California disability policyholders seek class action against UnumProvident

SAN FRANCISCO (BestWire) – UnumProvident Corp. is the target of a new lawsuit in which the plaintiffs are California “own-occupation” disability policyholders who seek a refund of billions of premium dollars from the company.

About one month ago, UnumProvident (NYSE:UNM), the nation’s largest disability insurer, agreed to pay California insurance regulators an $8 million fine, re-assess about 26,000 claims that were denied or terminated between Jan. 1, 1997, and Sept. 30, 2005, and change some practices concerning its California business consistent with state case law, all to end an investigation into its claims-handling practices. The fine was the largest levied by the California Department of Insurance, according to Insurance Commissioner John Garamendi.

Earlier this week, two San Francisco – based attorneys filed the suit against UnumProvident, seeking class-action status on behalf of insureds whom the attorneys alleged in a statement were victims of a “predatory bait and switch scheme” by which the company “was billing policyholders for one thing while providing them with another.”

The complaint was filed in San Francisco Superior Court, said Ray Bourhis of the Bourhis & Wolfson law firm, one of the attorneys representing the plaintiffs.

Mary Clarke Guenther, a spokeswoman for Chattanooga, Tenn.-based UnumProvident, said the company finds Bourhis’ latest complaint “completely without merit” and the recent settlement with California makes the complaint “moot.” The suit “doesn’t surprise us, coming from Mr. Bourhis,” she said.

Starting in 1983, UnumProvident advertised, marketed and sold so-called own-occupation disability policies that the company promised would pay total disability benefits to individuals who, by injury or illness, were rendered unable to perform their specific occupations, Bourhis alleged in the law firm’s statement. UnumProvident’s own-occupation disability policyholders “have been sold golf carts disguised as BMWs,” he said.

UnumProvident terminated disability benefits “across the board, terminating benefits to surgeons who could no longer operate, to nurses who could no longer provide patient care and to 911 operators who could not even use a telephone,” attorney Alice Wolfson, who also represents the plaintiffs, said in the statement.

Bourhis alleges that in 1993, UnumProvident began to increase revenues by “hundreds of millions of dollars” by “secretly reducing the insurance coverage it had provided, and for which it was continuing to collect huge annual premiums.”

UnumProvident’s settlement last month with the California insurance department — involving three of its main subsidiaries — incorporates the claim-reassessment process and the changes in claims-handling practices contained in a November 2004 multistate regulatory settlement that 48 other states earlier ratified. Under the settlement’s terms, UnumProvident, with 2 million policyholders in California, will change several provisions specific to California disability policies, including the definition of “total disability.”

“While we are taking this step forward to remove the regulatory cloud that has been hanging over use, we do not agree with the generalizations that the department has made about our company through this process,” Thomas R. Watjen, UnumProvident’s president and chief executive officer, said in a statement at that time.

Bourhis said the California settlement doesn’t make this latest suit against UnumProvident moot. “The California settlement does not address premium refunds at all,” he said. “It also does not raise the issue of extra-contractual damages, which is a huge portion of the damages.”

The California settlement, Bourhis told BestWire, covers 1997 to the present, whereas this recent complaint addresses UnumProvident’s alleged fraudulent practices dating back to 1993. The plaintiffs “seek to get every premium dollar back from 1993 to the present,” he said.

In November 2004, UnumProvident agreed to pay $15 million in fines to end the multistate examination led by insurance regulators from Maine, Massachusetts and Tennessee, the states where UnumProvident’s three main insurance subsidiaries are domiciled. The settlement also included a reassessment of some of its previously denied or closed claims dating back to 2000 — potentially numbering 215,000.

Meanwhile, the California settlement extends beyond UnumProvident, according to Garamendi’s office, as disability insurers doing business in that state eventually would be required to follow the standards set in UnumProvident’s agreement.

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