Judge Rules Against Principal Mutual -- Policyholders Win Against Health Insurer

Principal Mutual Life Insurance Co. breached its contract when it tried to drop health-insurance policies of 8,500 Washington residents, King County Superior Court Judge Charles Mertel ruled today.

The ruling in a class-action lawsuit means a trial scheduled for June will focus on what damages policyholders can collect. However, the case could be settled out of court.

"We are hopeful that we now have Principal Mutual's attention, and they will sit down at the table and work out coverage for the people who really need it," said Richard Spoonemore, an attorney for the plaintiffs.

"We hope we can negotiate something without going through the litigation process and make sure that the people who are critically ill get the coverage they need. That is our primary goal."

Bill Bailey, Principal Mutual's attorney, said the company will "pursue our options for reversing the decision."

Last fall, Principal Mutual told the policyholders it would not renew their coverage, saying the insurance had become too expensive.

In December, Mertel issued a preliminary injunction prohibiting Principal Mutual from dropping the coverage, which was sold to retired and self-employed people and to employees of businesses without health-insurance plans.

In today's ruling, Mertel said Principal Mutual must stand behind the language in documents that say the policyholders' coverage was guaranteed renewable, would be automatically renewed and that policyholders "may remain insured for as long as you wish."

Mertel ruled the policies are still in force except where they were terminated by policyholders, and that Principal Mutual "is liable to plaintiffs and other class members for (its) breach of contract."

"I'm extremely disappointed," Bailey said. "Principal collected something like $20 million in premiums (on the policies) last year and they paid about $32 million in claims.

"I hoped there would be some recognition of how unfair it is to require a company to continue doing business with multimillion-dollar losses."

Spoonemore said he'll try to get Principal Mutual to agree to continue coverage of its Washington policyholders, and may seek a permanent injunction to force it to do so.

In addition, he said, the company has a duty to reimburse policyholders who last fall bought other insurance at higher rates or got reduced coverage.

"What they had (from Principal Mutual) is sort of the Cadillac of coverage," and policyholders are entitled at least to the difference between the value of the policies they had and new ones they bought, Spoonemore said.

Today's ruling did not address all the claims in the class-action suit, including a charge that Principal Mutual violated the state's Consumer Protection Act.

If a judge or jury decides that happened, the plaintiffs could collect triple damages, as much as $10,000 per person. But Spoonemore said his primary aim is making sure people who need health insurance get it.

"We are not seeking some huge dollar settlement," he said.