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Disability in Dispute

The pain shot from court reporter Susan McGregor’s fingertips to her shoulder muscles. Years of rapid fire stenotyping were taking their toll as she recovered every word spoken in a Francisco courtroom.

She was glad she’d bought a disability insurance policy to cover her severe repetitive stress injuries – until her underwrite denied her claim. Sharing McGregor’s discomfort are plaintiffs nationwide who assert there afflictions are aggravated by disability insurers that cut claims through unfair benefit denials and improper reliance on federal preemption of state consumer-protection laws.

The insurance industry retorts that it must defend its rights by policing policyholders who exaggerate their ailments.

“We have an enviable record that we’re proud of,” said Chris Collins, the deputy general counsel for UnumProvident Corp. od Chattanooga, Tenn., the nation’s biggest disability insurer. “We’re not perfect. This company is constantly being self-critical and trying to improve.”

Now, a pair of federal cases could reform the ground rules for handling claims in health insurance disputes.

A 9th US Circuit Court of Appeals decision handed down Jan. 15 affirmed McGregor’s $1.2 million federal jury award against UnumProvident over her claim denial. The appellate panel including language in its opinion that may make it harder for insurers to withhold benefits in other cases, according to McGregor’s attorney, Ray Bourhis. McGregor v. Paul Revere Life Insurance Co., 2004 U.S App. Lexis 730.

A second case, set for oral argument March 23 before the U.S. Supreme Court, includes San Francisco lawyer Arnold R. Levinson’s amicus plea to revoke the insurance industry’s immunity from state regulation under a federal pension law. Aetna Health Inc v. Davila, 02-1845. (See related story)

In 1987, the Supreme Court interpreted the law, the Employee Retirement Income Security Act, or ERISA, to limit plaintiffs’ recovery in coverage-denial cases to the sum they should gave gotten under an existing policy. That excluded state statutes allowing bad-faith and attorney-fee claims, lowering the cases’ value to the point where most could not be litigated, because the award wouldn’t pay attorney fees.

When ERISA fails to shield insurers, they sometimes dispute the meaning of “total” disability. That’s what happened in Susan McGergor’s case.

Bourhis, of San Francisco’s Ray Bourhis, intends to use his McGregor win in representing Los Angeles orthopedic surgeon Alan M. Gross. UnumProvident denies Gross’ disability claims in 2003 despite his diabetes-related incapacity to wield a scalpel.

Bourhis is one of UnumProvident’s several critics. He blasts the company as “a ruthless, lawless S.O.B., the biggest bully around,” a corporate wrongdoer that methodically boosts its bottom line by withholding benefits from clearly disabled clients. Collins said Bourhis is off base.

“The notion that we have a systematic method to deny claims is hogwash,” he said in a telephone interview. “It makes for good closing arguments, but it’s not true.” Even so, UnumProvident agreed Feb. 19 to pay $100,000 to its fired medical director, Patrick McSharry, to settle his federal lawsuit accusing the company of routinely denying legitimate claims. UnumProvident’s medical advisers were expected to ” provide language and conclusions”to support the denials, the suit said.

Also, in march 2003 the Georgia Department of Insurance fined UnumProvident $1 million and put the company on probation for two years over its claims-handling practices. The state’s insurance commissioner, John Oxendine, said UnumProvident sought “just about every technical legal way to avoid paying a claim.”

And more then 40 states are engaged in a coordinated investigation of the way UnumProvident handles claims, Collins confirmed. The company is cooperating fully with the probe, he said. UnumProvident, which in 2002 had 25 million customers and $9.6 billion in revenues, says its processes about 400,000 claims each year and pays out about $4.8 billion annually.

“The number we deny is miniscule, around 2 percent,” Collins said, adding that only about 0.5 percent end in litigation.

McGregor’s was one of them. Her lawsuit against UnumProvident concluded where it began: in a courtroom.

She’d sit at her steno machine in the well of the court, the throbbing in her arms stinging so bad she couldn’t help crying as she typed. Turning her face so Superior Court Judge Alfred G. Chiantelli wouldn’t see. At night McGregor’s husband wrapped her wrists in elastic bandages. Her doctor prescribed stronger painkillers, then fitted braces to her forearms.

“It was real agony,” she said.

The splints slowed her typing speed until she couldn’t keep pace with fast talking lawyers. McGregor reluctantly ended an 18-year career transcribing complex medical jargon in asbestos cases, emotional testimony in criminal trials and the impassioned dialogue of settlement talks.

Luckily, she thought, she’d paid $1,000 a year for almost two decades for an occupational disability insurance policy. Paul Revere Life Insurance Co. at first agreed she was a disabled and began paying her $1,800 a month. The welcome checks kept coming for four and a half years.

The checks stopped soon after UnumProvident acquired Paul Revere in 1996. The company suddenly ended the payouts and disputed the extent of her disability, contending she was not totally disabled because she could still perform one of the important duties of her job: proofreading other court reporters’ work, a task called scoping.

That’s a ploy UnumProvident uses to cut claims in a lot of cases, according to Bourhis.”This company has a bag or tricks to terminate benefits to policyholders,” Bourhis said last week. ” A favorite is to redefine your occupation and your duties within the job. They’ll say, ‘You’re not actually disabled because you can still perform one of the important duties of your job.’ It’s a cockamamie reasoning, and courts are rejecting it.”

Collins, the UnumProvident house counsel, said the cases often turn on the degree of disability suffered by the frequently involve separate state Supreme Court decisions on two types of disability insurance.

In total disability policies, an insured can collect benefits only when unable to perform all the important duties of an occupation, as explained in Erreca v. Western States Life Insurance Co., 19 Cal. 2d 388 (1942).

Policies that cover total and partial disabilities, by contrast, require claimants to demonstrate whether they can no longer perform my part of their occupation or whether they are unable to do “one or more important daily duties” of their jobs. Dietlin v. General American Life Insurance Co., 4 Cal. 2d 336 (1935) “There’s a big distinction there,” Collins said. “Modern day disability policies provide both total and partial benefits.

So courts often are left to decide whether claimants are totally or partially disabled. Too often, judges and juries find claimants have suffered total disability when in truth they have only a limited handicap. Collins said.

“I don’t know what it is about the jurisprudence out there in California,”he said, complaining that courts tend to rely on Erreca and ignore Dietlin, to the disadvantage of insurers. “It could be the persuasiveness of the plaintiffs bar.” McGregor sued her insurer in 1997. The court reporter had her own day in court as she sought to refute UnumProvident’s assertion that her acknowledged ability to proofread left her eligible at most for partial disability payments.

UnumProvident’s claims-denial logic brought a horselaugh from Chiantelli, who testified for McGregor at her federal jury trial.

“The defense asked me on cross-examination if the fact she could scope didn’t mean she was able to do her work,” the retired judge recalled last week from his offices at ADR Services in San Francisco.”I said, ‘If Chopin had broken fingers, he could still read music, but he couldn’t play the piano’ ”

A unanimous jury awarded McGregor about $450,000 for the past and future value of her policy and about $616,000 for a bad-faith claim linked to the coverage denial.

“Everybody knows what a court reporter is,” Bourhis said following the trial. “The argument that because someone can proofread they’re not disabled is neither a persuasive or convincing argument to an objective person. who are they kidding?”

The circuit panel agreed with the jury and upheld the award in a 2-1 unpublished decision Jan 15.

The decision cited Erreca to show that McGregor must be unable to perform all of her important occupational duties in order to recieve benefits. “The parties dispute whether McGregor’s inability to stenotype rendered her unable to perform all of the ‘important duties’ of a court reporter,” wrote Judges Proctor Hug Jr. and Betty B. Fletcher in a memorandum opinions. “We conclude that it does – a person who cannot stenotype cannot work as a court reporter.”

They added: “McGregor offered substantial evidence for the jury to find that there was no genuine coverage dispute and that Paul Revere denied McGregor’s benefits unreasonably.”

Indeed, the appellate judges pointed out, things could have gone worse for approval the words of District Judge Pyllis J. Hamilton of San Francisco, discussing the jury’s decision not to award punitives:

“Viewing the evidence in plaintiff’s favor, a reasonable jury could find clear and convincing evidence that Paul Revere’s stated rationale for terminating the benefits was false, and that to this day it has yet to explain the reasons it terminated benefits, in other words, a reasonable jury could find either the required fraud or malice necessary to award punitive damages.”

The dissenting panelist, A. Wallace Tashima, agreed with that language but differed over the details of figuring the future benefits award. The circuit denied UnumProvidents petition for review Feb. 19, Collins said there will be no further appeal.

“That ends the case,” he said. Maybe not, Bourhis and McGregor think. They hope the McGregor ruling will live on, adding ammunition to plaintiffs arguments in other cases. McGregor, who has waited eight years for her $1.2 million, smiles at the prospect.

“It brings me great glee to think that I not only have my own case to beat those bastards over the head with. But that the result could be so much more far-reaching,” she said.

“I hope [Bourhis] tries to do it,” Collins said, disputing the notion that McGregor will be useful to the other plaintiffs. “Bourhis would read these policies so that if you can’t do one [element of your occupation], you’re totally disabled.”

Unpublished opinions ordinarily have small value as case law, because they cannot be cited as precedent governing other cases except under limited circumstances. But Bourhis is enthusiastic about this one. Circuit rule 36-3 allows unpublished opinions to be cited for factual purposes such as “notice.” Bourhis said he believes that gives him the right to use this opinion in other cases as evidence that disability denials based on a disabled policyholder’s remaining functionality won’t fly.

Bourhis hopes the opinion will persuade District Judge Stephen V. Wilson of Los Angeles to change his mind in the case of Gross, an orthopedic surgeon who had to end his operating room career because of eye problems and numbness in his hands and feet.

The doctor claims he’s covered because he bought a policy as an orthopedic surgeon and he can no longer perform surgery. The judge in November issued a partial ruling for UnumProvident, defining total disability as an plaintiff’s inability to perform all the important duties of his job – and extending the scope of his occupation beyond surgery. Gross v. UnumProvident, CV 03-4335SVW.

Yet to be litigated is whether Gross fits the definition fits the definition. UnumProvident insists that Gross still earns a substantial income running a successful orthopedic practice. The judge held Gross “is not totally disabled solely by virtue of his inability to perform surgeries” but has yet to decide how far his policy covers him. Collins said the judge’s view is sound. “The court decision in Gross is a much stronger indication of where the law is going in California” than the unpublished McGregor holding, he said.

Bourhis stands his ground.

“Unum is between a rock and a hard place,” he said. “Either they insured Dr.Gross as an orthopedic surgeon or they sold him a bill of goods, and now they’re running off to court to try to reinterpret what the contract says. If the policy doesn’t mean what it says, you may not have bad faith. You have fraud”