A federal judge has ordered the nation’s largest disability insurer to clean up its business practices after concluding it abused policyholders in a scheme to boost its profits.
U.S. Magistrate Judge James Larson ordered Chattanooga, Tenn. based UnumProvident Corp. to “obey the law” in a scathing 62-page injunction that found the company in violation of California’s unfair insurance practices and unfair competition acts.
The injunction, issued earlier this week, may intensify policyholder attacks on UnumProvident, which is facing similar allegations of misconduct in dozens of civil lawsuits filed across the country.
In the California ruling, Larson concluded UnumProvident shredded medical records and used the demographic profiles of policyholders to target claims for possible rejection.
Larson also found UnumProvident didn’t assure its employees understood California’s legal definition of total disability.
UnumProvident “strongly disagreed” with Larson’s ruling and will appeal, said Thomas White, the company’s vice president of corporate relations.
Larson’s order also upheld a $7.67 million jury verdict against UnumProvident for mistreating one of its policyholders, former Berkeley chiropractor Joan Harngarter.
The jury award includes $5 million in punitive damages for Harngarter, a single mother who wound up on welfare after losing her disability benefits for joint pain that prevented her from returning to her chiropractic practice.
California’s newly elected insurance commissioner, John Garamendi, said the allegations against UnumProvident are pervasive enough to warrant an intensive investigation after he takes office in January.
“There isn’t just smoke here. There is clearly a fire here,” Garamendi said Friday. “This has become a matter of serious concern to me.”
Most of the policyholder complaints involve expensive, noncancelable disability policies that UnumProvident aggressively sold during the late 1980s and early 1990s to mostly affluent self-employed professionals.
Faced with mounting losses, UnumProvident’s predecessor company, Provident, brought in a former banker, J. Harold Chandler, as its chief executive in 1993.
Attorneys representing policyholders allege Chandler imposed a system to deny a greater number of disability claims to boost profits. As an incentive, UnumProvident began to hand out a “Hungry Vulture” award to recognize top-performing employees.
UnumProvident believes the recent wave of lawsuits isn’t surprising, given that it provides about 30 percent of the nation’s disability insurance, covering about 17 million people.
The company says it processes 400,000 disability claims annually, distributing $3.6 billion in the process. UnumProvident says the vast majority of policyholders are pleased with their treatment.
But the lawsuits filed by unhappy policyholders paint a sordid picture of UnumProvident. The complaints depict a cutthroat company that spied on the disabled and refused to make payments to injured and ill policyholders, including terminal cancer patients.
UnumProvident believes most of the lawsuits are baseless. The company prevailed in three-fourths of the cases that went to trial last year, White said.