New York Court Recognizes Unum Insurance Company's History of Biased Claims Administration and Permits Discovery Into a Potential Conflict of Interest

One important aspect of ERISA cases that makes them different from other types of lawsuits and litigation, is that once the administrative appeal process closes and an ERISA lawsuit is filed, the “administrative record” can no longer be added to, or supplemented. This is because in an ERISA matter, the judge is only allowed to consider the evidence that was available to the claims administrator at the time the decision was made to deny disability benefits.

There are limited circumstances, however, when the parties will be permitted to conduct discovery and the judge will consider information outside of the administrative record. One such circumstance is when there is an alleged conflict of interest due to the fact that the claims administrator both determines whether a claim is payable and pays the claims.

Unum operated under a Conflict of Interest

Recently, in a New York ERISA lawsuit filed against First Unum Life Insurance Company (Unum), the Court was required to reach a decision about whether, and to what extent, discovery would be permitted and if it was appropriate to supplement the administrative record. In her lawsuit, the Plaintiff challenged the benefit determination of Unum, the ERISA claims administrator. She alleged that Unum was operating under a conflict of interest that “tainted” its claims determination. This suit was not handled by our law firm.

The Court in this matter acknowledged that, across the country, the standard for permitting discovery varies greatly in that where some courts permit open discovery, some only permit limited discovery on conflict of interest issues and other permit no discovery at all. The judge in this case sided with an analysis of this issue which established that discovery relating to a conflict of interest should be permitted in order to evaluate whether a denial of benefits was arbitrary and capricious.

Court emphasized Unum’s known history of biased claims administration

As justification for its decision, the Court presents the following which basically slams Unum’s known history of bad claims practice. First, the Court states that it is undisputed that Unum is operating under a structural conflict. It goes on to recognize that the Supreme Court has instructed that when an insurance company administrator has a “history of biased claims administration”, there becomes “a higher likelihood that [the conflict] affected the benefits decision.” The Court states that Unum has such a history and that the Second Circuit has noted “a well-documented history of abusive tactics” by Unum. The Court cites several past cases where Unum was found to have utilized deceptive and abusive tactics and operated under a conflict of interest.

“…well-documented history of abused claims processing…”

It first cites to the case McCauley v. First Unum Life Ins. Co., wherein the Court concluded that: 1) First Unum operated under a conflict of interest because it was both the claims administrator and payor of benefits; 2) First Unum’s reliance on one medical report in support of its denial to the detriment of a more detailed contrary report without further investigation was unreasonable; 3) First Unum deceptively indicated to McCauley that the medical professional assigned to review his records was a medical doctor when the individual was in fact a nurse, failed to obtain a physician’s recommendation, and mischaracterized its rationale for continuing to deny benefits; 4) First Unum has a well-documented history of abusive claims processing; and 5) observations 2, 3 and 4, above, collectively lead to the conclusion that First Unum was in fact affected by its conflict of interest. This Court awarded judgment in McCauley’s favor, awarded payment of retroactive benefits and future benefits, as well as attorney’s fees and costs.

“…disturbing pattern of erroneous and arbitrary benefits denial, bad faith contract misinterpretations, and other unscrupulous tactics…”

The Court also cited the case Radford Trust v. First Unum Life Ins. Co. of America. In Radford, the Court stated: “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 determined it could not “take for granted” that Unum had “mended its ways”

The Court in the instant matter goes on to state that, “[a]lthough First Unum may well have improved or even fully corrected its practices, as it contends – and for which there is some evidence… – the Court cannot take for granted First Unum’s claim to have mended its ways. The company’s regrettable history and Glenn’s command to weigh conflicts of interests as a factor dictate that discovery into First Unum’s conflict of interest be permitted here.

Although the issue at hand, whether or not the Court will allow discovery on the conflict of interest and permit parties to supplement the administrative record, is not one that may interest the typical claimant, what we can learn from this case is that 1) the Courts have a well-placed distrust for Unum Provident disability insurance companies, which may serve to benefit claimants in the unfortunate situation they need to file an ERISA lawsuit against Unum; and 2) if you are denied long term disability benefits through Unum, or if your benefits have been terminated, you should immediately retain an experienced disability attorney with great experience with ERISA, to fully investigate Unum’s denial decision and claim handling practices. Don’t allow yourself to fall victim to Unum’s unfair and unscrupulous claims handling procedures.

If you have questions regarding your claim for disability benefits with UNUM, or if your disability claim has been denied with any disability company, then feel free to call Disability Attorneys Dell & Schaefer for a free consultation.