Unum Group: Is everything old, new again?

www.plaintiffmagazine.com – SEPTEMBER 2017

By Eric L. Buchanan,ย David Lilienstein, Katie Spielman

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If a good story is at the heart of a successful trial, then every plaintiffโ€™s attorney deserves at least one Unum Group case. Unum, the largest disability insurer in the country, has a villainous history of multimillion-dollar punitive damages awards, regulatory investigations, millions of dollars in fines.

With all this sordid history the question for the insurance bad-faith practitioner is whether the companyโ€™s misconduct is or is not a thing of the past, and if it isnโ€™t, how can evidence of past conduct be used to support โ€œpattern and practiceโ€ allegations?

A cautionary tale

First, the cautionary tale1: In the late 1980s, Unum saw an opportunity in the disability insurance marketplace, and tried to corner the market by offering great products โ€“ occupation-specific, noncancellable, guaranteed renewable individual disability policies โ€“ to high-income earners such as doctors and lawyers. Other companies, and particularly Provident Life and Accident Insurance Company, followed suit.

By the early 1990โ€™s insureds began making claims on the policies. Many claims. So many claims, in fact, that Provident reported a $400+ million loss in its disability line of business. Heads rolled, executives were replaced, and new claims handling practices became the rule of the day for this block of business. Perhaps the most egregious of the companyโ€™s new so-called initiatives was that it could not approve too many claims unless it denied an equivalent number of claims. This is famously known as the โ€œnet-terminations ratio.โ€ No longer were insurance claimsย  evaluated on their merits, as is required under California law.

The new initiatives worked. Profitability reigned and consolidation followed. In 1999, Unum and Provident merged into a disability insurance behemoth, UnumProvident.

Then the documents came out, and UnumProvidentโ€™s unlawful claims handling practices were laid out for all to see, in 2002, in the form of a unanimous insurance bad-faith jury verdict and a $5 million punitive damages award (Hangarter v. Paul Revere Life Ins. Co., 236 F.Supp.2d 1069 (N.D.Cal. 2002).2 That action concerned the denial of a chiropractorโ€™s disability claim, not because she could no longer practice chiropractics, but instead on the basis that she was not disabled from running a small business โ€“ her chiropractic practice.

For anyone interested in how to establish institutional bad faith against an insurer, the Hangarter opinions are a must-read. For example, the court highlighted evidence that the insurer โ€œhad developed and applied to [plaintiff โ€™s] case file a comprehensive system for targeting and terminating expensive claims. . . .โ€3

Medical evidence is paramount in proving many types of insurance cases. In Hangarter, the ย court called out the company for using a so-called independent doctor who rejected the insuredsโ€™ position โ€œin thirteen out of thirteen cases.โ€4 Practitioners take note: do not refer to insurance medical examinations as โ€œindependent.โ€ The proper term is โ€œdefense medical examination.โ€

Hangarter v. Paul Revere Life Ins. Co.

Hangarter was only the tip of the iceberg for UnumProvident. After years of complaints piling up, insurance commissioners nationwide took note. The ensuing multistate investigation and settlement resulted in millions of dollars in fines, promises of claims handling reforms, and an agreement to โ€œreassessโ€ previously denied claims.

California, under the leadership of then-insurance commissioner John Garamendi, opted out of the multistate settlement, and entered into its own settlement with the disability giant. In addition to the tens of millions of dollars of fines levied nationwide, the California fine alone was $8 million.

Included among the findings of the California Department of Insurance (โ€œDOIโ€) were that UnumProvident:

  • Failed to train claims personnel adequately or correctly on how to properly conduct an evaluation of a claim;5
  • Targeted claims for termination or denial based on company economics aimed at improving โ€œnet-termination ratiosโ€ instead of the claimโ€™s merits;
  • Selectively used portions of a claim file (such as medical history and IME findings) to the companyโ€™s own advantage, at the insuredโ€™s expense;
  • Misapplied policy provisions in order to limit or deny benefits;
  • Failed to document claim files regarding in-person meetings at which substantive claims decisions were made; and
  • Continued to seek additional information where claimants provided adequate proof of loss.

There were additional allegations in the DOIโ€™s accusation against Unum that were not included in the specific final findings, including offering adjusters incentives or rewards for closing files, and placing the burden of investigating the claim on the claimant while failing to fulfill its own duty to adequately investigate.6

More important for practitioners were the many claims handling reforms UnumProvident agreed to institute.

This included:

  • Engaging experienced claim personnel at the earliest possible stage of claim reviews;7
  • Increasing emphasis on claim staff accountability for compliance with the terms of insurance policies and applicable law;
  • Increasing involvement of higher levels of claim management staff in each claim denial or termination decision; and
  • Giving proper weight to the opinions of an insuredโ€™s treating physician.

Imagine that! A disability insurer must credit the medical opinions of its insuredsโ€™ treating physicians.

It would be nice to think Unum learned it lessons and reformed its claims handling procedures as promised. The facts โ€“ and punitive damages verdicts โ€“ speak otherwise. If the $5 million award in Hangarter wasnโ€™t sufficient, shortly after the multistate and California settlement agreement, the company was hit with a $36 million punitive damages award.8

Merrick v. Paul Revere Life Ins. Co.

The multiple opinions in Merrick are also required reading for understanding just how pervasive, and damaging, institutional bad faith can be. The courtโ€™s findings here are like headlines in an insuredโ€™s nightmare. A โ€œScheme Engaged In To Augment . . . Profits at the Expense Of . . . Insuredsโ€9; Unfair and Unlawful Claims Handling Practices โ€œHandled In Accordance With Defendantsโ€™ Corporate Schemeโ€10; โ€œUnrepentant . . . Conduct11; and โ€œDocument Destruction.โ€12

Unum Group: A change of name

What is a company to do when its name is, at least to some, mud? When it feels it is reformed and prior bad acts are drowning out all the good it is doing for insureds nationwide? When multiple legal opinions set forth a continuing scheme to defraud insured?

The solution: a name change. Thatโ€™s precisely what UnumProvident did, in 2007. It changed its name to Unum Group. Ostensibly made to shorten the companyโ€™s name for ease of use. Observers can judge for themselves whether the multistate investigations, the millions of dollars in fines for unfair and unlawful claims handling practices, and some of the biggest punitive damages awards in the companyโ€™s history played any role in this name change.

โ€œStaleโ€ documents do not reflect the new Unum

By now some of the documents used with such success in Unumโ€™s biggest defeats are almost two decades old. In the words of the insurerโ€™s attorneys, these damning documents are โ€œstale.โ€ That was then, this is now, they claim โ€“ with a straight face, no less. No longer, they say, does the company engage in an ongoing, entrenched, and conscious corporate course of conduct aimed at identifying claims for termination or denial and relying on trumped-up justifications to support the termination or denial, that the court in Merrick delineated.

Also discontinued, the company now proffers, were staff meetings called โ€œroundtable reviewsโ€ where claims personnel, medical staff, vocational staff, legal counsel, and management discussed high value claims that could be denied, terminated or reduced. Indeed, the court in Merrick found that legal counsel was invited to these roundtables in order to cloak the meetings with the attorney-client privilege and further insulate the claims decisions and process from outside review and scrutiny.

Have things really changed?

But has this billion-dollar entity actually reformed its rogue ways? Based on recent depositions of current and former Unum executives, it appears that little of substance has changed in 2017. At best, the company has become more creative in re-packaging of the same toolbox of claims handling misdeeds that have served its bottom line so well for decades.

Some of the changes are simply linguistic. Today, the company no longer engages in โ€œtargetingโ€ and โ€œdenyingโ€ claims. Now, Unumโ€™s directors and claims specialists engage in โ€œforecastingโ€ to identify potential claim โ€œrecoveries.โ€ But consider the use of the term โ€œrecovery.โ€ The company culture concerning a terminated claim is that it is โ€œrecoveringโ€ monies, as if these claims payouts should never have been made. This change in parlance suggests that while the techniques may be different, the outcomes are virtually unchanged from the companyโ€™s pre-2004 playbook.

Unumโ€™s use of the term โ€œforecastingโ€ is also instructive. โ€œForecastingโ€ among other things, involves tracking the number and dollar value of claims that leave a claims managerโ€™s desk when it appears the claim will continue to be paid for an extended duration. Since insurers are required to maintain certain levels of reserves to pay future claims, the โ€œforecastingโ€ is used to identify โ€“ and target โ€“ monies (claims) that can be โ€œrecoveredโ€ from reserves and that go right to the companyโ€™s bottom line. Put differently, recovered claims are those that move dollars from Unumโ€™s untouchable reserves into its general fund, and therefore consist of denied initial claims and terminated or reduced ongoing claims. To be clear, targeting claims for termination or denial, simply to improve an insurerโ€™s bottom line, is unlawful.

Just as Unum previously used the net-termination ratio, now it forecasts recovery rates. If the ratio of recovered claims does not meet or exceed the forecasted recovery rate, you can be sure a claims handler will hear about it from his or her direct supervisor.

โ€œYou want it in writing?โ€

Another new tactic appears to be a concerted effort to no longer put things in writing. Forecasts, potential recoveries, and internal Unum team performance metrics are discussed, but hard copies of this conduct canโ€™t be discovered through a standard document production request. Unumโ€™s executives now, it seems, disseminates performance metric directives in a hierarchical manner from the very top of the company down through the ranks via a series of one-on-one, in-person meetings. The oral discussions involve topics such as historical forecasts, targeted claims, recoveries, and performance goals.

Of course, some information is committed to writing. To avoid e-discovery, however, claims personnel now use coded language, creative use of s p a c i n g and @lt3rn@tiv3 spelling conventions to obscure the already-misleading euphemisms for targeting and denying claims and other common search terms. One executive matter-of-factly admitted in a deposition that if he ever did record forecasting and recovery targets in writing, he would do so in a spreadsheet that he saved only locally on his own computer rather than on the company server. He would then print a hard copy of the spreadsheet for use in his one-on-ones with his direct reports, and shred the hard copy of the document following the in-person meeting.

So has the Unum leopard changed its spots? If the new nomenclature, coded claims language, and shredded spreadsheets are any indication, the answer is a resounding no!

 


David Lilienstein practices at The DL Law Group, a San-Francisco firm specializing in insurance bad faith and ERISA litigation. The firm litigates all aspects of insurance law, but primarily in the areas of disability, health care and long term care insurance, and on both individual claims and class actions. Mr. Lilienstein, along with his DL Law Group partner, Alice J. Wolfson, were on the trial team that won a $9 million verdict in Hangarter v. Provident Insurance Company.

Katie Spielman practices at The DL Law Group, a San-Francisco firm specializing in insurance bad faith and ERISA litigation. The firm litigates all aspects of insurance law, but primarily in the areas of disability, health care and long term care insurance, and on both individual claims and class actions. Katie regularly litigates cases against Unum Group and its many subsidiaries.

Eric Buchanan practices at Eric Buchanan & Associates, a Chattanooga, Tennessee based firm specializing in employee benefits and insurance law. Eric represents people with disabilities and other policyholders across the United States in ERISA and non-ERISA disputes, focusing primarily in the areas of disability, life, and health insurance. Chattanooga is where Unum Groupโ€™s home offices are located.


ย Endnotes

1 What follows comes from allegations in numerous complaints, court decisions, and internal company documents.

2 See Hangarter v. Paul Revere Life Ins. Co., 236 F.Supp.2d 1069 (N.D.Cal. 2002) (district court opinion with findings of fact and conclusions of law: and Hangarter v. Provident, 373 F.3d 998 (9th Cir. 2004) (Ninth Circuit Opinion upholding the district court).

3 373 F.3d at 1011.

4 Id.

5 Decision and Order of Insurance Commissioner Upon Settlement In the Matter of the Certificates of Authority of Unum Life Ins. Co. of America, Provident Life and Accident Ins. Co., and The Paul Revere Life Ins. Co. (Before the Insurance Commissioner of the State of California, 2005, File Nos. DISP05045984, DISP05045985, DISP05045986)

6 Accusation In the Matter of the Certificates of Authority of Unum Life Ins. Co. of America, Provident Life and Accident Ins. Co., and The Paul Revere Life Ins. Co. (Before the Insurance Commissioner of the State of California, 2005, File Nos. DISP05045984, DISP05045985, DISP05045986)

7 Report of the Targeted Multistate Market Conduct Examination, November 18, 2004.

8 See Merrick v. Paul Revere Life Ins. Co. 594 f.Supp.3d 1168 (D.C. Nev. 2008) (lowering the punitive damages award to $26 million

9 Id. at p. 1174.

10 Id. at p. 1181.

11 Id. at p. 1182.

12 Id. at p. 1183.

 

Copyright ยฉ 2017 by the author.

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