Insurer Must Pay Surgeon

A Northern California jury has ordered UnumProvident Corp. to pay $31.7 million for cheating a Novato eye surgeon out of disability benefits after he developed a psychiatric condition that he said made it impossible for him to operate.

Jurors in Marin County Superior Court on Thursday imposed the sanction, which includes $30 million in punitive damages, after concluding that the world’s largest disability insurer acted with malice and committed fraud.

UnumProvident spokesman Tom White said the insurer would appeal.

“The company strongly disagrees that the evidence supported a finding that our handling of the claim was ... fraudulent or malicious.”

The verdict is the second-largest against the Chattanooga, Tenn., company, which has been hit with a number of suits alleging that it is involved in a scheme to stop paying expensive claims in order to boost profit. The company is under scrutiny by state insurance commissioners, including California’s John Garamendi, who has expressed concern about the mounting court rulings against it.

UnumProvident repeatedly has denied that it improperly refuses claims and has said that the allegations are a smear campaign by plaintiffs lawyers.

The recent award includes $1.6 million in past and future benefits that Dr. Randall Chapman would have collected had UnumProvident honored his claim.

Chapman performed microscopic eye operations for 20 years until he developed symptoms of anxiety, including shaky hands. Chapman’s psychiatrist diagnosed his illness as a phobia to performing surgery and encouraged him to submit a disability claim.

To impose punitive damages, jurors in California must find malice or fraud. The Chapman jury found both.

Trial evidence included testimony that documents concerning Chapman’s claim had been destroyed. In addition, former employees described an informal policy in which claims payments were kept level from quarter to quarter, said Arnie Levinson, Chapman’s San Francisco lawyer.

According to testimony, an unwritten rule required claims managers to deny as many old claims as needed to offset the costs of new claims.

“It’s very clear that they are denying claims to meet termination levels,” said Levinson, who has several cases pending against UnumProvident. “They sell protection, but when a claim comes in it’s treated like a number.”

Last year, a federal judge in San Francisco upheld an $8-million award to a disabled chiropractor whose family lost its home after she was dropped by UnumProvident. The judge rebuked the insurer for, among other things, destroying documents and employing biased doctors to examine claims.

The largest verdict against UnumProvident in such a case came in 2001. The company was ordered to pay $36.7 million after the insurer cut off benefits to a Florida eye surgeon whose hands trembled because of Parkinson’s disease.

“Thirty million is a drop in the bucket to these people,” said Ray Bourhis, a San Francisco lawyer who has won verdicts against the insurer.

“The problem is that if a company is able to increase revenues by hundreds of millions of dollars by terminating benefits, then this [damage award] doesn’t scratch the surface.”