UnumProvident reaches settlement for wrongful claims settlement practices

by Theo Francis November 18, 2004

UnumProvident Corp., a disability insurer long under fire from regulators and plaintiff attorneys for allegedly being tightfisted in handling claims, reached settlement agreements with state and federal regulators, agreeing to reassess 215,000 past cases and pay $15 million in fines.

The company said it would set aside $55 million to pay benefits in reassessed cases.

The agreement was reached with a group of state regulators led by Maine, Massachusetts and Tennessee. The pact requires approval by two-thirds of the regulators in 47 states and in the District of Columbia and American Samoa, which all coordinated their inquires. The U.S. Labor Department, also a party to the settlement, and the New York attorney general's office and insurance commissioner endorsed the settlement. Which would close their own Unum probes. The fines will be divided among the states.

UnumProvident said the inquiry "did not make any findings of violations of law or market conduct regulations" but "did identify areas of concern."

Regulators said these areas included over reliance on in-house medical staff when denying or reducing claims, interpreting medical reports 'unfairly"; overlooking elements of claims-filers health; and requiring policyholder to do too much to justify claims.

The regulators were investigating allegations that Unum, the largest U.S. disability-income insurer, and five subsidiaries improperly denied claims for group and individual long-term disability policies, which typically pay policy holders a regular sum if they are unable to work for protracted periods. The policies were sold to individual and to employers as part of their employee benefit programs. The subsidiaries are Provident Life & Accident Insurance Co., Unum Life Insurance Co., Paul Revere Life Insurance Co., and First Unum Life Insurance Co.

The inquiry, begun in September 2003, is unrelated to inquires into bid-rigging and improper broker fees in the insurance industry.

Unum has agreed to review 215,000 long-term disability claims that were denied or closed since the beginning of 2000. Unum is also required to restructure its claims-handling procedures, which have come under criticism from attorneys and judges involved in cases against the insurer. If Unum doesn't reverse its past decision on enough claims to satisfy regulators it will be subject to up to $145 million in addition penalties regulators said.

The company said it expects to record a $127 million pretax loss, or 29 cents a share after taxes, if the settlement is approved. That number comprises the $15 million fine, $27 million for reassessing claims and $85 million for benefit payments.

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