Suit Says Insurer Wrongly Denied Disability Claims
A novel whistle-blower lawsuit filed in Los Angeles alleges that the nation’s largest disability insurer, UnumProvident Corp., withheld benefit payments to meet financial targets.
Former Unum “customer care specialist” Linda Nee claims that she was fired 18 months ago after bringing reports of wrongdoing to the attention of her supervisors. She is joined in the suit by California consumer advocate John Metz.
They are believed to be the first to sue an insurance company under a whistle-blower-type law in the state’s insurance code. Typically, insurance companies use the law to sue over fraudulent claims.
Although insurance companies have sued to recover money paid to fraud mills under the statute, “recently, cases started being brought against insurers,” said Gary Cohen, general counsel for the California insurance commissioner’s office.
Nee’s suit alleges that Unum, a Chattanooga, Tenn.-based insurance conglomerate with a regional office in Glendale, engaged in a pattern of delaying, denying and terminating benefits without regard to the merits of the claims.
In order to meet monthly or quarterly financial targets, the suit alleges, Unum convened periodic “round-table” claims review meetings with claims handlers, doctors, nurses and other consultants to improperly deny benefits. The suit also accuses the company of delaying claims determinations in order to manipulate the setting of reserves and statements of the insurer’s financial condition.
Unum had not yet been served with the suit, which was filed in July but not unsealed until Thursday in Los Angeles County Superior Court.
Company executives Friday denied the nature of its allegations. They also said Unum’s record contradicted allegations that it engaged in a pattern of improper benefit denials.
Glenn Felton, a senior vice president and deputy general counsel for Unum, said Nee was fired for poor performance after repeated warnings. He added that Nee withdrew her claims filed with the U.S. Labor Department and the state of Maine that alleged she was fired in retaliation for reporting alleged misconduct at Unum.
The company has been hit with a series of multimillion-dollar awards by juries in California and other states in suits alleging that the company cheated policyholders out of disability benefits. Insurance commissioners across the country, including in California, are investigating similar complaints. Allegations in Nee’s suit are similar to other cases filed against Unum.
Nee’s suit was filed under seal, as required by law, to give the state insurance commissioner an opportunity to review the case and decide whether to prosecute it.
Ultimately, state Insurance Commissioner John Garamendi passed on the Unum suit, but not because of the merits of the case, Cohen said.
“We have not yet intervened in any of these types of cases,” Cohen said. “We’re looking at them.”
Another reason Garamendi passed on the case, Cohen said, is that the Department of Insurance was well along with its own investigation into complaints about Unum’s claims handling.
Unum is under fire in several states for allegedly taking advantage of a federal law that exempts employee benefits, such as disability insurance, from state regulation. Insurance lawyers say they believe that Unum has exploited the federal shield in its handling of employer-provided long-term disability coverage, and that the company has routinely cut off employee benefits to workers with heart disease, AIDS, Meniere’s syndrome, Crohn’s disease and other disabilities.
Although federal law prevents Garamendi from investigating disputes that involved claims for disability benefits obtained through employers, he pledged to investigate Unum’s claims handling in policies bought by self-employed workers.
The Insurance Department has completed its Unum investigation, Cohen said, and is preparing to share its findings with the company and to take action, which could include imposing fines and other remedies.
“I am very interested, and the commissioner is very interested, in coming up with a resolution that really will prevent any problems we found from occurring in the future,” Cohen said.
