Prudential Insurance Company breaches disability contract and jury awards claimant $15.2 million in damages

On March 8, 2007, a California jury found that Prudential Insurance Company of America (hereinafter referred to as “Prudential”) wrongfully terminated Ms. Darla Leeper-Johnson’s disability insurance benefits. Ms. Johnson was awarded $15,215,000 in damages, which included $315,000 for past economic loss, $400,000 for future economic, $500,000 for past pain and suffering and $14 million in punitive damages.

Factual background: Ms. Johnson was employed as a lead project manager in design and construction by the University of California at San Francisco with an annual salary of approximately $75,000 month from May 5, 1992 until she was forced to stop working due to disabling illness on May 21, 1995. Ms. Johnson was an employee of the state of California and therefore her disability claim for benefits was exempt from the strict rules of the Employment Retirement Income Security Act (ERISA). Ms. Johnson’s disabling illness was fibromyalgia, chronic fatigue syndrome, systemic lupus, and antiphospholipid antibody syndrome.

Prudential paid total disability benefits to Ms. Johnson from June 5, 1995 until her termination on June 1, 2001. Ms. Johnson’s disability policy provided benefits only if she was disable from “any occupation”. All of Ms. Johnson’s treating physicians advised Prudential that she was and continued to be totally disabled since 1995. In September 2000, Prudential received information that Ms. Johnson had been horseback riding, which Prudential believed to be inconsistent with her medical condition. Based on the new information of horseback riding, Prudential requested updated medical records and on November 22, 2000 sent all of Ms. Johnson’s medical records to an in-house medical doctor for a record review. Then on January 5, 2001, Prudential sent Ms. Johnson to be examined by an internal medicine doctor. Despite the fact that Ms. Johnson was being treated by a rheumatologist, Prudential sent her to a doctor that did not specialize in fibromyalgia. According to Ms. Johnson, the exam lasted 5-10 minutes and the doctor did not perform a trigger point exam, which is required in order to diagnose fibromyalgia.

On January 26, 2001 Prudential sent a letter to Ms. Johnson advising her that based upon a review of her medical records and the recent medical exam that her benefits would be terminated effective June 1, 2001. Prudential advised Ms. Johnson in their denial letter that she did not have any medical restrictions and she is able to return to work in her own occupation or any other occupation. Ms. Johnson submitted two written appeals and both were denied. Subsequent to the denials of both appeals a lawsuit was filed for breach of contract, fraud, breach of the implied covenant of good faith and fair dealing and violation of the unfair competition statue.

This case is very unique because California is one of the only states that allows a claim for bad faith / punitive damages to be argued at the same time as a breach of contract action. In most states the jury must first determine there was a breach of contract and then a subsequent trial takes place to determine any potential punitive damages.

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