updated 4/16/2008 8:16:45 PM ET 2008-04-17T00:16:45

The city attorney is seeking up to $1 billion in fines and restitution from the state’s largest health care insurer, charging Anthem Blue Cross with deceptive practices and unlawfully terminating policies when people needed health care most.

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Los Angeles City Attorney Rocky Delgadillo said the insurer, formerly known as Blue Cross of California, illegally rescinded more than 6,000 insurance policies. Some of those policies affected elderly patients and some denied patients with health costs that topped $100,000.

“Blue Cross hides from consumers the fact that if the consumer requires an expensive medical procedure, there is a significant likelihood that Blue Cross will cancel their insurance policy,” Delgadillo said Wednesday, the same day his office filed a lawsuit in Superior Court accusing the company of violating laws prohibiting unfair competition and false advertising.

Anthem Blue Cross denied the allegations, adding it has tried to meet with Delgadillo to explain its procedures but has been rebuffed.

“Since the original inquiry from the city attorney’s office, Anthem has offered on several occasions to meet directly with the city attorney to provide further information on Anthem’s rescission procedures,” the company said in a statement. “To date, the city attorney rejected each of these offers and we are disappointed by his actions today because of our attempts to meet with him. Anthem Blue Cross intends to vigorously defend itself in this matter.”

Delgadillo claimed one of the insurance company’s violations was use of secret units within the company that targeted consumers who became ill. He said the insurance company internally identifies those secret units as the “medical investigation unit” and the “retroaction review unit.”

“Once you get sick, (your files) are sent to a secret unit and you’re denied coverage,” Delgadillo said

“We’re not exactly sure of what the threshold is, but when somebody meets it, there’s a unit, and its entire purpose is to rescind policies.”

Additionally, more than 500,000 consumers were tricked by false advertisements into buying largely worthless insurance policies, Delgadillo said.

Delgadillo also criticized what he called the company’s “confusing and misleading insurance application,” which he said “stacked the deck against California consumers.”

In a letter made public March 3, Delgadillo asked Blue Cross to substantiate claims about its service. Those claims were made in a news release issued the previous month to explain its procedures for canceling a patient’s coverage.

The release was issued two days after the city attorney’s office sued another insurer, Health Net Inc., for allegedly canceling the policies of sick patients needing expensive treatment. As part of a separate suit, Health Net was ordered to pay $8.4 million in punitive damages to a woman whose policy was scrapped while she underwent treatment for breast cancer.

Delgadillo said the scale of the Blue Cross case was much larger than that of Health Net.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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