Disability Insurer Uses Federal Loophole To Deny Claims, Lawyers Say
California insurance lawyers allege that Chattanooga, Tenn.-based disability insurer UnumProvident routinely uses a federal law to cut off benefits to policyholders with heart disease, Meniere's disease, Crohn's disease, AIDS and other disabilities, the Los Angeles Times reports. The lawyers cite internal memos from the company and its subsidiaries that describe plans to use the 1974 Employee Retirement Income Security Act to reduce payments to policyholders. Under ERISA, people who receive disability insurance through their employers are not covered by state protection laws because the benefits are exempt from state regulation, according to the Times. To recover the amount of benefits in dispute, policyholders must prove that insurers made the wrong decision and acted in an arbitrary and capricious way. In an October 1995 memo, Jeff McCall, who was an Unum executive at the time, wrote that "the advantages of ERISA coverage in litigious situations are enormous," citing the lack of jury trials and compensatory or punitive damages. In the memo, he also encouraged employees to review all claims to see if they fall under ERISA, adding that the company's goal was to pay valid claims and deny invalid claims, while letting ERISA "influence our course of action" in "gray areas."
Last week, lawyers in a California resident's case against Unum filed a petition asking that the insurer be held in contempt for violating an injunction issued in November 2002 by U.S. Magistrate James Larson, who ruled that UnumProvident wrongly "used biased medical examiners, destroyed medical reports and withheld information about benefits from customers" to deny claims, the Times reports. The lawyers also requested that all disability claims filed since the injunction be reopened. Policyholders in New York also have filed a class-action suit against UnumProvident alleging that the company has improperly used the ERISA law, and a federal judge has allowed the lawsuit to proceed despite the insurer's objections (Girion, Los Angeles Times, 6/30).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.