NEW YORK, Nov. 5 (Bloomberg) â€“ UnumProvident Corp., the nationâ€™s largest disability insurer, has been accused in a lawsuit of systematically denying claims for long-term disability insurance by thousands of people too sick or too injured to work.
The Chattanooga, Tennessee-based company violated its duty under federal insurance laws by paying bonuses to its workers based on the number of claims they denied, the suit said. The plaintiffs accuse the company of operating â€œlong-term disability factories,â€ where in-house physicians rubber stamp medical decisions made by non-doctors.
Hundreds of people filed cases against the insurer since UnumProvident was formed in a 1999 merger. Relying in part of documents from Patrick McSharry, a former UnumProvident medical director who filed his own complaint against the company, the class-action suit makes claims on behalf of thousands of people.
â€œItâ€™s been different to say thereâ€™s a global practiceâ€ of denying claims, plaintiffâ€™s attorney Evan Schwartz said. â€œBut they have a company-wide practice since the merger, and we have the documents to show it.â€
Disability insurers have started focusing their claims handling strategies to root out fraud. During economic downturns UnumProvident and other disability insurers have to watch for customers who may try to stretch their benefits or file fraudulent claims, insurance industry analysts said.
The suit follows a report last month on General Electricâ€™s Co.â€™s NBC about improper denials of coverage by UnumProvident. McSharry was among several ex-employees who were interviewed in â€œDatelineâ€ broadcast.
A UnumProvident spokesman, Thomas White, said the company hadnâ€™t seen the suit and couldnâ€™t immediately comment. Shares fell 36 cents, to close at $20.67, trading on the New York Stock Exchange.
In a statement issued about two weeks before the â€œDatelineâ€ broadcast, the company said it paid more than $3.6 billion in disability-related claims last year.
â€œThe company is proud of its recording in paying claims and of the more than 3,000 people who work in the companyâ€™s claims area,â€ the statement said.
Benefit Cut-off Deadline
The suit, which was filed in federal court in New York, seeks an order forcing UnumProvident to review claims it denied and to change its practices. It doesnâ€™t seek damages. The case was filed on behalf of people whose policies were underwritten by UnumProvident units or whose disability plans are administered by the company.
The plaintiffs named in the suit include a legal secretary and a nurse whose benefits were terminated by UnumProvident after five years. They say the companyâ€™s claim processing units in Chattanooga; Chicago; Worcester, Massachussets; Tarrytown, New York, and elsewhere all employ the same tactics.
The plaintiff allege that the company secretly designates a date by which a claimant is expected to recover and cuts of benefits by then. Claims with a higher monthly benefit are more likely to be terminated, the suit says.
â€œThe evidence coming out in the last six months to a year has confirmed what we suspected,â€ Schwartz said.
Evan S. Schwartz
Founder of Schwartz, Conroy & Hack