South Carolina man Jerome Mitchell was 17 and about to go to college. He needed to get health insurance as his mother's health insurance policy no longer covered him. He was asked on the form whether he had ever been diagnosed or treated for an autoimmune disease, and correctly answered "no". He was then covered for health insurance.
About a year later, when Mr Mitchell went to donate blood, he discovered that he was HIV positive. He made a claim on his health insurance policy. The insurer instead cancelled the policy because, it said, he failed to properly disclose, at the time of entering into the policy, that he did in fact have HIV.
The insurance company did this because there was a note in Mr Mitchell's medical chart that stated that he had HIV. This note was written after the news came from the Red Cross about his HIV status, when Mr Mitchell then sought confirmation from his doctor, but was incorrectly dated the year before- it was therefore dated before Mr Mitchell applied for health insurance. It was clear, overwhelmingly, that the entry in the medical record was wrongly dated, but the insurance company relied on the date to cancel the policy.
At trial, the evidence against the insurance company was damning:
At trial, Mitchell’s insurance expert testified that it was [the company’s] practice to shut down an investigation once a single piece of evidence was discovered that would support rescission. Further, Mitchell introduced testimony from [the company’s] manager of underwriting and correspondence ...who testified that she was “not able to answer” whether she or any of her employees “had a responsibility to find out the truth” about a policyholder’s medical conditions. On cross-examination, [the company's] insurance expert conceded that an insurance company has a duty to investigate and find information that may lead to payment of a claim.
At trial, Mr Mitchell obtained an award of damages form the jury, including punitive damages, of US$15 million. The insurer appealed. On appeal, the South Carolina Supreme Court upheld the appeal in part, reducing damages to US$10 million.