the 2009 US healthcare debate, when it was described colloquially as "cancel coverage when you get sick". The practice of health insurance rescission was partially limited starting September 23, 2010,[5] following the adoption of the Patient Protection and Affordable Care Act in 2010. A House committee report[6] found that WellPoint Inc., UnitedHealth Group and Assurant rescinded policies for more than 20,000 people over a five-year period;[4] the House report also highlighted 13 particular cases.[6]

In 2010, it was revealed that WellPoint specifically targeted women with breast cancer for aggressive investigation with the intent to cancel (rescind) their policies.[7] The disclosures followed the discovery that Assurant Health similarly targeted all recently-diagnosed HIV-positive (AIDS) policyholders for rescission.[8] U.S. Department of Health and Human Services (HHS) Secretary Kathleen Sebelius sent a letter to WellPoint urging the insurer to immediately end their practice of dropping health insurance coverage for the women.[9]

The software technology used by Wellpoint as well as other major American health insurance companies[10] is provided by MIB Group, Inc.. The software automatically triggered a fraud investigation on every policyholder recently diagnosed with breast cancer and searched for conditions not disclosed in the application.[7][11] The MIB Group provides a "Follow-up Service" which allows for a "second chance" to underwrite based on additional, discovered information during the contestable period.[12] The service is maintained for two years after initial underwriting and may include, among other information credit history, medical conditions, driving records, criminal activity, drug use, participation in hazardous sports, and personal or family genetic history.[13] Consumers can request a copy of the data in their report from MIB Group.[14]

The insurer is additionally required to prove an "intent to deceive" in the misrepresentation, this fraud or intent requirement was extended federally for health insurance contracts effective September 23, 2010[9] by Section 2712 of the Patient Protection and Affordable Care Act. In the long-run the change may have little effect in practice given that the bill eventually will not allow underwriting based on preexisting conditions.[15] Previously, only some states required proving "intent to deceive", such as Oklahoma.[16]

By government[edit]

In US government, rescission authority rests with the President. This authority was granted in the Congressional Budget and Impoundment Control Act of 1974. The President can force Congress to vote on rescinding (or permanently withholding) already appropriated funds.[17] The average amount that Presidents requested between 1974 and 2005 was about $15 billion.[18]

In parliamentary procedure, the motion to rescind, repeal or annul is used to cancel or countermand a motion previously adopted.

Notes[edit]

  1. ^ Abdallah, Inc. v. Martin, 242 Minn. 416, 420, 65 N.W.2d 641, 644 (1954).
  2. ^ G. Keating (July 7, 2008). "Mortgage Rescission Could Be Class Action Nightmare for U.S. Banks". Insurance Journal. 
  3. ^ Ferrara D. (2007). Directors and Officers: Side A Only Coverage Working Through the Hype. FDCC QUARTERLY Summer 2007.
  4. ^ a b L. Girion (June 17, 2009). "Blue Cross praised employees who dropped sick policyholders, lawmaker says". Los Angeles Times. 
  5. ^ HealthCare.Gov Website Timeline "What's Changing and When"
  6. ^ a b Committee on Energy and Commerce. (2009). Supplemental Information Regarding the Individual Health Insurance Market. U.S. House of Representatives. See also Case studies: examples of health insurance companies rescinding individual policies.
  7. ^ a b Murray Waas (April 22, 2010). "Exclusive: WellPoint Routinely Targets Breast Cancer Patients". Reuters. 
  8. ^ Emily Barry (April 9, 2010). "Health Plan Loses Court Battle over Rescission; Records show that Assurant Health routinely targeted HIV-positive members for fraud review". American Medical Association News. 
  9. ^ a b HHS Press Office (April 23, 2010). "HHS Secretary Kathleen Sebelius Urges WellPoint to Immediately Stop Dropping Coverage for Women with Breast Cancer". U.S. Department of Health and Human Services. 
  10. ^ "Nation’s Largest Insurance Reporting Agency Agrees To Expand Consumer Rights" FTC.
  11. ^ WellPoint Inc. (April 22, 2010). "PR Newswire: WellPoint's Reuters Response". PR Newswire. 
  12. ^ MIB Group Inc. "Follow Up Service"
  13. ^ FTC Press Office (June 21, 1995). "Nation's Largest Insurance Reporting Agency Agrees To Expand Consumer Rights". Federal Trade Commission. 
  14. ^ "MIB Group Inc. Catches Consumers Because it Can". AnnualMedicalReport.com. January 7, 2010. 
  15. ^ Harrington SE. The Health Insurance Reform Debate. Journal of Risk and Insurance.
  16. ^ Ables A. (2007). MISREPRESENTATION AND RESCISSION OF INSURANCE CONTRACTS. FORC Journal.
  17. ^ rules.house.govrules.house.gov
  18. ^ Pete Du Pont (April 26, 2006). "Dog the Swag; How Republicans can break the spending habit.". Wall Street Journal. Retrieved 2009-06-18. 

References[edit]

External links[edit]

  • Health Care Rescission Legislative Hearing, video playlist of testimony by legislators, health care industry officials, as well as people who were denied health care due to up to 2000 points of criteria which could trigger a rescission investigation and deny a person access to essential services emergency health care during that investigation period.