UNUM Bad Faith Practices Case Law

Unum case law supports bad faith practices as is evident in Hangarter v. The Paul Revere Life Insurance Company, —an insurance bad faith case involving the same group of companies—the plaintiff’s expert testified that,

Paul Revere had a timeline for terminating claims. . . . The kinds of resolutions on the claims timeline included: “return to work, pay enclosed, denial, termination, rescission, settlement, litigation, ongoing claim approval or other referrals.” Five out of eight specific goals were negative for claimants…

Conclusion re bad faith— The jury heard ample evidence from multiple sources that Defendants set out to target claims such as Plaintiff’s with termination the goal, and that Defendants evaluated her claim with the purpose of terminating her benefits.

236 F. Supp. 2d 1069, 1083 (N.D. Cal. 2002) (internal transcript citations omitted).  The court also concluded that “Defendants had a bias against claims like [plaintiff’s].  They planned to save money by terminating claims like hers.” (Id. at 1084.)  Hangarter resulted in a finding of bad faith and a $5 million punitive damages award.

Four years after the jury verdict in Hangarter, insurance commissioners nationwide investigated Unum’s claims handling practices.  The wide-ranging investigation resulted in Unum being fined over $20 million dollars in total, agreeing to reopen hundreds of thousands of disability claims, and agreeing to change some of its claims handling practices.  Exhibit G, reports of Market Conduct Exams and Regulatory Settlement Agreements.

Later, in Merrick v. Paul Revere Life Ins. Co., the Ninth Circuit upheld another bad faith jury verdict against Unum for, among other things, “biased claims investigation and misrepresentation of policy terms,” and affirmed that Unum’s conduct warranted an award of punitive damages.  500 F.3d 1007, 1014 (9th Cir. 2007).

In Merrick, the evidence showed that the bonuses and performance of Unum’s employees are based on several factors, including overall corporate success..  For example, the evidence established:

that to further pressure and give incentive to claims personnel to find reasons to terminate claims, stock boards were set up in the claims units and updated throughout the day so that claim personnel could see how their activities were contributing to the UnumProvident’s financial results.
594 F. Supp. 2d at 1171 (emphasis added).  The court also stated that:

encouraging claim handling employees to evaluate their performance based on their contribution to corporate stock price further supports the conclusion that [the Unum companies]  were turning their claims handling operation into a profit center. This, despite the undisputed evidence, that it would be inappropriate to use the claims operation in such a manner…

Id. p. 1173, n.7.  Furthermore,

the evidence also established that the [Unum companies] set targets and goals beyond their actuarial expectations for claim closures based on these factors. The evidence established that [the Unum companies] went looking for ways and claims to close in order to meet their financial goals.

Id. at n.1.  In affirming its award of punitive damages, the Merrick court found that the evidence against this group of companies “clearly, convincingly and overwhelmingly,” supports a finding those companies “were engaged in a scheme to deny claims of their disabled policyholders.Id. at 1170 (emphasis added).   Finally, the court’s 2008 ruling tied such unfair and unlawful claims handling conduct by these companies as far back as 1994:

Not only did the evidence at trial establish the existence of a corporate scheme to augment profits without regard to the rights of their disabled insureds, it established that, in fact, Defendants profited immensely from their misconduct.  The evidence related to this issue extends from 1994 to the present.
Id. at p. 1174.

The Merrick court also found that the Unum companies set “targets and goals for claim terminations to obtain financial gain and without respect to claim merit.”  Id. at 1171.  Of course, Unum denied the existence of such goals, as they have in the past, but the Merrick court found “the evidence at trial [of the existence of such targets and goals] was overwhelming.” Id.  The evidence established that these targets and goals were communicated to claim-handling employees by e-mails and weekly staff meetings.

For example, one e-mail from June 2002 encouraged claims handlers to focus on their work so they did not end up “recoveryless’.  594 F. Supp. 2d n.3.  Another email entitled “YIPPEEEEEE!!!” states in part:

We had yet another excellent week….

No Reopens…. Month to date

* * *

We are already at $608,000 in recoveries well ahead of schedule.

We are still lagging with projections so we need to add more to the projection list.

Also, we don’t have any rtw success stories on the board yet.

Overall, we are cranking… Thank you!!!!!

594 F. Supp. 2d n.4.  Another email, which the court characterized as “[a]n e-mail which reflects the pressure being put on claim personnel to find claims to close” states:

Folks:

As luck would have it, we are running out of it….

We are projected to have 1,800,000.00 in recoveries this month but are coming up short at 1,772,000.00 … this includes the following that I would like updates on today:

* * *

Are there any other claims that are possible recoveries this week? ? ? ?

594 F. Supp. 2dn.4.