Federal judge orders UnumProvident
to clean up practices
SAN FRANCISCO – By MICHAEL LIEDTKE
AP Business Writer
A federal judge has ordered UnumProvident
Corp. to clean up its business practices after concluding the nation’s largest
disability insurer abused its policyholders in a scheme to boost its profits.
U.S. Magistrate Judge James Larson ordered Chattanooga, Tenn.-based UnumProvident
to “obey the law” in a scolding 62-page injunction that found
the company in violation of California’s unfair insurance practices and
unfair competition acts.
In the ruling, Larson concluded UnumProvident
had 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
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.
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
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.”
UnumProvident “has nothing to
hide” if Garamendi follows through with an investigation, White said.
Most of the policyholder complaints involve expensive, non-cancelable 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 that 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.
The company earned $579 million on
revenue of $9.4 billion last year. UnumProvident’s profit fell by 40 percent,
to $272.7 million, through the first nine months of this year.
“There is no law against a company earning a profit as long as it behaves
ethically and we run an ethical business,” White said.
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.
Ray Bourhis, a San Francisco attorney
representing Harngarter, said UnumProvident’s actions have already devastated
his client and many other policyholders.
“We need to look into ways to
bring criminal charges against this company,” he said. “It’s not
right for them to drive people to the edge of suicide.”