The San Diego woman's father says a representative of the company told him it was "pulling the plug" on coverage of her hospitalization.
Janell Smith's glowing smile and "bigger than life" personality helped her cover up the fact that she had the eating disorder, her family says.
She kept it so secret, not even her sister knew about it.
One day, says the sister, Dianna Wilson, Janell "took off the majority of her clothes, and when I saw how skinny her arms were and how her ribs out and all that, I was crushed."
By the time she was hospitalized in January 2003, Janell, who was 26 at the time, weighed 68 pounds. A feeding tube was keeping her alive.
Janell was in the hospital for three weeks but, her family says, just as her health seemed to be improving, her father got a call from his insurance company.
Brian Smith tells CBS News, "The counselor said, 'Nobody's talked to us about next-step strategies. In fact, we don't support this. The insurance company is pulling the plug.' That was her words."
Janell was released from treatment.
Days later, her family says, guilt-ridden in the wake of an eating binge, Janell ingested a toxic combination of Tylenol, vodka, and cocaine. She overdosed and died.
"Had she been able to get the care she needed," says her sister, "and had the doctors said, 'You know, she's at a good place, and she can go into an outpatient program,' I believe she'd be with us today. I really do."
In a lawsuit filed by Janell's parents, the family alleges that its health insurance provider, Magellan, didn't consult with Janell's doctors.
Magellan denies that, countering that Janell discharged herself and that her doctors didn't request extended hospitalization.
Magellan says it was the family's responsibility to ask for more coverage, that her coverage had simply expired and that, had the family asked for more, Magellan would have granted it.
"That's simply just not true," Scott Glovsky, the lawyer representing the Smiths, told co-anchor Maggie Rodriguez on The Early Show Thursday.
Brian Smith admitted to Rodriguez that he didn't ask for more coverage.
"She was in the hospital," Brian told Rodriguez, "and, two-and-a-half weeks after she had come out of tube-feeding, and still weighing in the low 70s, I got a phone call from Magellan on a Friday, saying she's going to be discharged on Monday. I protested, saying she wasn't ready, that she didn't weigh enough to qualify for an outpatient program. And they said, 'Oh, you'll see her counselor tomorrow, and we'll work on next steps.'
" ... The case manager of Magellan ... said three things -- she's being discharged, she needs to be in an outpatient program by Wednesday, and, oh, by the way, we don't want her living in your home. That's what we were told. In their notes, they even write that they had set up this discharge plan to another outpatient program. So for them to say they were just continuing coverage is totally untrue."
Glovsky added, "Their own records, their official notes of what happened says that their medical director determined she must be 'discharged,' their word. Their notes also say that they advised the hospital of that decision and called Brian on that decision. So they're claim they didn't deny any care is simply not true."
"It's extremely frustrating," Mary Smith, Janell's mother, told Rodriguez. "We knew our daughter needed long-term care. She was extremely underweight. She was very ill. Everybody that was on her treating team knew she was ill. Her doctor, her psychiatrists, her eating specialists. We knew it. Everyone knew it. But the bottom line was there was a financial consideration for Magellan."
Glovsky suggested the National Eating Disorder Association "is a wonderful resource for families to get help."