Laws vary from state to state, but in some states a health insurance carrier, health maintenance organization, or other managed care entity for a health care plan has the duty to exercise ordinary care when making health care treatment decisions and is liable for damages for harm to an insured or enrollee proximately caused by its failure to exercise such ordinary care.

This liability may be created by a specific state statute or by the state's common law (court opinions or case law) under a negligence theory for breach of the standard of care (reasonableness).

In California, health insurance carriers, health maintenance organizations (HMOs), and other managed care entities are expected to exercise ordinary care when making health care treatment decisions. The state imposes a duty of care on these entities, meaning they must act reasonably and with the level of care that a prudent entity would exercise in similar circumstances. If they fail to do so, they can be held liable for damages caused by their negligence. This duty and the corresponding liability can arise from specific California statutes, such as the Knox-Keene Health Care Service Plan Act of 1975, which regulates HMOs and other health care service plans. Additionally, case law in California has established that managed care entities can be held liable under common law negligence theories if their decisions or actions result in harm to an insured or enrollee. This means that if a managed care entity does not make health care treatment decisions with the required standard of care and an insured person is harmed as a proximate result, the entity can be sued for damages.