6/26/2006, The Unum/Provident Scandal and Judicial Review of Benefit Denials under ERISA

Click to access discandal.pdf

Although most benefit claims arising under policies of disability insurance are processed routinely, a disability claim can give rise to a dispute about how impaired or how employable an insured actually is. Such cases are intrinsically factitious. The recurrent question is whether, on the facts regarding this worker’s physical and occupational circumstances, he or she is unable to resume employment as defined in the policy…

Employees interviewed on the Dateline program disclosed that the claims that were “the most vulnerable” to pressures for bad faith termination were those involving “so-called subjective illnesses, illnesses that don’t show up on x-rays or MRIs, like mental illness, chronic pain, migraines, or even Parkinsons.”

In one such case, a federal judge sustained a $5 million punitive damages award on the ground that the trial “jury heard more than enough evidence to conclude that Plaintiff was totally disabled and that Defendants in bad faith terminated her benefits and caused her damages.”

Hangarter v. Paul Revere Life Ins. Co., 236 F.Supp. 2d 1069, 1082 (N.D. Cal. 2002), aff’d 373 F.3d 998 (9th Cir. 2004). Counsel for the plaintiff has written a book about the case, see Ray Bourhis, supra note __.

In the course of discovery proceedings in the litigation against Unum, a remarkable internal memorandum came to light, authored by a Unum executive, that exults in the “enormous” advantages that ERISA, as now interpreted, bestows upon Unum in cases in which an insured challenges a benefit denial in court. “[S]tate law is preempted by federal law, there are no jury trials, there are no compensatory or punitive damages, relief is usually limited to the amount of benefit in question, and claims administrators may receive a deferential standard of review.”42 The memorandum recounts that another Unum executive “identified 12 claim situations where we settled for $7.8 million in the aggregate. If these 12 cases had been covered by ERISA, our liability would have been between zero and $0.5 million.”

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