FREQUENTLY ASKED
QUESTIONS
Questions and Answers about the Unumprovident
Settlement Agreement
On November 18, 2004, at
4:00 pm, after the close of the financial markets, Unumprovident
Corporation (UNM symbol)
announced that it, as well as certain of its insurance subsidiaries
(Provident Life, Paul Revere Life, Unum Life, First Unum Life) had
entered into settlement agreements with the Divisions of Insurance
for the Commonwealth of Massachusetts, the State of Maine and the
State of Tennessee. Also, instrumental in the settlement agreements
were, the Office of the Attorney General for the State of
New
York
and the United States Department of Labor. Those state regulators
with the United States Department of Labor (Employee Benefits
Security Administration, Boston Office –
James Benages, Regional Administrator) acted as lead
investigators in connection with a multistate market conduct
examination relating to claims handling practices of Unumprovident
Corporation. A total of 47 state regulators participated in the
examination. Of note, the State of California Division of Insurance
is continuing its own investigation.
1.
What are the general
terms of the settlement agreements?
-Unumprovident and its
disability insurance subsidiaries are offering to reassess any
individual or group long-term disability claim that was denied or
closed since January 1, 2000, except for specific categories of
closures such as settlement, death or payment of maximum benefits.
In addition,
Unumprovident is offering to examine, upon request, claims that
were similarly denied or closed during the time period January 1,
1997 through December 31, 1999.
-restructuring the claim
handling procedures to ensure that all future claims are reviewed in
a fair and objective manner, including an agreement
to:
+select medical examiners
based solely on merit, and ensure that those examiners review all
relevant records before reaching a determination;
+require personnel making
impairment determinations to certify that their determinations were
based upon a review of all the relevant
evidence;
+prohibit company personnel
from trying to influence the outcome of disability claim appeals;
and
+grant significant weight to
findings of disability by the United States Social Security
Administration.
-Pay a $15 million fine to
the combined state regulators.
-agree to ongoing monitoring
by state regulators and the United States Department of
Labor.
2. Must I hire
an attorney to have my claim reassessed?
No. However, if you were unable
to obtain benefit payments from Unumprovident in the past, an
attorney knowledgeable in ERISA and disability insurance laws may be
of invaluable assistance to you this time.
You must understand that
under the terms of the settlement process, you may be required to
surrender certain legal rights. The process requires the claimant to
sign a conditional waiver and release that if benefits are paid that
person will not sue or pursue claims for anything that occurred
before.
Despite being maligned by
certain disgruntled claimants, some print journalists, and by a few
news magazine TV shows, there are good people at Unumprovident and
its insurance subsidiaries who are willing to resolve claims
promptly when errors have been made, or claims have been mishandled
or worse. Knowing which employees to contact at Unumprovident has
benefited our clients by getting their claims paid
fast.
When we have reached a
deadlock in settlement negotiations, we have litigated claims
against Unumprovident, and other disability insurance carriers, and
will continue to do so in the future. Talking to an adversary,
before suing, just makes sense.
We are ready to answer your
questions. Contact Jonathan M. Feigenbaum, Esq., at JonF@phillips-angley.com or www.phillips-angley.com, or call
617-367-8787.
3.
Where can I get copies
of the actual settlement documents?
http://www.mass.gov/doi/Whats_New/UnumProvident.html
4.
How many claims are
involved?
According to Unumprovident's
and insurance regulators’ press releases, the potential
pool of claims is approximately 215,000
claimants.
5. Has Unumprovident
set aside funds to pay claims?
It appears to be $85
million. According to its press release, Unumprovident anticipates
that it will incur expenses of $44 million for benefit costs and
reserves from claims reopened from the reassessment process, and $41 million for
additional benefit costs and reserves for claims already incurred
and currently in inventory that are anticipated as a result of the
claim process changes being implemented. Unumprovident intends to
spend $27 million dollars to improve its claim handling
process.
6. $85 million
dollars sounds like a lot of money. Is this amount sufficient to pay
all of the claims?
It depends on the number of
people who seek benefits again. If all 215,000 claimants file for
benefits, the amount of benefits available per claim, if divided
evenly would not be much – approximately $395 per claim
($85,000,000/215,000 claims = $395 per claim). It is unlikely that
all 215,000 claims were improperly adjusted, and it is equally
unlikely that 215,000 claimants would ask that their claims be
reviewed. Only some
fraction of the total eligible number of claimants are likely to be
entitled to benefits.
If ten percent (10%) of the
eligible claimants, 21,500 persons seek benefits, the amount of
benefits available per claim, if divided evenly would still be quite
modest -- $3950.00 per claim ($85,000,000/21,500 claims = $3950
approx).
In just three cases alone,
Unumprovident or its insurance subsidiaries had jury verdicts
rendered against it or its subsidiaries for sums that exceed the $85
million dollar amount that Unumprovident anticipates that it will
pay under the settlement agreement.
1. On January 23, 2003 a jury in
Marin County Superior Court, California, returned a $31.7 million damage
verdict against Unumprovident after a three-month trial. The jury
found in favor of an eye surgeon,
Dr. Chapman,
whose disability benefits had been terminated. The trial
judge reduced the punitive damage award significantly and the case
is on appeal to a State of California appellate
court.
2. On April 4, 2003, a jury
in the United States District Court for the District of Arizona
returned an $84.5
million judgment against certain insurance subsidiaries of
Unumprovident--$79 million in punitive damages--finding that it had
acted in bad faith in handling a claim by an Arizona cardiologist,
Dr. Joanne Ceimo, who
suffered a disabling neck injury. The trial judge reduced the
punitive damage award significantly and the case is on appeal to the
Ninth Circuit Court of Appeals.
3. During the summer of 2004,
the Ninth Circuit Court of Appeals affirmed a judgment after a trial
in the United States District Court for the District of Northern
California, in which jurors awarded, Dr.Joan Hangarter $7.67 million against
Unumprovident and its Paul Revere
subsidiary.
There are currently pending
in the United States District Court for the District of Tennessee, a
number of purported class action law suits that may be impacted by
the settlement agreement.
7. Who thinks that
this settlement agreement is good?
Wall Street likes it. On November 19, 2004, Unumprovident
shares closed up approximately twelve percent (12%), the day after
the settlement agreement was announced. Draw your own conclusion
from Wall Street’s evaluation of the settlement agreement.
The Unumprovident press release stated, “UnumProvident is
committed to handling customers' claims in a fair, thorough and
objective manner," said Thomas R. Watjen, UnumProvident president and chief
executive officer. "We have committed significant resources over a
number of years to build a sound claim process. At the same time, we
have always been willing to make changes as needed. We have learned
from this process, especially the regulators' view of this important
activity at our Company, and I am confident the steps we are taking
in response to this review will improve the consistency and quality
of our claims decisions, improving further the quality of service we
provide our customers, and help establish best practices throughout
the industry. I am very pleased with the efforts of those leading
the multistate examination process, that the U.S. Department of
Labor has joined the settlement agreement and that the Office of the
Attorney General of New York is supporting the settlement agreement
and closing its investigation on this matter. Although the number of
parties obviously led to complicated negotiations, by successfully
concluding this settlement we will have put a number of related
matters behind us. I am very confident that through the actions we
are taking internally we will meet the requirements contained in
these settlement agreements."
The settlement agreement may be good for you too. For others,
it may not.
Your unique circumstances
will determine what is in your best interests. An evaluation of your
claim by a knowledgeable attorney is a good place to start the
process.
8. When does the
settlement agreement take effect?
After
two thirds of the 47 states who participated in the investigation
sign onto the agreement.
9. What else has
been said about disability insurance and ERISA?
Chief Judge
William G. Young who was appointed to the United States
District Court for the District of Massachusetts in 1985, by
President
Ronald Reagan, has offered some pointed comments
about ERISA and the
disability insurance industry. His most recent opinion in these
areas can be found at:
Radford Trust v. Unum
, 321 F.Supp.2d 226 (D.Mass. 2004), or http://pacer.mad.uscourts.gov/dc/opinions/young/pdf/radford%20mem.pdf
In Radford Trust,
Judge
Young stated in
part:
“Before delving into the
merits, some general comments about ERISA cases are in order. The
decisions whether and how to ensure that disability does not lead to
poverty are obviously of great societal importance. In this country,
although we provide limited disability insurance through Social
Security, we rely primarily on private insurance, typically in the
form of disability benefits plans administered by insurance
companies under contract with employers. A number of current trends
suggest that if anything, the role of Social Security may diminish
in the coming years, perhaps ultimately ceding the field entirely to
private insurance.”
“The benefits of relying on
private insurers to carry out this essential public function may be
considerable, and Congress has obviously decided that they outweigh
the costs. The profit motive may well drive private insurers to
tailor plans to beneficiaries' needs, evaluate risk, and cut waste
and inefficiency more effectively than a government bureaucracy
would. The government can in many cases accomplish public purposes
effectively through reliance on choice and
competition.”
“There are also obvious
drawbacks to relying on private insurers, however. Although the
profit motive drives companies toward efficiency, it creates a
substantial risk that they will cut costs by denying valid claims.
The market is somewhat inapt to punish insurers for engaging in such
practices, particularly if the denials are not too flagrant, because
the complexity of the insurance market and the imperfect information
available to consumers make it difficult to determine whether an
insurer is keeping its costs down through legitimate or illegitimate
means. An individual claimant who encounters an insurance company
that is disposed to deny valid claims must struggle to vindicate his
rights at a time when he is at his most vulnerable. Often a newly
disabled person will simultaneously confront increased medical bills
and either termination of employment or diminished
pay.”
“The judiciary provides a
check on these potential abuses; under ERISA, aggrieved claimants
can seek redress in the courts of justice. Congress and the courts
have made two decisions, however, that limit this checking effect.
The first is to place limitations on judicial review of plan
administrators' and fiduciaries' decisions similar to the ones
placed on judicial review of governmental agency action, even
though, unlike officials in governmental agencies, administrators
and fiduciaries are not answerable to the public or to elected
officials. Second, and perhaps more troubling, the courts have
interpreted ERISA to restrict or eliminate the role of juries in
deciding disputes between claimants and insurers. See Liston,
330 F.3d at 24 & n. 4; Andrews-Clarke v. Travelers Ins.
Co., 984 F.Supp. 49, 63 & n. 74 (D.Mass.1997). In the
process, they have removed one of the most important guarantees of
fairness in the judicial process.”
“The Court's observations
about disability benefits plans and the legal regime governing them
lead to two conclusions. First, administrators and fiduciaries have
important public responsibilities. While they have a duty to
shareholders to seek profit, they must do so with an awareness of
the essential function that they perform in society, and of the
comparatively limited oversight they receive from public
institutions. They must avoid the temptation to improve their bottom
line by denying valid claims. Second, the courts must decide these
cases with an awareness of the social policies at stake, the
failures in the particular market in question, and the possibility
that judges, who lack the ordinary life experience of juries, may
systematically err in their evaluations of what is reasonable and
fair.”
November 2004 –
Jonathan M. Feigenbaum ©
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