Disability Claims

Articles

Pittsburgh Business Times, Making the Claim:  Executives Should Understand the Terms of Disability Insurance, July 19-25, 2002

Article by Christopher Davis

After years of working 70- to 80-hour weeks, often traveling two or three days of each, attorney Charles Lamberton's client was in trouble.  The well-paid executive, who headed a local office for an international company, had developed serious health problems that, he said, were directly related to the everyday stresses of his job.
A heart attack, vascular-related dementia and other maladies had taken their toll on the executive, and he could no longer effectively oversee the hundreds of employees under his charge.

"He wasn't some guy who monitored the copy machine. He was a high-up executive," said Mr. Lamberton, a litigation associate with Rothman Gordon PC, Downtown. "He just couldn't do his job anymore."

Lacking the ability to work again in a similar position, yet still having a number of potential wage-earning years ahead of him, the executive needed to file a disability claim.  Fortunately, the company he worked for had purchased special disability insurance policies for its top executives. He was awarded benefits for roughly six months, but when he applied for long-term disability benefits, the insurance plan's administrator denied them. The plan administrator was also the same company that determined whether benefits would be paid out -- as well as the amount that would be paid.

"Obviously, any company in that situation is going to be influenced by its bottom line," Mr. Lamberton said. The executive sued for wrongful denial of benefits, successfully settling the claim before it went to trial for several hundred thousand dollars. 

Mr. Lamberton, citing client confidentiality, declined to reveal additional specifics regarding the recent case, but said the situation underscores the need for corporate executives to educate themselves on the ins and outs of disability insurance included as part of their overall compensation packages.

"Executives are generally well paid and they count on the protection that should be afforded by a long-term plan to replace a good chunk of that (lost compensation)," Mr. Lamberton said.  In many cases, insurance and benefits can account for roughly a quarter of an executive's compensation. Still, many executives don't take the time to study the language contained in their disability policies, he said.  They should familiarize themselves with coverage periods and defined pre-existing health conditions, among other issues, Mr. Lamberton said.

"Every sentence is designed to allow the (plan provider) to deny benefits," he said. In rare instances, the language can be negotiated or altered. However, the best options to ensure executives of sufficient disability coverage are to request additional individual policies or to purchase additional policies for themselves, Mr. Lamberton said.

If those options are not available under certain job offers, "it may pay for you to keep looking or consider another offer that's on the table," he said.  The Employee Retirement Income Security Act -- the law initially created to protect employees who had worked for substantial periods under company pension plans and under which the majority of private-sector, employer-supplied disability policies fall -- often is "not an employee-friendly statute," Mr. Lamberton said. Many times under ERISA, the best-case scenario when benefits are wrongfully denied is the awarding of back benefits only, with no provisions for punitive damages or pain and suffering.  " That's why it's so important to ensure sufficient disability coverage is provided in the first place," he said.

UnumProvident Memo Suggests Intent to Use Law to Save Money

By CHRISTOPHER OSTER
Staff Reporter of THE WALL STREET JOURNAL

As state regulators scrutinize the claims practices of disability-income insurer UnumProvident Corp., a document obtained by policyholders' attorneys shows the insurer's intent to use a law meant to protect workers' retirement savings to help it save money on claims.

The memo, written in 1995, says Provident Corp., which merged with Unum Corp. in 1999, had formed a "task force" to identify policies covered by the Employee Retirement Income Security Act of 1974. "The advantages of ERISA coverage in litigious situations are enormous," reads the memo, written by Jeff McCall, at the time an assistant vice president in the claims department at Provident. "There are no jury trials. There are no compensatory or punitive damages."

UnumProvident said the memo was merely an attempt by the company to better comply with Erisa, which governs many of its claims practices. But the memo, a copy of which was reviewed by The Wall Street Journal, adds fuel to critics' complaints UnumProvident in some instances has been overzealous in denying claims.

The insurer says it pays all legitimate claims and that critics, including some former employees who recently have given sworn statements to plaintiffs' lawyers, have distorted its approach, which is geared toward getting employees back to work. The Chattanooga, Tenn., company's claims-handling procedures are being scrutinized by state insurance regulators in Georgia and California.

Erisa long has been a frustration for plaintiffs' lawyers. Under the law, a policyholder who sues an insurer alleging a claim was mishandled can't collect any court award other than restoration of policy benefits and in some cases attorneys' fees. Erisa doesn't allow awards for punitive damages.

Insurance policies endorsed by any employer -- even if the employee pays the premium -- are protected by Erisa. The act's main provisions require better disclosure by benefit plans of how the plans are operated and administered and establish safeguards to protect employee benefits.

The 1995 Provident memo says, "While our objective is to pay all valid claims and deny invalid claims, there are some gray areas, and ERISA applicability may influence our course of action." The memo says a Provident manager had identified 12 claims settled for $7.8 million, that, if governed by Erisa, "our liability would have been between zero and $0.5 million."

Plaintiffs' lawyers said the memo reveals how UnumProvident -- and other insurers -- increasingly have used Erisa's loopholes to their advantage, allegedly by forcing policyholders to go to court to collect their benefits. Joseph Belth, professor emeritus for insurance at Indiana University in Bloomington, Ind., who has reviewed the memo, said, in general and in the UnumProvident instance, Erisa "was supposed to be protection for employees, but it's being used to protect insurance companies and employers."

But Glen Felton, vice president of employment law at UnumProvident, said some consumer ire should be directed toward plaintiffs' attorneys, who turn away Erisa cases and "look for cases that are non-Erisa, trying to get these exorbitant awards."

Plaintiffs' lawyers say Erisa leaves them little leeway, because it pre-empts state insurance laws and allows insurers to insert policy language that makes it easier to deny claims. "People shouldn't have to hire a lawyer to get a legitimate claim paid," said Ray Bourhis, a lawyer at Bourhis & Wolfson in San Francisco who last year won a $7.7 million award against UnumProvident in a non-Erisa case. In upholding the jury award in November, a federal judge in California said the company had "a comprehensive system for targeting and terminating expensive claims." UnumProvident has appealed the decision.

In February, a federal judge in Maryland concluded UnumProvident's behavior, in denying the Erisa-covered disability-income claim of a Baltimore legal secretary, had "bordered on outright fraud" and that the company implemented "an unprincipled and unreasonable review process." Despite that view, the company only had to restore the benefits of the secretary, Valerie Watson.

UnumProvident later agreed to pay Ms. Watson's attorneys' fees, according to her attorney, James P. Koch of Baltimore. A spokesman for UnumProvident said the company wasn't immediately prepared to comment on the case.

Insurer's Tactics Rebuked

By Lisa Girion, Los Angeles Times Staff Writer

The nation's largest disability insurance firm is facing a flurry of lawsuits in California and across the country from policyholders who contend that UnumProvident Corp. cheated them out of their disability payments in an aggressive campaign to boost profit.

The company's tactics allegedly included spying on customers, shredding medical records and using biased doctors to justify its cancellations.  The Chattanooga, Tenn.-based company received a harshly worded rebuke this week from a San Francisco federal judge, who ordered it to "obey the law" and stop targeting certain categories of claims for cancellation, employing biased medical examiners, destroying medical reports and withholding from policyholders information about their benefits.

U.S. District Judge Robert Larson issued the unusual injunction late Wednesday in a ruling upholding a $7.67-million jury verdict for a single mother of two who lost her home and went on welfare after the company cut off her disability benefits.  Citing corporate documents and testimony of current and former employees and an industry expert, Larson concluded that former chiropractor Joan Harngarter's case was part of a broader effort to target expensive claims filed by doctors, lawyers and other self-employed professionals, particularly in California and Florida.

"They planned to save money by terminating claims like hers," Larson said in the order. The company developed a "comprehensive system for targeting and terminating expensive claims."  The litigation has put a spotlight on the culture of an insurer that once handed out a "Hungry Vulture" award to its best employees. A UnumProvident executive said the award was discontinued when it became clear that people outside the company were misconstruing what was meant as a lighthearted effort to boost morale.

In a similar case against the company, a Tampa jury awarded$36.7 million last year to an eye surgeon who claimed that Parkinson's disease left him unable to operate. A class-action suit recently was filed in New York, several lawyers said they were preparing to file additional lawsuits, and the Georgia insurance commissioner's office has been investigating the company's practices in that state for two years.

Lawsuits have pilloried the company for requiring its claims adjusters to maintain and give special attention to "Top 10" lists of certain claims that were costing the company the most and for conducting round-table internal discussions allegedly to come up with ways to deny claims and cut off benefits.

A top UnumProvident executive said Thursday that the company was proud of its claims management practices and believed that plaintiffs' lawyers were mischaracterizing its conduct in a smear campaign designed to bolster their suits. The giant insurer, formed in the 1990s through the merger of Provident Cos. and Unum Corp. and the acquisition of Paul Revere Life Insurance Co., dominates the individual and group disability market.

"We're the biggest target out there," said J. Christopher Collins, a senior vice president. "We have a third of the marketplace, and we've just become their favorite whipping post."  The disputed policies offer what is known as non cancelable, own-occupation disability coverage. Such policies typically are purchased by self-employed professionals to make up for lost income if a disability were to prevent them from working in their specific field. If a policyholder were able to work in another job, he or she still would be entitled to benefits.

One insurance analyst said there were concerns within the industry in the mid-1990s that own-occupation policies were being exploited in some cases by professionals who were not actually disabled but were looking to retire with an income. And Collins of UnumProvident said some industry experts believe fraud affects 5% to 15% of claims.

But plaintiffs' lawyers said UnumProvident brought the suits on itself by cutting off claims and benefits at the expense of policyholders they contend are legitimately disabled. The lawyers said that people who have been terminated by UnumProvident have included individuals with Parkinson's disease, AIDS, spinal injuries, organic brain damage and cancer. "These are the most vulnerable people imaginable," said Ray Bourhis, a San Francisco lawyer with several cases against the company, including the one before Judge Larson.

"They're disabled. They don't have the energy to take on an $8-billion insurance company, and the company knows it. You sell them this policy on the basis that you will be there if anything should ever happen.... You take their money, their premiums, for 10 or 15 years. And then lightning strikes, and you refuse to pay the claims."  Incoming California Insurance Commissioner John Garamendi, who takes office in January, said he had talked to lawyers involved in some of the California suits and planned to launch an investigation.

"It appears to me to be a conspiracy to defraud individuals," Garamendi said Thursday. UnumProvident is the subject of an audit in California, said a spokesman for the current insurance commissioner, Harry Low. The spokesman characterized the review as routine. The company has not publicly disclosed how many of the so-called bad-faith suits it faces on own-occupation policies, but Collins estimated that fewer than 200 have been filed.  Collins said the company planned to appeal Judge Larson's ruling and that his injunction was based on bad evidence.

"The judge has essentially enjoined us to not do things we're not doing," Collins said. "We don't employ biased medical examiners. We don't destroy medical records. And we don't withhold from claimants information about their benefits." In his 62-page ruling, Larson found support for his order in company documents, including a law department instruction that claims adjusters "shred all sensitive papers that will not be needed for business purposes."

Collins said the document was distributed in the early 1990s and only to employees of the former Provident Life & Accident Insurance Co. He said it had been provided by an outside vendor. Collins said it had been superseded by a newer policy on document retention but that there was nothing wrong with the old instruction. Collins said the company stood by its termination of Harngarter's benefits. He said the judge based his decision on the testimony of former employers and others with an ax to grind against the company and on company memos that were old or mischaracterized at trial.

Harngarter, a former Berkeley chiropractor, said she was forced to walk away from her $100,000-a-year profession because of disabling joint pain. "I keep wondering how long I can hold out," Harngarter said.