Claim Termination Strategies
Paul Revere, Unum, Provident and UnumProvident

Paul Revere Life Insurance Company was acquired by the Provident Companies in March, 1997. Thereafter, the Provident Companies merged with UNUM Corporation in 1999, forming UnumProvident Corporation. The merger combined the nation’s two leading disability insurers into the largest such insurer of its kind in the United States. Through its subsidiaries, UnumProvident is the industry leader in long-term disability insurance and has operations throughout the United States, Canada, the United Kingdom, Japan and elsewhere around the world.

Throughout the 1980's and early 1990's, disability insurance companies aggressively marketed and sold policies known as “own occupation” or “occupational” disability policies to physicians and other professionals. In addition to insuring specific occupations (e.g., diagnostic radiology, cardiology), these policies were non-cancellable and premiums could not be raised. Due to competition in the marketplace, several insurance companies reduced their underwriting standards on, and underpriced, this block of business. These companies planned to invest the premiums received and to earn substantial returns through the high interest rates in effect during the 1980's. Although the companies projected that high interest rates would continue into the 1990's, interest rates actually plummeted. As a result, “own occupation” policies turned into a “bad block” of business that would cost the industry hundreds of millions of dollars.

Several lawsuits have charged that UnumProvident and its predecessors – starting with the Provident Companies – were developing plans to increase profits by reducing claim payments as described in this article. The lawsuits allege that the effort to deny claims started at the Provident Companies with the appointment of Ralph Mahoney in 1994 as the Senior Vice President of Claims. Mr. Mahoney later became the Senior Vice President, Customer Care, for UnumProvident Corporation.

In an effort to increase profits by terminating claims, the lawsuits allege that Provident developed specific policies which Mr. Mahoney referred to as “initiatives.” These initiatives were adopted by UnumProvident as a result of the merger, as well as by the other companies that it subsumed – including Paul Revere. Some of the alleged initiatives included:

• Provident developed a special list of “independent” medical examination physicians whom it believed would be willing to write reports denying the existence of disability. As part of this plan, Provident made agreements with outside vendors to provide referrals to IME physicians that they believed would be willing to write medical reports supporting the denial of benefits.
  
  
• Provident targeted for termination “high end” policies issued on physicians from the key growth states of Florida and California.
  
  
• Provident instructed field adjusters that recommendations and/or conclusions should not be put into written reports.
  
  
• Provident instructed adjusters to make sure that claims files were documented in such a way as to prove whatever the company was saying, and eliminate anything from the claims files that could be used against the company if the file wound up in court.
  
  
• Provident directed adjusters to shred sensitive papers concerning claims investigations and to destroy drafts, reminder notes, worksheets and personal memoranda.
  
  
• Provident established weekly “roundtable” meetings to search for ways to target, terminate and deny claims. Each adjuster was required to bring a Top Ten List of claimants targeted for “intensive effort” with the “goal” of terminating the claim.
  
  
• Provident targeted cases to be reviewed, not on the basis of valid or actual criteria, but on the basis of the amount of benefits owed, specific occupations, specific states and other irrelevant and discriminatory criteria.
  
  
• Provident set goals for the number of terminations in the abstract without having reviewed claims files individually.
  
  
• Provident specifically noted that the “IME report and the findings of the IME [must] not be shared with the insured.”
  
  
• When Provident set out to cut its losses from expensive long-term claims, it created a “Hungry Vulture” award to honor its most relentless employees. The award bore a ruthless motto: “Patient, my foot . . . I’m going to kill something.”

On June 28, 2002, the former Medical Director of UnumProvident sued his former employer, alleging the insurer encouraged him to help deny legitimate disability claims and then fired him when he would not continue this practice. The lawsuit was filed on behalf of Dr. Patrick McSharry in Hamilton County Circuit Court in Tennessee and alleged that “although [UnumProvident] employed various medical doctors for the ostensible purpose of providing needed medical guidance in reaching benefit decisions, the medical personnel were not truly utilized for that purpose. It was [UnumProvident’s] primary purpose and policy to deny disability claims.” According to the lawsuit, although UnumProvident hired Dr. McSharry and other physicians to provide the necessary medical guidance to reach benefit decisions, the medical advisors were used only to “provide language and conclusions” in the reports that supported the denial of disability claims. Dr. McSharry alleges that he and the other doctors “were asked to delete and re-word phrases so as not to compromise a denial.” Dr. McSharry contends that one duty of the doctors retained by UnumProvident was to “rubber stamp” claim denials.

The McSharry lawsuit also alleges that, “it was further [UnumProvident’s] practice and policy to evaluate every medical condition of a claimant in isolation and to render a disability decision on the effects of each isolated condition, rather than to consider the restrictions of each condition in conjunction with those of other medical conditions.” Moreover, “[UnumProvident] expected the medical advisor to render opinions on conditions outside his or her specialty rather than to refer the file to a specialist in the field. It also required the non-specialist to support his training in a particular specialty, even where the support required falsification.”

On or about November 16, 2002, U.S. Magistrate Judge James Larson of the United States District Court for the Northern District of California ordered UnumProvident to “obey the law” in a scathing 62-page injunction that found the company violated California’s Unfair Insurance Practice and Unfair Competition Acts. In the California ruling, Judge Larson concluded that UnumProvident shredded medical records and used the demographic profiles of policyholders to target claims for rejection. The strongly worded injunction tells UnumProvident to stop using biased medical examiners, targeting categories of claimants for review, destroying medical reports and withholding benefits information. If it does not, the company could be subject to a contempt order. Judge Larson wrote:

Despite conclusive evidence that plaintiff was unable to work as a chiropractor and that her other attempts to work failed, after one-and-a-half years of paying benefits, defendant subjected her to a biased medical examination, then recharacterized her occupation as a business owner, rather than a chiropractor, and claimed she was not totally disabled because she could perform bookkeeping or teach a class or see two patients per hour.

A similar lawsuit was filed against UnumProvident’s subsumed organization, the Paul Revere Insurance Company, on May 25, 2001. In that lawsuit, a doctor diagnosed with Parkinson’s Disease won a $36.7 million judgment in federal court against the insurance company for the bad faith denial of his disability payments. Recently, on January 24, 2003, another jury awarded $31.7 million to a distressed eye surgeon who accused UnumProvident of cutting off his benefits as part of a management scheme to boost profits. According to the attorney for the eye surgeon: “The denial of our client’s claim was a product of the insurance company’s practices of terminating a certain number of claims to make their files look good.” The verdict, which included $30 million in punitive damages, was the largest ever awarded in Marin County. Just months ago, another lawsuit filed in Arizona resulted in an unprecedented $84.5 million jury verdict, the largest verdict of its kind in the state.

Following initiation of the McSharry lawsuit and other litigation, NBC’s Dateline and CBS’ 60 Minutes ran stories about UnumProvident. The 60 Minutes segment was titled “Did Insurer Cheat Disabled Clients?” During the episode, one UnumProvident employee told Ed Bradley that bonuses were awarded to some managers who closed especially large claims. Another employee, Gina Hartley, who was a claims handler, said that the department had monthly monetary savings goals set for them, amounts which they had to hit by shutting down claims. Ms. Hartley said that the pressure to reach these goals often led to the termination of legitimate policies.

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