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The legal cases involved re-underwriting, a rating system for individual health insurance pioneered by American Medical, based in Green Bay, Wis. The company's rating practices and the potential expansion of the practice among other insurers was the subject of a page one article in The Wall Street Journal this month.

In a class action, a Florida circuit-court judge in West Palm Beach ruled that American Medical violated state law and thus breached customers' contracts by taking their health into account when the company canceled their coverage and issued new policies and also when it raised their rates at renewal. The case was brought on behalf of 11,600 American Medical customers.

However, a Florida administrative-law judge Thursday recommended that all counts be dismissed against American Medical in a similar case brought by the Florida Department of Insurance. Florida's insurance commissioner has sought to ban American Medical from issuing policies in that state and can overrule the administrative law judge.

A spokesman for American Medical said the company was taking additional time to review the two rulings and declined to comment. Previously, the company has said it violated no Florida laws and defended re-underwriting as a way to limit overall rate increases among the sick and healthy.

Normally, companies that sell individual policies evaluate a person's medical history just once, at the outset, and not every year at renewal.

Meanwhile, proposed legislation to ban re-underwriting of individual health insurance appears likely at both the state and federal level. Sen. Bob Graham (D., Fla.), who has characterized individual re-underwriting as an "outrage," said that he plans to introduce legislation that could include a ban on the practice. Nothing in federal law currently prohibits the practice, and most state insurance laws don't address it explicitly.

The National Conference of State Legislatures said that it is concerned about the issue, as well, and plans to explore legislation that could be passed at the state level to limit re-underwriting.

In the civil class action, Circuit Court Judge Jorge Labarga ordered the plaintiffs and American Medical to mediate on the issue of damages within 15 days. If the parties are unsuccessful, a separate trial on damages is scheduled for July. Jeffrey Liggio, lead counsel for the plaintiffs, said they are seeking an undetermined amount of damages to cover what customers were overcharged plus out-of-pocket medical expenses incurred by customers who couldn't afford significant rate increases and became uninsured.

In 4 p.m. composite trading on the New York Stock Exchange Thursday, American Medical was at $17, up 57 cents.

Write to Chad Terhune at chad.terhune@wsj.com

Updated April 26, 2002