An opinion issued by the United States District Court for the Middle District of Pennsylvania in November 2009 highlights the challenges an attorney faces when a complaint for denial of disability insurance benefits involves parties from different jurisdictions. An attorney must be very knowledgeable regarding insurance contract law in their state, because the laws of the state in which the contract is signed are the laws that will apply unless preempted by ERISA.
The case we are going to consider involves Edward J. Zaloga, a doctor of osteopathy. He filed his complaint originally in the Court of Common Pleas for Lackawanna County, Penn. in December 24, 2008. Because the claim exceeded the value of $75,000 and neither Provident Life & Accident Insurance Company (Provident Life) nor Unum Group (Unum) had corporate offices in Pennsylvania, jurisdiction over the case resided with the U.S. District Court.
The issue here was the nature of the claim Zaloga would be allowed to bring before the court. His claim alleged that Provident Life and Unum had breached the implied covenant of good faith and fair dealing in reversing their decision to provide him with long-term disability coverage. Several accusations with supporting statements were included in the claim. The insurance companies moved to have many of these pleadings/arguments struck from the claim.
Before we look at how the Court evaluated these motions, let us review the background behind the complaint.
Zaloga was an osteopathic physician and surgeon certified in internal medicine and nephrology. He applied to Provident Life for a private disability insurance policy. The following summarizes the benefits the policy promised.
- Predetermined premiums were guaranteed until the later of Zaloga’s 65th birthday or five years.
- It was not cancellable.
- The policy provided for graduated monthly disability insurance benefits that started at $5000 a month with annual increases until the monthly disability amount reached $6400 by July 13, 2004.
- The benefits would be payable after 90 days of the onset of the disability.
- If the disability was caused by an injury and before Zaloga’s 65th birthday, the benefits would continue for life.
On June 17, 2002, Dr. Zaloga was injured in a motor vehicle accident. His injuries included orthopedic and neurological damage to his neck, left arm and left-hand. By July 13, the complications from his injuries had worsened to the point that his attending physicians determined he would be unable to work as a board certified nephrologist. This determination was a major concern because he had been involved in an affiliation with a medical practice where he served in a relief capacity.
On November 29, and December 15, 2005, Dr. Zaloga notified Provident Life and Unum that he was filing a claim for disability benefits. The insurance companies investigated his claim. Upon completing their investigation which included researching Zaloga ‘s own occupation and ventures, his claim was approved. They determined that:
- Zaloga had been disabled on July 13, 2004.
- His “own occupation” was a nephrologist.
- Zaloga was unable to perform the duties of a nephrologist.
- His premiums would be waived as stipulated in the policy, retroactive to July 13, 2004.
From the time his disability was approved, on August 15, 2006 through February 15, 2008, Zaloga provided monthly supplemental claim forms as requested by the insurance companies. During this time, Provident Life and Unum assigned his file to a new disability benefits specialist. The new specialist reviewed Zaloga’s claim file and drew the conclusion that Zaloga had not been working as a nephrologist on the date of his disability, but rather had been acting as chief medical officer of the medical services provider from June 1, 2004 onward.
The benefits specialist also called into question Zaloga’s earnings prior to his disability. Provident Life and Unum concluded based on this reevaluation that he had a “dual occupation” prior to the date of his disability. Without consulting any external sources, they terminated his disability benefits.
When the case came before the Court numerous motions from Provident Life and Unum to strike out portions of Zaloga’s claim had to be considered.
The insurance companies claimed that Zaloga’s complaint for breach of the covenant of fair dealing should be dismissed because Zaloga had not stated a claim upon which relief of a breach of fair dealing could be granted in the state of Pennsylvania. In reviewing cases handled by the Supreme Court of Pennsylvania, the Court found that while Pennsylvania law did not support a separate independent action when a breach of contract occurred, this did not negate Zaloga’s rights to recover compensatory damages. The Court upheld inclusion of the motion.
As part of his claim, Zaloga argued that Provident Life and Unum violated the Unfair Trade Practices and Consumer Protection Law (UTPCPL) because the insurers did not obtain additional information, but instead they reevaluated the information already existing in their files. In the process of reevaluating this information they applied a new definition of total disability that differed from that used originally in the policy language. He claimed that this violated Provident Life and Unum’s own investigative procedures, this demonstrated malfeasance in Zaloga’s opinion.
While the Court finding agreed that there was a question of the propriety of the insurance company granting the disability claim and later reversing itself, the malfeasance of the matter wasn’t black-and-white. The court found it plausible to conclude that the insurance companies had misperformed rather than failed to perform their duty. The Court upheld this aspect of Zaloga’s complaint as worthy of review.
Provident Life and Unum didn’t like some of the allegations made in Zaloga’s claim. They sought to have the offending paragraphs struck from the claim, arguing that the allegations bore no connection to a bad faith or breach of contract claim under Pennsylvania law. The Court disagreed. They found that the allegations might ultimately prove irrelevant to the disposition of the case, but the court agreed with Zaloga’s argument that the allegations were included to “show a common design and scheme on the part of the defendants.”
Because a bad faith claim can only succeed in the state of Pennsylvania if the plaintiff insured proves that the insurer did not have a reasonable basis for denying benefits under the policy, the court found that presenting evidence that demonstrates the failure of the insurer to behave in a reasonable manner would be allowed.
The Court concluded that Zaloga had the right to bring his breach of implied covenant of good faith and fair dealing claim before the court as originally filed. The court also found that the insurance companies had failed to show that Zaloga’s UTPCPL claim was implausible. Provident Life and Unum were directed to file an answer to Zaloga’s complaint within 20 days.