New York – April 30 – A federal judge in New York has denied UnumProvident Corp.’s request to dismiss a lawsuit that alleges the company gave employees financial incentives to deny claims and seeks to change the disability insurer’s claim practices.
UnumProvident (NYSE:UNM) argued the plaintiffs should bring their actions under a provision of the Employee Retirement Income Security Act that allows plan members to try to obtain benefits under their interpretation of the plain, according to U.S. District Judge Denise Cote’s opinion. But Cote said the insurer misconstrued the complaint. The plaintiffs are seeking reforms to its disability claims process, not benefits, the opinion said.
The lawsuit, which is seeking class-action status, was filed Nov. 4, 2002, in the U.S. District Court for the Southern District of New York. It alleges UnumProvident increased its profits by setting cost-saving goals through the denial of claims, providing incentives to in-house physicians to “rubber stamp” previous decisions and altering written reports to justify denials, among other alleged actions.
As an insurer that operates under ERISA, UnumProvident has a fiduciary obligation to be fair and honest and to act in the best interest of the beneficiary, the lawsuit said (BestWire, Nov. 7, 2002).
“This case is the first of its kind in the United States against a disability insurance company and perhaps against any insurance company, as far as we know,” said our firm representing the plaintiffs. We compared the case with the recent $1.4 billion agreement between the U.S. Securities and Exchange Commission, New York Attorney General Elliot Spitzer and 10 investment firms over revelations that the firms steered investors to the risky stocks of their own clients.
“(The SEC and Spitzer) settled a civil case . . . that will change the way the investment houses do business, which is violating the law, to protect the public,” our partner said. “Now our case will move forward and the judge has confirmed that we can actually change the manner in which (UnumProvident) conducts business so a claim is decided on its merits instead of in accordance with monthly financial targets.”
He said the legal action isn’t about money directly, but about changing the way the insurer does business. “Our class-action has a similar feature in that it seeks to stop illegal practices, reform the system and protect policyholders.”
Calling the allegations “outrageous,” UnumProvident spokeswoman Linnea Olsen said the outcome of the case would show that it doesn’t use the practices the lawsuit claims. She also stressed that the ruling wasn’t on the merits of the case.
“The court had to assume that what the plaintiffs are saying is true,” said Olsen. “No evidence was put before the court” for the judge to make this decision, she said.
UnumProvident said it makes more than 400,000 disability judgments every year, and the company finds only 2% of claimants not to be disabled. Less than 0.4% of all new disability claimants choose litigation (BestWire, Nov.7, 2002).
The next step for the lawsuit is certification of the class. The lawsuit seeks to have the files of thousands of people who had their claims denied by the company, for as long as six years before the lawsuit was filed, reopened and reconsidered under a new claims system. “There are many tens of thousands of people who could potentially come within the scope of the case,” our partner said.
Although UnumProvident’s chairman, president and chief executive officer, J. Harold Chandler, left the company in March, Chandler is still a responsible party in the case.
UnumProvident said Chandler would retire from the company in March. Thomas R. Watjen, vice chairman and chief operating officer, was appointed president and CEO on an interim basis. The company also said it formed an office of the chairman and appointed C. William Pollard and Lawrence R. Pugh as co-chairman. (BestWire, March 31, 2003).
In California, a court recently reduced the punitive damages awarded to an eye doctor earlier in 2003 to $5 million from $30 million in a case against UnumProvident. But a federal district court in Arizona ordered the company to pay more than $85 million for a separate case during the same week (BestWire, April 4, 2003).
On the morning of April 30, UnumProvident’s stock was trading at $11.27 a share, up 7.33% from the previous close.
On April 25, A.M. Best Co. downgraded the financial strength of the company’s insurance subsidiaries to A- (Excellent) from A (Excellent).
Evan S. Schwartz
Founder of Schwartz, Conroy & Hack
833-824-5350
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