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 noncancelable, 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.