Disability Claim Denied!

Insurer UnumProvident is under fire for its roster of rejections

In 25 years as a public defender in Philadelphia, Michael J. Kelly juggled as many as 25 cases at once, spending endless hours meeting with criminal defendants inside prisons and cramming for thousands of court appearances. The years of stress took their toll: In 1999, Kelly was diagnosed with an enlarged heart — a condition that, as one doctor put it, turned him into a walking heart attack. “I don’t think he can work,” his cardiologist, Cheryl L. Leddy, now says.

Kelly filed a disability claim with UnumProvident Corp. (UNM ). That’s when the stress really began. The Chattanooga (Tenn.) disability insurer turned him down repeatedly after he quit his job at his doctor’s urging. Kelly, now 54, struggled to get by on his savings and Social Security checks but was forced to file for bankruptcy in September. “It has been a huge burden on my family,” he sighs. “I had worked for almost 25 years, and now I [am] left with nothing — I don’t even have health insurance, because I can’t afford it.” At the time, UnumProvident said Kelly was still capable of light work. But when asked about the claim recently, J. Christopher Collins, the insurer’s deputy general counsel, says he “would like to look at [it] more closely. I wish I could tell you we’re perfect, but that’s not always the case.”

UnumProvident, the product of a flurry of mergers in the late 1990s, is being forced to revisit many of its cases. A growing chorus of policyholders, plaintiffs’ lawyers, former employees, and regulators charges that the company systematically rejects as many claims — legitimate or not — as it feels it can get away with. If true, that’s especially troubling because the $9.9 billion outfit is the nation’s largest disability insurer. It writes more than 40% of individual disability policies and more than 25% of group ones, and it covers more than 17 million Americans.


Now, 45 states are jointly investigating how UnumProvident handles claims, the largest such probe ever undertaken in the U.S., says Christopher Goetcheus, spokesman for the Massachusetts Division of Insurance. He says the investigation is expected to be completed by June.

In a separate action last March, the state of Georgia fined the company $1 million and set up a system to scrutinize its handling of every rejected claim involving Georgia residents for two years. In an interview, Georgia Insurance Commissioner John W. Oxendine describes a “corporate culture built on finding every technical reason to deny claims.” He says his study found that some company investigators improperly tipped off employers about workers who had sensitive conditions such as AIDS. It also concluded that claims handlers routinely overruled doctors by rejecting payouts to policyholders. UnumProvident Chief Executive Thomas R. Watjen, a nine-year company exec who became CEO on Mar. 31, denies the allegations made by Georgia. He adds that he “very much endorsed” the multistate review in hopes that it will end the accusations dogging the insurer. He says he’s “very confident” that UnumProvident will be cleared.

What has caught the eye of regulators from coast to coast is the avalanche of thousands of lawsuits and tens of millions in jury awards against UnumProvident over the past few years. In April, an Arizona jury awarded a Scottsdale cardiologist, Joanne Ceimo, $84.5 million after it concluded that the company unfairly denied her $12,000-a-month claim, although a judge later reduced the award to less than $20 million. A neck injury had caused such bad hand tremors that Ceimo could no longer perform delicate procedures such as angioplasty.

Last year, a California judge upheld a $7.67 million jury award to a former Berkeley chiropractor, Joan Hangarter, and sternly warned Unum against future violations, including “employing biased medical examiners, destroying medical records, and withholding from claimants information about their benefits.”

In January, a California jury awarded $31.7 million to a Novato eye surgeon, Randall Chapman. A phobia had given him the shakes, preventing him from performing operations. The company denied his claims, saying he failed to accept treatment recommended by its doctor. When a Superior Court judge, Lynn O’Malley Taylor, reduced that verdict to $6.1 million, she nonetheless rebuked UnumProvident for the “creation of a claims-handling procedure that appears designed to avoid performing a thorough, competent and objective investigation of [a] plaintiff’s claim.” UnumProvident officials say these large jury awards against the company are aberrations, and they’re appealing the Ceimo, Hangarter, and Chapman verdicts.

Former employees and plaintiffs’ attorneys who have seen UnumProvident’s files paint a picture of an aggressive corporate culture. They say managers kept a lid on costs by pushing claims handlers and investigators to find any reason to deny large payouts. In depositions, some company physicians said they felt pressured by managers to render the medical opinions needed to deny claims. In September, 2002, Dr. Patrick F. McSharry recalled in a deposition that one senior claims specialist would routinely run her finger across her neck in a slitting motion as she ordered staffers in claims-review sessions to “‘close them down, get them off, get them out of here.”‘


The culture was symbolized by the company’s “Hungry Vulture” award for top performers, say former employees. The prize even carried the motto “Patience my foot…I’m gonna kill something.” George A. Shell Jr., senior vice-president of UnumProvident’s benefits operations, says the award — which has been discontinued — was never given to workers for denying claims but simply to exemplary employees to recognize good performance.

UnumProvident officials in interviews dismiss any notion that they cultivated a milieu in which employees were pressured to reject claims. “You won’t lose your job because you made a decision to pay a claim,” says Shell. The officials also say less than one-half of 1% of claims result in suits and that the number has fallen over the past 18 months, although they decline to provide data.

At the same time, the company has installed a new procedure in which a separate panel of reviewers — and not the original claims handlers — now examines appeals. “I would never be associated with a company that wasn’t of the upmost character,” says CEO Watjen. He also points to the company’s high renewal rate with the hundreds of corporate purchasers of its group policies as evidence that the problems are overblown. Indeed, Andrew Keowen, a California benefits consultant whose corporate clients employ 160,000 people, says those companies “are happy with UnumProvident.”

Insurance-industry experts trace the company’s problems to its decision in the early 1980s to target the market for lawyers, doctors, and other professionals who own their own practices. The policies weren’t cheap, but they guaranteed annual payments that usually ranged well into six figures if policyholders could no longer practice their specialty. At first, the policies were a big profit center for the industry. Then claims started arriving in far greater numbers than expected. Other insurers scaled back their exposure to the disability business, but Provident Companies Inc., as it was then called, doubled its bet, acquiring two of its biggest rivals: Paul Revere Corp. in 1996, and Unum Corp. in 1999.


That’s when Linda Nee, a veteran claims handler at Unum’s head office in Portland, Me., and other employees there say they started seeing a more ruthless approach to claims. The pressure peaked, they say, in the last month of each quarter — the “scrub months,” when managers looked for claims to terminate to get under budget. The company vigorously denies that it rejects claims for financial reasons and says that Nee was fired last year for poor performance. Nee, who worked for Unum for eight years, confirms that she was terminated but says it was because the company began to see her as a whistle-blower.

business_Week_unum_chartMeanwhile, UnumProvident’s fortunes were going into reverse. After peaking at $61.45 in January, 1999, its stock price plunged below $6 a share last March. The combination of poor investments and a crush of big-dollar claims from policies written in the 1980s left investors questioning whether the insurer could raise enough capital to adequately rebuild its reserves. Unum did raise $1 billion in convertible debt and equity on May 1 — helping to pull its stock back to $15 — but profits remain weighed down by the lawsuits and the growing number of claims from its old policies. Merrill Lynch & Co. analyst Edward A. Spehar expects Unum to earn just $66 million this year, down from $401 million last year and $541 million in 2001.

Insurance experts say it’s no surprise that a disability insurer is beset with lawsuits; it comes with the territory. Unlike, say, life insurance — where an individual’s death is usually irrefutable — legal disputes are common in disability claims, with insurers always on the watch for fraud and injured workers trying to prove they can truly no longer work.

The case of Alan M. Gross, an orthopedic surgeon who set up practice in California in the mid-1980s, shows how sharply different the opinions on a claimant’s condition can be. Gross began to suffer blurred vision and numbness in his hands in the mid-1990s and was diagnosed with diabetes. Two years ago, after finishing an operation, Gross peeled off one of his surgical gloves and found it filled with blood. He had nearly severed one of his fingers during the surgery. “I had to recognize that if I kept doing surgery, I was creating a risk not only for me but for my patients,” he says. He filed for disability with UnumProvident, but the company stopped paying after a year. Its contention: Even if the 46-year-old Gross couldn’t do surgery, he could take on lighter duties, such as consulting with patients. But Gross’s doctor, David Kayne, says in an interview that his patient is also suffering from a condition causing the bones in his feet to degenerate. That means that even the walking necessary to meet with patients all day puts him at high risk of eventual amputation. “This man has every complication of diabetes,” he says.

Gross is suing the company while using other surgeons to keep his practice going. UnumProvident holds that the wealthy surgeon just doesn’t qualify for disability as long as he works, but Gross argues that his policy covered his work as a surgeon, which he can no longer perform.

When it reaches court, Gross’s case will get the closer look — as with Kelly, the ex-public defender — that so many of UnumProvident’s cases are now receiving. Meanwhile, policyholders are learning that, at least with UnumProvident, disability insurance is not always the safety net they expected.