Good Faith Is Good Business

Taking on the giants of the disability world is not for the faint of heart.

The cases are complicated, emotionally taxing and terrifically expensive to prosecute, and time is the carriers friend. Carriers know sick people dont fight hard and cant shoulder a long, drawn out courtroom battle. It takes hard-earned respect on both sides of the table to get these cases resolved. However, recent reforms in the industry have made the claims process more efficient and fair for both sides.

We have come a long way since the 1970s, when most disability contracts were oversold, underpriced and offered overly generous individual disability benefits. Life was good, the economy was roaring, the individual disability market was a billion-dollar premium pie, and everybody got more monthly benefits than they could ever dream of using.

By the 1990s, however, all that had changed. HMOs were now in charge of medical care, and they and other insurers began tightening the purse strings. Wall Street grew angry at missed corporate projections and investment income tanked, paving the litigation highway with anger. Carriers scrambled. They couldnt change the economy, couldnt cancel their non-cancelable policies and couldnt raise their premiums because the contract renewals were guaranteed.

Policyholders began making claims, lots of claims, that when denied stacked up in overburdened courthouses. Pounded deep into the claims mud, policyholders turned every nickel-and-dime disability case into an institutional bad-faith cause. And though some insureds surely brought unfounded claims, many more suffered insurance nullification by litigation as the disability market itself literally became disabled.

The meltdown of the disability market yielded blockbuster punitive damage awards and lessons learned the hard way on both sides of the claim table.

Carriers removed local claims handlers and then sought relief in federal court on diversity grounds. For this, they were rewarded with the genuine dispute doctrine that allowed them to avoid bad-faith and punitive damage awards by simply creating a genuine factual, medical or financial dispute. The result left the insured with just a breach of contract action for past due interest and benefits. The Supreme Court decision in Campbell v. State Farm

To enhance their profitability, many of the surviving carriers rewrote their contracts with additional restrictions. Some stopped offering non-cancelable policies, curtailed the duration of benefits arising from an inability to perform the important duties of ones occupation, reduced the maximum monthly benefit amounts, and added fraud to their contestability clauses.

Todays carriers have created new policies with more favorable premiums that have enabled them to finally turn the corner on profitability. This required careful planning, a strengthening of corporate reserves, revamping individual disability product lines and adopting entirely new underwriting criteria. With more corporate players returning to the individual disability market, policyholders have more product options and carriers face downward pressure to handle claims fairly.

A key to the improved disability market is a new set of good-faith claim objectives adopted in the November 2004 multi-state Regulatory Settlement Agreement by UnumProvident, the industry leader. Its dominant market share brought UnumProvident problems when state regulators began examining the volume of lawsuits filed against it and the companys claim practices. The multi-state market conduct examination of UnumProvidents claims-handling practice was led by insurance regulators in Maine, Massachusetts and Tennessee.

The agreement is sweeping in its scope and includes the company and its subsidiaries (including UNUM, Paul Revere and Provident), 48 state insurance commissioners and nationwide market conduct regulators. It changes the way disability cases are evaluated and implements greatly improved claim guidelines that should result in policyholders getting the benefits they richly deserve. Good faith is always good business for insurance companies; it prevents needless lawsuits and makes for happy policyholders.

The primary components of the agreement include enhancements to UnumProvidents claims-handling procedures and additional corporate governance to support oversight of the reassessment process and improved claims-handling practices.

Most significantly, the agreement also implements an unprecedented feature: the claim reassessment process, in which UnumProvident agreed to reopen and reconsider in excess of 215,000 individual and group long-term disability claims that were denied or closed since January 1, 1997. This is a clear indication that UnumProvident has turned the good-faith claim corner. Many of these previously denied claimants will be able to revive their claims under new claim objectives. If UnumProvident determines the claimant is disabled under the new objectives, the insured will receive all back benefits, interest and attorney fees and will be returned to claim paying status on a monthly basis. Naysayers heaping trash from the bleachers may say, New claim objectives wont change the denial; I say wrong.

As someone who represents thousands of disadvantaged and disabled claimants, I see every day that the agreement is working to provide the truly disabled the benefits they deserve. This is due in part to UnumProvidents agreement to enhance its claim procedures by adding a series of new good-faith claim objectives.

These objectives include giving significant weight to the awarding of Social Security disability benefits, whether received before or after the claim was denied, as well as to both objective and subjective evidence of impairment, along with appropriate consideration of the treating doctors opinion.

They also include adoption of a series of other good-faith claims factors that should help those who deserve benefits get them. One such factor is a collective evaluation of co-morbid claims (physical and mental) looking at all of the medical conditions contributing to the disability, including medication side-effects. A second factor is a requirement that all independent medical examiners selected by the company be unbiased, financially disinterested, fully trained and skilled.

A third factor is a requirement that all in-house company physicians be skilled, trained and have all the insureds medical information in hand before rendering impairment findings. The fourth and final factor is a mandate that all claims personnel undergo rigorous training on the new claim objectives to ensure best claim practices with vigilant corporate monitoring and oversight.

In October 2005, UnumProvident reached a similar, more expansive agreement with the California Department of Insurance, which was performing its own examination into disability claims-handling practices and wanted further claim improvements.

The principal features of the California agreement include enhancements to UnumProvidents claims-

handling procedures and a reassessment of certain denied or closed claims. In addition, UnumProvident agreed to change certain claims practices and policy provisions specific to California.

Most importantly, the California agreement redefines total disability as the inability to perform with reasonable continuity the substantial and material acts necessary to pursue the insureds usual occupation in the usual and customary way. Any occupation total disability is the inability to engage with reasonable continuity in another occupation in which the insured could reasonably be expected to perform satisfactorily in light of his age, education, training, experience, station in life and taking into consideration his physical and mental capacity.

The agreement also eliminates policy language delegating discretionary authority to the insurance company to determine eligibility for benefits and to interpret policy language. This eliminates the deferential abuse of discretion standard of review in long-term ERISA preempted cases. UnumProvident also agreed to limit offsets in long-term disability cases, offsetting Social Security disability benefits actually received by the claimant (not estimated or due in the future). The company agreed to not exclude conditions contributed to or by the pre-existing condition, requiring the medical condition to have actually existed or been diagnosed prior to the effective date of coverage. It also applies the limitation after the termination of any physiological-based disability, discontinues the use of the self-reported condition limitation and makes rehabilitation provisions voluntary.

The California agreement not only benefits previously denied policyholders but also raises the legal bar to hold other carriers doing business in California to a higher good-faith standard. And that is good for consumers. With the industry leader stepping up to correct past problems and agreeing to consumer-friendly changes on a national basis, the rest of the disability carriers would be wise to follow. Any time an industry leader commits to bright-line, good-faith standards, the policyholder comes out on top.

The market is jittery, however, with concerns that the upcoming national election will impact consumer efforts to ban clauses that pre-empt coverage under ERISA