Legal Summary: Goodman v. Unum Group

Goodman v. Unum Group
No. 09-2223, 2009 WL 10664240 (W.D. Tenn. 2009)

Our client, an anesthesiologist, initially purchased disability insurance under Paul Revere Life Insurance Company. After suffering a back injury, he was unable to return to his full-time work. He was then diagnosed with Lumbar Radicular Syndrome. He took on a new position as a supervisor, in which he made less than he had in private practice. Paul Revere continued to pay the monthly benefits due under his disability policy. Our client later was unable to work his supervisory job as it became “too strenuous to perform with a back injury.” Paul Revere then terminated our client’s disability benefits after two years.

Despite our client submitting updated information that indicated his disability was largely the same as when he initially received benefits, Paul Revere affirmed its decision to terminate the payments. Following the termination our client’s first attorney sued Paul Revere and its parent company, Unum Group, challenging the termination of his disability benefits. They alleged that Paul Revere and Unum committed the following: breach of contract; breach of the common law duty of good faith; breach of the statutory duty of good faith Tenn. Code Ann. § 56-7-10, and violation of the Tennessee Consumer Protection Act, Tenn. Code Ann. § 47-18-109(a)(1.) They also sought a declaratory judgment that he is disabled within the meaning of his insurance policy.

Unum removed the case from Tennessee court to federal court. A party may remove an action originally filed in state court to federal court only if “a federal district court would have had original jurisdiction over the dispute.” If the asserted basis for removal is diversity jurisdiction, a federal court may only engage with the suit if “complete diversity exists at the time of removal.” Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 267 (1806); SHR Ltd. P’ship v. Braun, 888 F.2d 455, 456 (6th Cir. 1989.)          

Our client’s attorney filed a motion to remand his breach-of-contract suit against Unum Group and its subsidiary Paul Revere Life Insurance Company to the Chancery Court for Shelby County, Tennessee. We joined the case and helped argue that the federal court should not hear the case, as Unum argued it should, because the federal court did not have jurisdiction.  We argued the federal court did not have jurisdiction under federal diversity rules because the plaintiff and one of the defendants are from the same state.  Specifically, our client was from Tennessee as was the Unum Group, which is headquartered in Chattanooga, Tennessee.

Unum argued that Unum Group was not a proper party and therefore, should not be in the lawsuit, which would allow for complete diversity. Specifically, Unum Group argued they were fraudulently joined.

Unum alleged that our client has no cause of action against Unum Group and fraudulently joined Unum, a Tennessee corporation, for the purpose of “destroying the diversity jurisdiction” that would otherwise exist in this suit between our client, a Tennessee citizen, and Paul Revere, a Massachusetts corporation. Unum filed a motion to dismiss on the theory of “alter ego,” under which a corporation lacks a separate identity from an individual or corporate shareholder.

Under this theory, Unum had the burden of proving there was no reasonable basis for predicting that [the plaintiff] could prevail. Unum had the burden of demonstrating that “it [is] clear that there can be no recovery [against Unum] under the law of the state on the cause alleged or on the facts in view of the law.” Alexander v. Elec. Data Sys. Corp., 13 F.3d 940, 949 (6th Cir. 1993) (quoting Bobby Jones Garden Apts., Inc. v. Suleski,

Unum claimed that its relationship with Paul Revere was similar to many parent-subsidiary corporation relationships. Unum argued that, under Tennessee law, a court may only pierce a corporation’s veil if the subsidiary corporation does not have adequate funds to pay for any judgment rendered against it.

In order to pierce the veil of a subsidiary corporation (holding the shareholder or director of a corporation liable) and hold a parent corporation liable, the Court must determine if three factors are met: (1) The parent corporation, at the time of the transaction complained of, exercises complete dominion over its subsidiary, not only of finances, but of policy and business practice in respect to the transaction under attack, so that the corporate entity had no separate mind, will or existence of its own concerning that transaction; (2) Such control must have been used to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and unjust act in contravention of third parties’ rights; and (3) The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. Continental Bankers Life Ins. Co. of the South v. Bank of Alamo, 578 S.W.2d 625, 632 (Tenn. 1979).

We challenged Unum’s assertion, presenting the Court with evidence that Unum had acted in Paul Revere’s name prior to our client’s termination of benefits.

Our client alleges that Paul Revere’s termination of his disability benefits occurred after his file was reviewed by employees of Unum Group Life Insurance, working under contract for its subsidiary, Paul Revere. Unum asserted that Paul Revere made all the relevant decisions in our client’s termination of benefits, but our client noted that the notice of decisions about the termination came on Unum letterhead.

We presented deposition testimony from one of Unum’s officers, revealing that Paul Revere had no executives or employees of its own and that Unum makes all decisions regarding which claims Paul Revere pays.  Under its General Services Agreement, Unum employees perform all of Paul Revere’s “comprehensive claim management services,” including deciding whether Paul Revere will pay its insureds’ claims.

Our client’s benefits were wrongfully terminated due to Unum’s actions, but Paul Revere–and by extension, Unum–was not aware of any significant changes that had occurred in our client’s medical condition. This termination violated Paul Revere’s contractual duty to our client under its insurance policy as well as Unum’s contractual obligation under the General Services Agreement with Paul Revere to run Paul Revere’s claims processing competently. Because of this, our client suffered significant financial harm, thus satisfying Tennessee’s test that Unum cannot be held liable under an alter ego theory.

Our client alleged that Unum/Paul Revere wrongfully terminated his benefits, “possibly as part of a larger policy to increase profitability.” Unum and Paul Revere have previously been found jointly liable in similar allegations against them. See, e.g., Merrick v. Paul Revere Life Ins. Co., 594 F. Supp. 2d 1168, 1192 (D. Nev. 2008) (upholding $26.4 million punitive damages verdict against Unum). The Court determined that such claims against Unum are “sufficiently consequential” to support a potential plaintiff’s judgment under Tennessee law. See, Stone v. UnumProvident Corp., No. 03-2369 Ma/V, slip op. at 4-6 (W.D. Tenn. Nov. 19, 2003.) The Court concluded that Paul Revere effectively “had no separate mind, will or existence of its own.” Continental Bankers, 578 S.W.2d at 632.

The court ruled in our favor that Unum failed to meet the burden of proof that our client could not recover on any of his claims against Unum. There court ruled that our client did not fraudulently join Unum as a party to this suit. Complete diversity does not exist as it is undisputed that Unum is a Tennessee corporation, therefore the federal court did not have jurisdiction, and the case should be remanded back to Chancery Court for Shelby County in Tennessee.