NEW YORK – November 7 (BestWire) – A New York law firm has filed a lawsuit against UnumProvident Corp. (NYSE:UNM) and its subsidiaries, alleging that the company gave financial incentives to employees to deny disability claims.
In a suit filed Nov. 4 in U.S. District Court for the Southern District of New York, seeking class-action status on behalf of beneficiaries, our partner claimed that the company “saves money and increases 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 allegations.
Linnea Olsen, a spokeswoman for UnumProvident, the largest disability insurer in the United States, said the company has seen the complaint. “We reviewed it, and we will vigorously defend ourselves,” she said, adding that the company and its customers feel the claims procedure is fair.
The lawsuit said that as an insurer that operates under the Employee Retirement Income Security Act, UnumProvident has a fiduciary obligation to be fair and honest and act in the best interest of the beneficiary. It’s a special duty the company has, but it’s in direct conflict with the profit motives of a publicly traded company, said the plaintiffs’ attorney. “Their entire claims system is one systematic breach of fiduciary duty,” our partner said.
Insurance companies have embraced ERISA because certain parts of the arrangements are good for them, “but they have to take the good with the bad.”
“We’re alleging that not only did they fail to properly discharge their fiduciary obligations, they went in the opposite direction by actually motivating their employees and creating a system that acts in their financial interest and in direct conflict of the interest of the plan participants.”
Olsen dismissed the allegations, saying the company paid $3.6 billion in disability payments in 2001 alone and continues to invest $60 million annually toward clinical resources, such as doctors, nurses and rehabilitation specialists, to support fair and objective claims procedures. She also said that a team of people and resources help make a denial decision.
“We make more than 400,000 disability judgments every year,” she said. “On occasion, people disagree with our decisions.” Olsen noted that less than 2% of the 400,000 were found by the company not to be disabled. Less than fourth-tenths of 1% of all new disability claimants choose litigation to resolve their differences.
She also said nearly one in four companies in North America wouldn’t insure their employees through UnumProvident if they used the practices alleged in the lawsuit. “We have over 145,000 brokers and consultants that sell our insurance products, and these people put their reputations on the line every day to recommend us to their customers,” Olsen said. “If we were practicing unethical business practices, we wouldn’t be recommended.”
UnumProvident also questioned the class-action status of the lawsuit because claim cases are handled individually. “In our opinion, it probably won’t withstand judicial scrutiny,” Olsen said.
We are seeking class-action status because it’s an efficient way for members who share the same problem to get the relief the lawsuit is asking for, which is for the company to stop the practices, fix them and reevaluate claims that have already been denied.
It’s not the first time UnumProvident has been accused of unfair claims procedures. In October, two San Francisco attorneys, Ray Bourhis and Alice Wolfson, accused the company of canceling long-term disability claims for patients with cancer, heart disease, spinal injuries, repetitive stress injuries, Parkinson’s disease, AIDS and other conditions.
They alleged that UnumProvident targets long-term, high value claims – especially those where ERISA prevents the claimant from suing for punitive damages. They were featured on NBC’s “Dateline” Oct. 13 and are to be featured on CBS’ “60 Minutes” at a later date (BestWire, Oct. 15, 2002).
“Those involved in the New York lawsuit seemed to be the same attorneys and former employees who have put together a negative media campaign against the company. Our partner said he and his office had nothing to do with the media campaign and have no relationship or ties with the California law firm or any other law firm in the United States. In fact, he said attorneys in California who apparently were involved in the “Dateline” story called him about his case, and he refused to discuss it with them.
“Our law firm has done only one thing – we filed a lawsuit in a federal courthouse,” he said. “It was the wire stories that watch the financial industry that thought it was worthy of publication, and they were quickly followed by Reuters and the Associated Press.”
On Oct. 2, after UnumProvident issued a statement in anticipation of the upcoming “60 Minutes,” the company’s stock dropped almost 10% (BestWire, Oct. 14, 2002). On the afternoon of Nov. 7, UnumProvident’s stock was trading at $19.59 a share, down 6.71% from the previous close. UnumProvident’s subsidiaries are rated A (Excellent) by A.M. Best Co.
Evan S. Schwartz
Founder of Schwartz, Conroy & Hack
833-824-5350
[email protected]
