The Woodland Hills, California-based company will also reinstate coverage of 926 people whose policies it canceled after they got sick, the paper said.

The company, however, did not admit any wrongdoing, the paper added.

The LA Times quoted Health Net Chief Executive Jay Gellert as saying the settlement was an opportunity "to move forward and make sure these affected individuals can obtain coverage."

The agreement allows Health Net to avoid being targeted for more enforcement action relating to potential legal violations uncovered by auditors.

Health Net may be required to pay an additional penalty of as much as $3.6 million if a follow-up examination finds that it did not correct all deficiencies.

The Department of Insurance has been imposing a series of similar insurer fines and penalties through the State Department of Managed Health Care. The two agencies together regulate health insurance in California.

The department has yet to release a formal report of its investigation, but officials told the paper there was evidence that Health Net failed to follow state laws intended to guarantee that policyholders are treated fairly.

Health Net has been facing several lawsuits, fines and penalties related to delaying or denying payment of thousands of medical claims.

Health Net and The California Department of Insurance were not available for comment.

(Reporting by Sweta Singh in Bangalore; Editing by Paul Bolding)