Even in matters of life and death, regulators don’t always take action

State insurance regulators can be a consumer’s best ally. Through investigations, fines and other penalties, regulators often can force insurers to make good on their promises to policyholders.

But as in the case of the Kroon family of Sioux Falls, S.D., sometimes regulators seem to have other priorities.

Kathy Kroon’s friends called her “the church lady” because she worked as a church secretary. Her husband, Lyle, conducted the choir. In 1998, Kathy was diagnosed with bone cancer.

The couple had cancer insurance from Central States Health and Life Co. For a year or so, the policy was a godsend. Then the checks were smaller. Claims went unpaid.

“When you’re fighting cancer, the last thing you want to do is fight your insurance company, too,” Lyle Kroon said.

The regulator who could have fought for the Kroons was a former Central States executive.

Central States is based in Nebraska, and contributed to then-Gov. Mike Johanns. Johanns appointed former Central States Vice President Tim Wagner to be insurance commissioner.

The Kroons weren’t the only Central States policyholders with payment problems. Attorney Mike Abourezk’s sister sued the company in 1998 after it denied her cancer claims. She died the next year.

Abourezk found other cases, too: A retired high school football coach with pancreatic cancer. A former banker with liver cancer. A mother of two with breast cancer. The claims amounted to hundreds of thousands of dollars.

Abourezk argued the company was gambling that cancer patients would be too sick to notice the underpayments and denials. He said the company had paid some policyholders only once they had started legal action. He called Wagner, expecting the regulator to investigate. When that didn’t work, he wrote a letter laying out his concerns about the company.

“Many of these people are terminally ill,” Abourezk wrote. “Many have died, and many more will die before they are ever paid if CSO can continue to delay.”

Central States contacted Wagner, too, after a judge ruled that the company should have paid the claims of a woman who sued. The ruling prompted the company to change its claim payment procedures. Company Chairman Richard Kizer asked Wagner whether the company was obligated to pay other policyholders who had claims denied before the policy change.

Wagner told him the company didn’t have to pay. According to Kizer’s deposition, Wagner told him “he was not aware of any insurance laws or procedures or practices whereby companies went back and readjudicated claims.”

In an interview, Wagner said his department took Abourezk’s concerns seriously. He said Central States didn’t get any special treatment.

Wagner noted that his department aggressively investigates complaints, including a series filed in recent years over denied claims for dental anesthesia for children.

But when it came to Central States’ dispute over coverage, the department took the company’s side.

“It (the policy) could have been read both ways, and I have to admit that our department … read it the same as the company,” Wagner said.

Nebraska regulators could have fined the company or issued an order to it for improperly denying claims, but they didn’t.

In a statement, company attorney Rebecca Smart said getting in touch with Wagner was “good business practice.”

“Contacting our domestic regulator regarding laws and regulations applicable to our operations is a standard practice in the industry and in all regulated industries,” she said.

But insurance regulators in the Kroons’ home state of South Dakota did take action. They moved to stop Central States when it tried to rewrite existing cancer policies to allow it to reject more claims.

“We just didn’t like a company going back and changing language to negatively affect policyholders,” said Gary Steuck, who was South Dakota’s director of insurance until he retired last year. “When a company tries to constrict a policy, we had to step in.”

Eventually, another policyholder filed a class-action lawsuit that yielded a large settlement for policyholders. Kay Bergonzi, a breast cancer survivor from Yankton, S.D., got Central States to set aside $20 million to pay unfairly denied claims.

“People get a check from their insurance company and they just assume they’re being treated right,” she said. “People trust their insurance companies, and it’s not right when they’re taken advantage of.”

Central States no longer offers cancer insurance and focuses on credit insurance.

Kathy Kroon’s own legal victory came too late. The 53-year-old grandmother died the day after her lawsuit was filed.

A check from the insurance company arrived the day of her funeral.