Pennsylvania Federal Court denies Unum’s attempts to dismiss a physician’s bad faith disability lawsuit

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.

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:

  1. Zaloga had been disabled on July 13, 2004.
  2. His “own occupation” was a nephrologist.
  3. Zaloga was unable to perform the duties of a nephrologist.
  4. 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.

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Bruce R. (Arizona)

Steve Dell has done an exceptional job with my disability application process. The firm is extremely well managed. They have acquired an incredible amount of experience over many years. I recommend them for disability insurance claims without reservation. 

Don (Florida)

I called this firm a few months ago completely disparaged due to a company cutting off disability benefits at a time that nearly caused me to lose everything.

Attorney Alex Palmera and Danielle worked hard to reach an amicable settlement and my case was settled a few months later. This is a good firm and the specific expertise in disability claims saved me countless hours of hassle at a time when an already fragile state existed.

Thank you Mr. Palamara and Danielle.

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I have nothing but good things to say about how my buyout was handled with my disability claim. The level of professionalism was amazing. All of my questions and concerns were answered either by Danielle L. or Alex P. in such a timely manner and with such care I would recommend them in a heartbeat to anyone needing to approach their provider with buyout options.

They did a fantastic job communicating between the provider and me, always keeping my best interest at heart and always answering my many many questions. They really did take most of the stress out of this whole situation. I would give them a 10 out of 10 for every step of this crazy journey. Thank you so much for helping me through this.

Brenda R. (New York)

I needed assistance with an appeal for a LTD claim that was initially denied. Stephen understood what needed to happen to win the appeal and he did win the appeal for me.

Michael C. (Virginia)

Greg Dell and his assistant Anneli have been extremely responsive and helpful, not only our initial consultations, but in follow-ups 1 and 2 years later with the insurance company to ensure that they comply with their agreements (which they did), as well as a separate and only slightly-related inquiry about our health insurance. I always hear back from them very quickly, which is rare and greatly appreciated.

Jeff P. (Oklahoma)

After a very long and frustrating ordeal to keep my LTD payments coming I decided to seek assistance from and attorney. After much research and asking those in the legal profession Dell & Schaefer seemed to be the top choice. I reached out and Alex Palamara was the attorney assigned to my case. All I can say is the experience was outstanding. Both Alex and his Paralegal, Danielle Lauria were excellent to work with. They were very kind, concerned, understanding of my frustrations and treated me with the utmost respect. Communication was excellent with regular updates and telling me what I could expect in each stage of the process.

Alex was also very straight forward with what to expect and no pie in the sky promises or expectations were made. In the end we won our case and I believe it was solely due to their experience and knowledge of not only the laws but the insurance companies as a whole. I would highly recommend them and am very grateful for the help they afforded to me.

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