California Appeals Court Affirms
Punitive Damages Verdict Against
UnumProvident & Paul Revere
Joan Hangarter, a 53-year-old chiropractor from Novato, Cal., making more than $120,000 per year, purchased a Paul Revere disability policy at a cost of more than $2,000 a year based on the insurance agent’s promise that she would be entitled to recover under the policy if she were unable to do the work of a chiropractor even if she could handle another job.
Years later, Hangarter tore her rotator cuff and eventually stopped treating patients due to the severity of the injury. She filed a disability-insurance claim in May 1997, which was initially approved by UnumProvident (the insurer that acquired Paul Revere). However, after paying her $8,100 in benefits per month for a year and a half, the insurer terminated the payments, disputing Hangarter’s status as disabled and claiming that her attempted part-time return to work meant that she was not totally disabled. The insurer alternatively claimed that Hangarter could serve as a bookkeeper for her practice. Arguing that she was supposed to get paid as long as she was unable to work as a chiropractor, Hangarter successfully sued UnumProvident, and obtained a jury award of $7.67 million in benefits and punitive damages.
The court found that (1) Ms. Hangarter could not perform her substantial and material duties in the usual and customary manner and was, in fact, totally disabled; (2) her failed attempt to return to work did not prevent her from receiving benefits; and (3) that punitive damages were appropriate because UnumProvident unreasonably terminated her benefits acting with “malice, fraud and oppression.”
During the trial, evidence demonstrated that Hangarter’s case was not an isolated instance and that UnumProvident employees would regularly seek ways to terminate expensive claims and dispute doctors’ findings, often using budgets and targets and “net termination ratios” to maximize profits at the expense of vulnerable, disabled people. UnumProvident’s request for a new trial was denied by the U.S. District Court for Northern California, which found the insurer in violation of the California Unfair Insurance Practices Act. The court also ordered the company to stop “employing biased medical examiners.” The Court of Appeals affirmed the total award of $7.6 million.
California is one of several states in the country that allows plaintiffs to pursue punitive damages against an insurer for a bad faith claim denial.