Merrick v. Paul Revere Life Ins. Co., 594 F. Supp.2d 1168 (D. Nev. 2008).
A federal court in Las Vegas, Nevada affirmed $50 million in damages awarded by a jury in a June 2004 case against Paul Revere and its parent, Unum Group, in a partial retrial of a lawsuit brought by disabled venture capitalist G. Clinton Merrick. The case was based on the insurers’ bad faith denial of disability benefits to Mr. Merrick.. Merrick was able to establish that the insurance companies used financial targets and goals to terminate claims and that the insurers engaged in an overall scheme to augment profits by denying benefits.
Merrick had purchased a noncancellable, guaranteed renewable, “own occupation”, disability insurance policy from defendant Paul Revere in 1989. Under the policy’s terms, Merrick was entitled to benefits of $12,000 per month for as long as he was disabled or until age 65, whichever came first, if he was unable to perform the material and substantial duties of his occupation due to illness or injury. When Merrick began to suffer from a chronic low-grade illness that substantially impacted his ability to work as a venture capitalist, he sought recovery under his disability policy. Unum and Paul Revere denied Merrick’s claim based on an alleged “lack of objective evidence” as to his condition, although the policy did not contain such a requirement and Merrick’s condition could not be diagnosed or measured through objective testing.
At the first trial, the jury found that both defendants breached the insurance contract, lacked reasonable grounds to deny Merrick’s claim, and acted in bad faith, knowingly, oppressively or maliciously, and recklessly denying the claim.
The jury also found that the insurer was in breach of contract by denying the claim as it did and awarded $1.6 million in compensatory damages and $10 million in punitive damages. The insurer appealed and the punitive award was eventually retried before a new jury.
On retrial, the second jury ordered Paul Revere to pay $24 million and Unum to pay $36 million for a total award of $60 million. Merrick established that his claim was mishandled in a manner consistent with the scheme to use budgets and targets to deny disability claims.
The federal district court affirmed the jury’s findings that both Paul Revere and Unum had engaged in improper claims practices in an attempt to cheat people out of their entitled disability benefits. Although the district court agreed with the jury’s findings that insurance companies acted reprehensively, it had to reduce the total jury verdict on constitutional grounds, but the judge hit Unum and Paul Revere with the full amount allowable under the law, thus upholding a total award of $50 million. The Merrick case is yet another cases demonstrating Unum’s outrageous use of budgets, targets, and “net termination ratios” to deny valid disability claims. This award was among the top jury verdicts of 2008 and the largest award ever against Unum and/or its subsidiaries.
Several States, such as California, Arizona, Nevada, New Mexico, Montana, Pennsylvania, and Vermont have viable “bad faith” laws or legal precedent that will allow a claimant to sue in court for extra financial damages, such as punitive damages. Quadrino Schwartz prosecutes bad faith cases, along with local or co-counsel, in all States in which these damages can be sought.
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John McCauley worked for Sotheby’s Service Corporation as a senior vice president when he was diagnosed with colon cancer in 1991. Unable to perform the occupation duties, McCauley filed a long-term disability benefits claim with his insurer, First Unum, in 1994.
First Unum denied Mr. McCauley’s claim stating that it did not believe that his medical condition prevented him from working. McCauley appealed the denial and submitted additional medical support from his physician, which was ignored by First Unum.
Left without benefits, McCauley filed a lawsuit against the company in a New York District Court, which decided the case in favor of Unum. However, McCauley won his case on appeal to the Court of Appeals, which reversed First Unum’s denial of benefits finding “powerful evidence that First Unum’s denial of McCauley’s appeal was arbitrary and capricious.” In its decision, the Court of Appeals noted the evidence of First Unum’s long history of biased claims administration citing a Massachusetts District Court, which found that First Unum’s conduct “reveals a disturbing pattern of erroneous and arbitrary benefits denials, bad faith contract misinterpretations and other unscrupulous tactics.” Radford Trust v. First Unum Life Ins. Co., 321 F. Supp. 2d 226, 247 (D. Mass. 2004), rev’d on other grounds, 491 F.3d 21, 25 (1st Cir. 2007).
The court made note of more than thirty cases in which Unum’s denials of benefits claims were determined to be unlawful. “First Unum’s history of deception and abusive tactics [are] additional evidence that it was influenced by its conflict of interest as both plan administrator and payer in denying McCauley’s claim for benefits.” The court returned the case to the lower court ordering that court to find in Mr. McCauley’s favor and to calculate the benefits owed him. While Mr. McCauley eventually won his case, it took 13 years of fighting to do so.
First Unum’s outrageous schemes have been investigated on “60 Minutes” and “Dateline” and have been the subject of numerous other investigative reporting pieces, which have all determined that First Unum employs illegal and improper review procedures and engages in conduct intended to deny valid disability claims.
Leavey v. Unum/Provident, et al., No. CV-02-2281-PHX-SMM (D. Ariz. May 26, 2006).
A federal appeals court in Arizona upheld a bad faith verdict and significant awards to a Brett Leavey, a disabled dentist victimized by Unum/Provident Corporation and its subsidiary Provident Life and Accident Assurance Company. Although portions of the damages awards were reduced by the trial judge post trial, Dr. Leavey still recovered $3 million in punitive damages and $1.2 million for emotional distress and other damages.
In 1990, while working as a dentist, Dr. Leavey, purchased an “own occupation” disability insurance policy from Provident, a subsidiary of Unum/Provident Corporation, in 1990. In 1998, Dr. Leavey became “totally disabled” under the terms of the policy due to chemical dependency and filed a claim for benefits. Provident initially approved Dr. Leavey’s claim and provided him with a monthly cash benefit. In 2001, Provident discontinued payments claiming that based on its own, independent investigation, Dr. Leavey did not qualify for benefits.
Leavey brought suit seeking benefits and punitive damages claiming that Provident acted in bad faith by discontinuing his benefits. He was able to do so because Arizona permits a claimant to seek more than just the monthly disability benefits. The court heard evidence demonstrating that Unum//Provident “instituted termination goals and used various tools to reach them, such as ‘top-ten’ lists of high-dollar claims to terminate and roundtable reviews, and [that the insurer] targeted psychiatric claims because of the subjectivity in assessing them.”
In ruling in Leavey’s favor on his entitlement to disability payments, the jury also awarded him $15 million “bad faith” punitive damages and $4 million in compensatory damages for emotional distress and other harm. The court found that Unum/Provident acted “not only in bad faith but also ‘with an evil mind’”, and that Unum/Provident had tried to influence the opinions of independent medical examiners and misrepresented the examiners’ opinions. In imposing punitive damages, the court considered Unum/Provident’s various schemes to improperly deny valid benefits claims and the company’s utter disregard of Leavey’s vulnerability and illness.
Certain legal principles impose a limit on the size of these awards so that the trial judge reduced the punitive damages recovery to $3 million and the compensatory damages recovery to $1.2 million.
The Leavey case is a further example of Unum/Provident’s use of unfair, deceptive and illegal practices in order to deny valid disability claims.
Ceimo v. Paul Revere, Provident Life and Accident, and General American Life, CV 00-1386 PHX FJM (D. Ariz. April 2, 2003).
In an April, 2003 Phoenix, Arizona case, a jury returned unanimous verdicts against Paul Revere Life Insurance Company, Provident Life and Accident Insurance Company and General American Life Insurance Company for their breach of contract and bad faith denial of disability insurance benefits to Dr. Joanne Ceimo, a disabled cardiologist.
Dr. Ceimo had suffered a neck injury that prevented her from performing invasive surgical procedures. She filed a disability claim with Paul Revere, which was administering claims for her insurer General American Life Insurance. Under the terms of the policy, Dr. Ceimo could recover based on a full or partial disability. When her claim was denied, Dr. Ceimo sued General American, Paul Revere, and Paul Revere’s affiliated company Provident Life and Accident Insurance Company, alleging breach of contract and bad faith.
The jury found that Dr. Ceimo was totally disabled from her occupation as an invasive cardiologist, that the defendants intentionally denied Dr. Ceimo’s benefits claim without a reasonable basis for doing so, and that the defendants knew that they were actions were unreasonable.
Throughout the trial, the jury heard evidence establishing that the insurers formulated a plan to deny disability claims of thousands of policyholders. Based on its finding of bad faith, the jury awarded Dr. Ceimo $1.2 million in back benefits, $5.4 million damages for mental distress, and $79 million in punitive damages. On appeal, the district court reduced the punitive damages to $7 million, concluding that a ratio of approximately 1:1 is the maximum allowable given the high-level of compensatory damages granted and the award of $600,000 in attorneys’ fees. Both sides appealed the decision, which was later affirmed by the Ninth Circuit Court of Appeals.
This jury award was among the top-ten jury verdicts in 2003 and represents yet another case demonstrating the insurers’ use of illegal schemes and unfair tactics to deny valid disability claims.
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.
McKendry v. General Am. Life Ins. Co., CA No. 96-754-PGR (D. Ariz. Mar. 31, 2000).
When General American terminated Mr. McKendry’s long-term disability benefits, he sued claiming that the insurer’s termination was in bad faith. General American had terminated the long-term disability benefits of Mr. McKendry, a real estate professional who was suffering from Chronic Fatigue Syndrome, asserting that he was not disabled from working full-time. A federal jury in Phoenix, Arizona concluded that the benefits termination was in bad faith and awarded McKendry $350,000 in compensatory damages and $10.2 million in punitive damages against General American. The jury also imposed a $6.8 million punitive damages award against Paul Revere Life Insurance Company, which handled the claim for General American and made the decision to terminate his benefits. The punitive damages were awarded against Paul Revere because it encouraged General American to terminate valid disability claims in order to increase profits.
On Jan. 24, 2003, a jury in Marin County, California returned a $31.7 million damage verdict against UnumProvident in favor of Dr. Randall Chapman, a Novato, California eye surgeon after a three-month trial.
Dr. Chapman sued UnumProvident in 2001 after the insurer refused to pay the $11,600 monthly benefits under the doctor’s long-term disability policy purchased during the 1980s.
Dr. Chapman claimed that he was disabled as a result of a phobia he developed that caused him to shake, making it impossible for him to perform eye surgery. Initially, UnumProvident paid disability benefits for a period of three months before denying further payments based on the company’s doctor findings, which disagreed with the diagnosis. The $ 31.7 million judgment included $30 million in punitive damages. The award was granted based on evidence that demonstrated that Unum denied policyholders’ valid claims based on budgets and targets.
Radford Trust v. First Unum Life Ins. Co. of America, 2004 WL 1368406 (D. Mass. Jun. 15, 2004)
In a stinging and thorough opinion, a federal judge in Massachusetts awarded disability benefits to a law firm that had brought a claim on behalf of one if its former employees. In the decision, the Court noted that:
“First Unum’s conduct in denying Doe’s claim was entirely inconsistent with the company’s public responsibilities and with its obligations under the Policy. This is not the first time that First Unum has sought to avoid its contractual responsibilities, and an examination of cases involving First Unum and Unum Life Insurance Company of America, which like First Unum is an insuring subsidiary of Unum Provident Corporation, reveals a disturbing pattern of erroneous and arbitrary benefits denials, bad faith contract misinterpretations, and other unscrupulous tactics. These cases suggest that segments that have run in recent years on ‘60 Minutes’ and ‘Dateline,’ alleging that Unum Provident ‘regularly declines disability claims as a way of boosting profits,’ may have been accurate. See Edward D. Murphy, Unum Corp. Retirees Feeling a “Sense of Loss,” Portland Press Herald, Apr. 29, 2003, at 1C. This Court cannot tell whether First Unum and other Unum Provident companies are considered pariahs in the industry, or whether their ability to retain customers is a result of low prices, market inefficiency, or other factors. In either case, employers have a duty to select insurers for their employees with care, and to avoid hiring insurers with reputations for shoddy and hostile claims administration, although it may well be that suits based on violation of this duty are preempted under ERISA.”
The Court reviewed and surveyed many of the cases from around the United States in which judges have harshly criticized UnumProvident and its subsidiaries for flagrantly engaging in bad faith claims practices.
The Court also stated, as part of its decision, that:
“In this case, First Unum’s denial was flagrant. The company adopted a patently unreasonable interpretation of the Policy and reached a decision that was plainly contrary to the facts in the record before it. First Unum’s conduct also resulted in years of delay in distribution of Doe’s benefits, and it is by no means clear that First Unum can be trusted fairly to adjudicate Doe’s claim on remand. Even if the Court could trust First Unum, and even if the company had acted in good faith, further delay would merely have added to the injustice that Doe has already suffered.”
In awarding legal fees to the Plaintiff, to be paid by UnumProvident, the Court said:
“As this Court has described, First Unum acted in bad faith in denying benefits to Doe, and while First Unum’s position was entirely without merit, Radford’s was essentially correct. The company can well afford to pay a fee award, and the awarding of fees against insurers acting in bad faith would deter similar conduct by other insurers in the future. The Court has no information before it as to whether the Policy is still in effect for Hawkins employees, but to the extent that other participants and beneficiaries exist, the decision that has resulted from the bringing of this case ought certainly change First Unum’s practice of denying valid claims based on an erroneous and highly restrictive interpretation of the Policy. Moreover, participants and beneficiaries in other plans, particularly those administered by First Unum, will tend to benefit in a similar manner from this lawsuit.”