'Outlaw' Carrier Cuts Losses in Cali

Insurer agrees to $8 million fine for its disability practices.

By Anne Freedman

UnumProvident agreed to pay an $8 million fine levied by the California Department of Insurance to settle allegations the insurer unfairly denied disability benefits to thousands of policyholders.

"UnumProvident is an outlaw company," said California Insurance Commissioner John Garamendi. "It is a company that for years has operated in an illegal fashion. Our settlement is designed to make it a poster child of a legal company."

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The department began investigating unfair claims-settlement practices by the Chattanooga, Tenn.-based company in 2003, uncovering more than 25 business practices that violated California law, according to Garamendi.

The violations included knowingly applying the "wrong definition of total disability" in its claims-handling; selectively and inappropriately using independent medical examinations and other medical information to the company's own advantage; and mischaracterizing certain nonsedentary nursing occupations as sedentary, which required policyholders to find "sedentary nursing work" instead of receiving benefits.

In response to the settlement and in a letter to Garamendi, Thomas R. Watjen, president and CEO of UnumProvident, said the disputed claims-handling practices occurred from Jan. 1, 2000, to June 30, 2003, and that since that time, UnumProvident "has undertaken a broad range of procedural and organizational changes designed to improve the quality of its claims decisions" and has enhanced communications and "reaffirmed its commitment to fair and efficient handling of claims for its policyholders."

Watjen said he disagreed with "much of the exam report (but) we felt it was important to eliminate the uncertainty this ongoing exam creates with customers, employees and investors by entering into a settlement."

As part of the settlement, UnumProvident agreed to change certain practices and policy provisions related to its California business, and incorporate claims-handling practices previously covered by a multistate agreement reached in 2004 with 48 other states.

The 48-state settlement included a $15 million fine, according to Garamendi, who said he declined to opt into that settlement, preferring to craft "consumer protections consistent with California law."

March 1, 2006

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