The Story Behind the Belief That UnumProvident's Claims Handling Practices Are Unfair

There has been much press and criticism of UnumProvident Corporation and its handling of disability claims. Broadcast programs “60 Minutes” and “NBC Dateline” have done reports, and many newspapers have written on the subject.

Pillsbury & Levinson, LLP, has handled many lawsuits against UnumProvident and has obtained one of the biggest judgments in the country against it for its handling of disability claims (Chapman v. UnumProvident Lawsuit ). Evidence in the Chapman v. UnumProvident case described a damaging picture of UnumProvident and its scheme to deny legitimate disability claims in order to meet financial goals.

Back in the 1980s, disability insurers, such as Provident, aggressively marketed and sold “own-occupation” policies, which insured individuals against disabilities from their own specific occupational specialties. As “preferred professional” policies, they commanded higher premiums, which could then be invested to earn substantial returns in an era of high interest rates.

Beginning in the 1990s, however, interest rates dropped, claims poured in and the insurers sustained heavy losses. Provident's losses were so severe that in December 1993, it took an extraordinary charge of $423 million to meet its anticipated future liabilities on claims arising from own-occupation policies, such as Dr. Chapman's.

At this time the CEO resigned and a new CEO, named Harold Chandler, was hired. Mr. Chandler came from a banking background and had essentially no background in insurance claims.

Looking back, Provident's senior vice president of risk management, Tom Heys, explained in a confidential memo that the problem was that Provident had sold policies without regard to the claims it would ultimately need to pay. He wrote:

The... 1980s were characterized by a highly competitive, growth-oriented market environment. Product provisions and underwriting were liberalized... as... competitors ... attempted to grow share. The product sold... can neither be canceled nor its price raised, covering the own occupation of the individual...

In hindsight, the policies sold during that period were poorly underwritten and underpriced. This was common among competitors, but Provident seems to have taken it a few steps further. Having won the market share battle and been very successful in certain high population states, such as California, Provident was slow to recognize deteriorating experience on this block of business. As other companies were tightening their offerings, many of the poor risks went to Provident.

In its amendment to its 1993 10-K financial report filed with the SEC, Provident explained that it underestimated its exposure on own-occupation policies, that it could no longer obtain high-investment returns on the premiums it collected and that one of the principal solutions was to “improve claim handling procedures.”

Heys described Provident's claims department as a "crisis atmosphere” due to the “continuing high level of new claims.”

According to documents and evidence submitted in court, beginning in 1994, Provident Life & Accident Insurance Company (before its merger), Paul Revere Life Insurance Company, UNUM Life Insurance Company of America, and others made a concerted effort to reverse staggering financial losses in the disability business by denying more claims.

Documents show Provident undertook a deliberate and intentional plan to lower its claim payments through the simple device of denying more claims. The engineer of this scheme was Provident's new senior vice president of claims, Ralph Mohney. Mohney readily admits that he had essentially no knowledge as to how to process a disability insurance claim. The primary skills he brought to his job were 25 years in various financial departments of Provident and a master's degree in business administration.

His first objective was to increase the number of claim “terminations.” Mohney measured the volume of terminations by the amount of reserves that Provident could eliminate from its books through claim terminations. In order to accomplish increased claim terminations, Mohney instituted numerous changes set forth in a ten-point “Claim Improvement Initiatives” memo.

Mohney had high expectations of the amount of money his initiatives could save the company. In a May 1995 memorandum to CEO Chandler, he reported that “we believe that aggregate improvements in the 5 percent to 10 percent ($30 million - $60 million annually) range are possible once the initiatives have been fully implemented.”

Mohney's superior, Heys, was also optimistic. He reported to CEO Chandler that ”we have a good chance of meeting our goal of $132 million of terminations for the quarter” and “terminations should be much stronger . . . We have a good shot at making goal, which is 10 percent above last year.”

Throughout the succeeding months and years, Mohney submitted regular reports to his superiors of his high success rate at denying more claims. His monthly reports described the results as “favorable,” “highly favorable,” “unfavorable” and the like, depending on the level of terminations. For example, a typical Mohney report read, “Claim results were highly favorable in October... Terminations reached $45.1 million, the highest level ever for non-scrub months and 9 percent above the average.” Another typical report read, “Claim resolutions of $43.6 million were…4 million (27 percent) above the average of the last four first months of the quarter.”

By 1998, Provident had successfully reversed its losses. It had become the biggest disability insurer in North America and was looking to get bigger. Provident's March 31, 1998, 10-Q extolled its rising profits and attributed them directly to Mohney's claims initiatives.

These various claims initiatives included:

• The increased use of surreptitious surveillance of insureds
• Increased use of supposed “independent medical examinations”
• The development of a “network” of IME physicians who specialized in “forensics” instead of physicians who had an actual clinical practice
• Increased scrutiny of psychiatric claims, which it considered “subjective”
• Direct targeting of psychiatric claims, claims from own occupation policies, California claims, and claims from physicians

Special units were created to handle specific claims. They were the psychiatric claims units, orthopedic claims units, cardiac claims units, cancer claims units and general medical claims units. These units were supposed to develop specialized techniques uniquely suited to the management of these types of claims. The members of each of these units were supposed to specialize in the specific types of injuries and sicknesses presented, but all too often the claims adjusters had no special training, education or experience at all. Instead, consultants were hired to supervise the claims people and in-house medical doctors were hired.

According to recent testimony and evidence in some cases, these consultants and medical advisors were trained to look for ways to deny claims. In fact, many of the in-house medical doctors actually have stock options that are tied to the profitability of the insurance company, thereby giving them an incentive to look for ways to deny claims.

Another part of Provident's initiative was to “sharpen [its] legal defense” (in other words, eliminate paper from the files) in cases with “bad faith/punitive liability in high exposure states,” such as California.

Provident did not want to spend too much money denying claims. Its goal was to limit the expenditure on claims to two percent of the amount of reserves the company saved through termination. One of the most effective tools used by Provident was its weekly “roundtable meeting,” an important part of "sharpening its legal defense" in bad faith states. Each claims adjuster was required to bring matters to the roundtable meeting. No agendas or notes exist as to what transpired during these meetings.

The roundtable meetings were intended to accomplish one purpose: the termination of an on-going disability claim. Dr. William Feist was on the medical staff of Provident for 14 years and, in 1995, he was its medical director. Part of his job was to sit in on the roundtable meetings once a week. Nearly all of the claims that came before the roundtable were claims in which the reserve amount was significant. Dr. Feist was shocked and appalled by what transpired at these roundtable meetings. There was no effort to fairly evaluate the cases. The sole and transparent object of these meetings was to find a way to terminate a claim.

In 1996, the net termination ratio goal was increased to 90 percent. In January 1998, Mohney reported that the termination ratio for 1997 had reached a whopping 104 percent.

Mohney changed from using the phrase “terminations” and began using the more palatable-sounding term, “resolutions.” They mean the same thing.

Provident acquired Paul Revere in 1997 and immediately began to implement the claims initiatives at Paul Revere's Worcester, Massachusetts, office. Provident trained Worcester medical personnel to deny claims. They were instructed how to “challenge certification,” in other words, how to disagree with a treating physician's certification that his patient was disabled. Even if they agreed with the treating physician's conclusion that an insured was disabled, they were not allowed to write that conclusion in the file. Instead, they were instructed to focus on whether appropriate treatment was being pursued and what the insured's prognosis might be for a return to work.

Provident immediately implemented various “performance measures” for the Worcester claims office, and began to monitor the number of IMEs, surveillance and roundtable reviews, as well as Mohney's key yardstick, the net termination ratio.

Provident sent one of its senior executives, Jeff McCall, to Worcester to oversee the psychiatric unit. One of McCall's first orders of business was to subject all new high exposure claims to roundtable review and to track the number and dollar amount of claims terminated due to roundtable discussion. The focus on bottom-line results sunk to new lows. Each adjuster in the psychiatric unit, for example, was required to submit what can only be described as a “hit list,” a running list of claims that were projected for closure in the coming months, together with the dollar amount of reserves held on those claims.

The initiatives were remarkably successful. In his March 23, 1998, report, Mohney reported that February's claim results in Worcester were “highly favorable” and “resolutions were up roughly $3 million above the 1997 average.”

In 1999, Provident merged with Unum Life Insurance Company to become UnumProvident, by far the largest disability insurer in the country. Ralph Mohney became the head of that claims department and instituted his culture of denying claims throughout the company.

Dr. Patrick McSharry was an in-house consultant hired to work in the claims department in the Chattanooga office. He reviewed claim files from throughout the country. In a deposition, Dr. McSharry described the company-wide practice of denying claims. Each unit had monthly and quarterly denial target numbers to meet. As the month or quarter drew to a close, there was intense pressure on the claims units to deny claims in order to meet these targets. Sometimes staff would be required to work on Saturdays in an attempt to get enough claims closed.

Dr. McSharry produced an example of a hit list of claims targeted for denial. Dr. McSharry explained that his role as an in-house medical consultant was to write reports in a particular manner that would permit the claims personnel to deny claims. Dr. McSharry was repeatedly criticized for expressing his actual opinion rather than the opinion preferred by the claims department.

In the case of Chapman v. UnumProvident, the trial testimony showed that UnumProvident still expects its claims officers to meet termination goals.