A letter sent to the insurer last week asked Blue Cross President Leslie Margolin to substantiate claims by the company in a Feb. 23 news release describing changes it had made to help avoid improperly canceling policyholders.
The letter from Assistant City Atty. James W. Colbert III, dated Friday, advised Blue Cross that a special litigation unit headed by Colbert was "investigating whether the rescission practices of Blue Cross may constitute violations of" the state's unfair competition and false advertising laws.
Colbert's letter demanded that Blue Cross back up statements in the news release that the company had taken steps in 2006 to "strengthen and make more transparent our process for rescinding policies in order to further minimize the possibility of errors."
The steps, according to the news release, included creating a simpler application for coverage for individual and family policies, forming a new committee for rescission reviews and enhancing training.
Shannon Troughton, a spokeswoman for Indianapolis-based Blue Cross parent WellPoint Inc., said the company was reviewing the letter and looked "forward to responding."
"We are following all business practices that were described in a recent press statement," she said in an e-mail. "Indeed, most have been shared with the public in the past, and have been in place for well over a year. In addition, as described in the recent statement, we are actively in the development of a third party review process for use on all potential rescissions."
Colbert's letter to Blue Cross said the statements "appear intended to burnish the corporate image of Blue Cross of California, and of its insurance affiliate, in the eyes of consumers."
It advised Blue Cross that the California Supreme Court has held that "such statements are a form of commercial speech subject to the prohibitions against deceptive advertising" under two state laws.
If Blue Cross fails to adequately back up its claims, Colbert said in the letter, the city attorney's office may presume that they were false or misleading and take action, such as issuing an alert to consumers and possibly taking legal action.