The nation’s largest disability insurance company has been accused of systematically denying legitimate claims from seriously ill customers, a corporate strategy allegedly concocted for one purpose: boosting profits.
Hundreds of lawsuits from the Bay Area to the East Coast claim that insurance giant UnumProvident deliberately terminated disability payments to customers who were debilitated. As a result, the suits say, people suffering from brain damage, cancer and other critical ailments that prevented them from working were sometimes left destitute.
“It’s a real tragedy because these are people who bought insurance believing it would be there if they got sick, and instead the promise was broken,” said Jamie Court, executive director of the Foundation for Taxpayer and Consumer Rights, a Santa Monica nonprofit that studies the insurance industry.
Among the policyholders who say their claims were wrongly denied is child psychiatrist Stuart Gluck of Cupertino, who has AIDS and underwent a triple bypass for an unrelated heart condition. After he started suffering severe memory lapses, he realized and his doctor concurred that he could no longer see patients.
But after several months of payments, UnumProvident said he was able to return to work and stopped sending checks.
“My reaction was horror,” he recalled. “I feared for the loss of my house, loss of my car, my ability to support myself and my son.”
Gluck, like others who have sued UnumProvident, believes the company terminated his coverage as part of a practice to selectively target customers who were receiving long-term, high-end stipends.
Court testimony and internal company documents offer some corroboration for the charges.
But UnumProvident categorically denies that it deliberately terminated claims to save money.
“We pay all legitimate claims,” said Tom White, vice president of corporate relations for the Chattanooga, Tenn., company. “We review claims thoroughly, objectively and fairly. We apply significant medical resources to assist claimants in returning to work.”
Formed from the 1999 merger of Unum Corp. and Provident Companies, UnumProvident also owns the Paul Revere Corp., another insurer. (Many of the lawsuits name its predecessors as defendants.) No. 205 in the Fortune 500, the company had 2001 profits of $994.7 million on sales of $9.4 billion.
White said UnumProvident has one-third of the entire U.S. disability insurance market. With 25 million customers, he said, it is not surprising that some cases are disputed.
Still, the number of lawsuits and the personal anguish they catalog paint a disturbing portrait.
There was the San Francisco court reporter, Susan McGregor, who says she suffers from intense pain caused by repetitive stress and cubital tunnel syndrome. UnumProvident terminated her benefits just before her husband was diagnosed with leukemia.
And there was the Berkeley chiropractor, Joan Hangarter, who said her debilitating back and arm pain prevented her from working. After her benefits were cut off, her car was repossessed, she was evicted, forced to declare bankruptcy and went on welfare.
Ray Bourhis, a partner in San Francisco law firm Bourhis & Wolfson, has represented dozens of UnumProvident customers whose benefits were denied, including Gluck, McGregor and Hangarter.
“You shouldn’t have to sue to get an insurance company to pay the benefits they owe you,” he said.
Bourhis said the company often claimed that clients were not entitled to benefits if they could perform part of their job. For example, he said UnumProvident claimed McGregor, the court reporter, was not disabled because she could still proofread, and that Hangarter was still able to be a chiropractor because she could do her office bookkeeping.
Chris Collins, senior vice president and deputy general counsel for UnumProvident, said that the company believed both McGregor and Hangarter were capable of returning to work and thus not disabled.
Among the thousands of pages of court documents from lawsuits against UnumProvident, some stand out.
A May 1995 memo laid out the trade-off between profits and claims in the dispassionate language of a bean counter. Ralph Mohney, now senior vice president in charge of return to work services, wrote to CEO and Chairman Harold Chandler, explaining that the company could save from $30 million to $60 million a year through new “claim improvement initiatives” which Bourhis and other opponents say is a euphemism for purposefully terminating benefits.
“A 1 percent decrease in benefit costs due to more effective claim management translates to approximately $6 million in annual savings,” he wrote.
“We believe that aggregate improvements in the 5% -10% ($30 million-$60 million annually) range are possible.”
UnumProvident’s White said the memo referred to saving costs by consolidating claims management in a central location.
Two former medical executives with UnumProvident or its predecessors separately testified that the company had a practice of denying legitimate claims.
Dr. Patrick McSharry, a former medical director at UnumProvident, sued the company in June, alleging it denied valid claims and asked its staff doctors to justify those denials. The suit said he suffered retaliation for writing accurate reports contrary to that practice.
Collins of UnumProvident said the company completely rejects McSharry’s allegations, which he called “preposterous.” He said McSharry was fired in January for being “disruptive.”
McSharry’s lawsuit triggered a stampede among lawyers suing UnumProvident for denying claims. More than 60 lawyers have asked to depose him, according to press reports.
Dr. William E. Feist, who resigned as vice president and chief medical officer of Provident in 1996 after 14 years with the company, testified in Hangarter’s lawsuit that the company held weekly “roundtables” to jettison claims.
“The whole goal of roundtable discussions was to do just that, to terminate claims,” he said. “. To me, that is unethical.”
Feist said the company played hardball, including seeking embarrassing information on clients. “Anything was fair game to try to terminate the claim – – surveillance or financial records, ex-wives, mistresses, whatever, anything was fair game,” he said.
White denied those charges. “Dr. Feist slept through most of the roundtable meetings,” he said. “Basically the man will say whatever the plaintiffs’ bar asked him to say.”
— A court in one lawsuit ordered UnumProvident to provide a list of all lawsuits against it since 1997 in which a plaintiff alleged “breach of contract, breach of the implied covenant of good faith and fair dealing and/or fraud.” The company responded with a hefty document listing 331 such suits in California and 2,200 in the United States.
Considering that the company handles 400,000 new claims a year (of which three-quarters are for short-term disabilities like a broken leg), that is a “microscopic subset of our claims,” White said.
UnumProvident has embarked on an aggressive press campaign since word of a “60 Minutes” investigation got out, triggering a slide in its stock, which is down about 17 percent in the past month. It closed Friday at $17.95, down $1. 17.
The company has set up a special section of its Web site to point out that it pays $3.6 billion a year in claims and has 3,000 employees who work on processing claims. It has issued press releases and written to shareholders and stock analysts, saying the “negative” television profile misrepresents the facts.
For the individuals who became disabled after having bought insurance from UnumProvident or its predecessors, the story continues.
Gluck, Hangarter and McGregor all sued the company.
McGregor, the court reporter, prevailed at her trial and was awarded $1.2 million, but has yet to receive a dime while UnumProvident’s appeal is pending.
Her husband died about seven months after the trial.
“I trusted these people; I thought they were honorable and they weren’t,” she said. “I paid for insurance to safeguard me in case I couldn’t earn a living. They totally let me down.”
Gluck, the psychiatrist, decided to go public with his story because he feels “what this insurance company has done to me and is doing to scores of other people is unconscionable,” he said. UnumProvident has reinstated his monthly payments and says it has settled his case.
His decision to “become a crusader” meant he had to tell his 19-year-old son that he has AIDS. “It’s tougher than anything I’ve ever done,” he said.
Hangarter, the chiropractor, won at her trial in February. She was awarded $7.6 million, including $5 million in punitive damages. However, like McGregor,
she has not received any money while the insurance company appeals the decision.
Based on the award, she borrowed money, which allowed her to buy a car and rent a nice house in Novato. That money will run out in another couple of months.
She has a Hollywood scriptwriter interested in her story for a movie of the week, but she’s pinning her hopes on a book she works on every day while her kids are in school. It’s the story of her fight with UnumProvident. When asked the title, she pauses.
” ‘Screwed,’ ” she said.