The 9th Circuit Federal Court of Appeals, in the case of Stephan v. Unum Life Insurance Company, 697 F.3d 917 (9th Cir. 2012) overturned a trial court’s finding that the public record did not demonstrate that UNUM had a history of “biased claims administration.” The Stephen Court specifically stated
“Numerous courts, including ours, have commented on Unum’s history “’of erroneous and arbitrary benefits denials, bad faith contract misinterpretations, and other unscrupulous tactics.’” Indeed, in Saffon, we attributed the trend of state prohibitions on discretionary provisions in insurance contracts to ‘the cupidity of one particular insurer, Unum-Provident Corp., which boosted its profits by repeatedly denying benefits claims it knew to be valid. Unum-Provident’s internal memos revealed that the company’s senior officers relied on ERISA’s deferential standard of review to avoid detection and liability.’”
The Stephan court also cited Professor Langbein’s article entitled, “Trust Law as Regulatory Law: The Unum/Provident Scandal and Judicial Review of Benefit Denials Under ERISA” 101 Nw. U. L. Rev. 1315, 1317-21 (2007) and the CSA (California Settlement Agreement) with UNUM in which the State of California found UNUM violating California’s Fair Claims Practices Act.
The importance of this finding that UNUM has a history of biased claims handling is that under ERISA, courts dealing with claims for benefits under an employee benefit plan (where the insurer is granted discretionary authority) must consider an insurer’s conflict of interest when weighing the evidence. One of the elements reflective of one’s conflict of interest is an insurer’s history of biased claims administration. (MetLife v. Glenn, 554 U.S. 105, 117 (2008)). It is very difficult to establish that an insurer has a history of biased claims administration. Claimant’s counsels spend an enormous amount of time and effort in trying to do so; however, their efforts are resisted not only by the insurance companies by also by the courts in their limiting of the availability of formal discovery in ERISA cases.
Claimants with lawsuits against UNUM now have the benefit of the Ninth Circuit declaring that the public record does indeed support a finding that UNUM has a history of biased claims administration. This should require the courts to place a greater importance on UNUM’S inherent conflict of interest that exists because UNUM, as the insurer and claims administrator, makes the decision on who receives benefits under the Plan and pays those benefits out of their own pockets.
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