"I will be ordering immediate reinstatement," said Cindy Ehnes from the California Department of Managed Health Care.
The state of California told the health insurance industry on Thursday that illegal rescission will not be tolerated.
Rescission are when insurers cancel coverage because the patient left off a pre-existing condition on their application to buy individual health insurance.
"It was obvious to us in some of the individual case files examined, that no reasonable argument could be made that the applicant had deliberately misrepresented their health history information," said Ehnes.
Now, 26 policy holders will get their health insurance back and their past doctor bills paid. But the historic order opens the door for thousands of other Californians who were cancelled to also be reinstated.
The industry points out, rescissions are only a tiny percentage of the 2.6 million people with individual policies.
"What that says to me is that 99.9% of the folks who've gotten individual coverage, have done the right thing and their coverage is there for them when they need it," said Chris Ohman from the California Association of Health Plans.
The Schwarzenegger Administration has been cracking down on health insurers since 2004 levying significant fines for rescission practices and for paying bonuses to employees who managed to cancel a certain number of policies.
On Wednesday, the city of Los Angeles sued Anthem Blue Cross for selling coverage then reneging when treatments got expensive.
"No one was trying to fraud them at all, which they have accused me of. I was just trying to get insurance," said Wittney Horton, a cancelled policy holder.
Companies involved are Anthem, Blue Cross, Kaiser, Pacific Care and Health Net. A state appointed arbiter will now go through thousands of cancellation complaints filed with regulators since 2004. Anyone who didn't outright lie on their application, could get their health coverage back and past doctor bills paid.