Judge Steele of the District Court for the Middle District of Florida issued a significant decision on February 17, 2022, definitively shutting down Unum’s attempt to force application of the Employee Retirement Income Security Act (“ERISA”) to the individual disability policies of a Florida physician.1
In Allen v. Unum, the disability insurer’s argument for preemption of Dr. Allen’s state law breach of contract claims revolved around an unfounded allegation that originated from a premium bill. Unum alleged that just because Dr. Allen and other physicians in his practice purchased individual policies from Unum affiliate Provident Life and Casualty Insurance Company that were charged on the same bill but paid separately and personally, an ERISA plan existed. The Court found that there was no evidence whatsoever that the physicians’ medical group had any involvement with these individual policies, an important prerequisite for ERISA preemption.2 In this and other cases, Unum has unsuccessfully argued that such a list bill, coupled with vague language Unum inserted into the individual policies concerning a “salary allotment agreement,” caused claims to be preempted by ERISA.3
ERISA was initially envisioned to protect employees under employer-sponsored health and pension plans from unscrupulous employers wasting their precious contributions. The federal statutory scheme applies to employer-paid group disability plans. However, no place in the statute references its application to an individually purchased disability policy.
Since it was enacted in 1974, ERISA federal common law has largely developed in favor of the disability insurance defense bar, a sword used handily to limit and often eliminate insurer clients’ liability under these valuable policies. There are no jury trials allowed under ERISA. Generally, there are no bench trials because the litigated matters are resolved by one federal judge on a paper record created by the insurer. In most federal jurisdictions, the courts are required to defer to the insurer’s decision-making process if the decision is based on something that can reasonably be pointed to in the record. By and large, ERISA litigations are resolved in favor of insurance companies.
Like a flat stone skipped across a pond, the Allen decision will cause a significant ripple effect to Unum’s litigation strategy of reducing its insureds’ recoveries for breach of contract by stripping away policyholder rights under individual disability policies. Coined “own occupation” insurance, in the 1980s, high-income-earning professionals purchased these Cadillac insurance coverages to protect their income should they lose the ability to work in their chosen occupation. They did not bargain Unum would find ways not to pay should they file a claim. These strategies were creative for Unum but costly for their insureds.
Citing to a 1995 Memo issued by Unum affiliate, Provident Life and Casualty Insurance Company, the Florida Federal Court in Allen acknowledged that Unum’s management employed a strategy to amend its individual policy forms to finagle ERISA governance of individual claims.4 The Provident Memo provides, “[t]he advantages of ERISA coverage in litigious situations are enormous… State law is preempted by federal law, there are no jury trials, there are no compensatory or punitive damages, relief is usually limited to the amount of benefit in question, and claims administrators may receive a deferential standard of review.”5 The Memo’s author also highlighted the following: “The economic impact on Provident from having policies covered by ERISA could be significant. As an example, Glenn Felton identified 12 claim situations where [Provident] settled for $7.8 million in the aggregate. If these 12 cases had been covered by ERISA, our liability would have been between zero and $.5 million.” The content of this Memo is shocking, and borders on criminality when considering the duty of good faith and fair dealing insurers owe to their insureds. Yet twenty-seven years later, Unum persists in employing unfair tactics to extract itself from contractual promises to its insureds.
While Unum’s litigation strategy has often succeeded, the disability insurance giant is no stranger to bad faith verdicts for its unscrupulous tactics. In 2001, a Florida ophthalmologist, John Tedesco, obtained a $36.7 million bad faith verdict against Unum for its unfair claims tactics.6 The following year, a jury awarded California chiropractor Joan Hangarter, $7.7 million against Unum for bad faith claims handling.7 In 2003, a California ophthalmologic surgeon, Randall Chapman, prevailed over Unum and received a jury award of $31.7 million.8 The next year, in a case that was tried and re-tried, a Nevada jury awarded venture capitalist, G. Clinton Merrick, $60 million for Unum’s bad faith claims tactics.9
Under Florida law, aggrieved insureds may seek extra-contractual damages including attorneys’ fees and punitive damages in first-party bad faith actions if a jury determines the insurer acted willfully and maliciously in disregard of the rights of the insured.10
Individuals filing disability claims with Unum under “own occupation” policies should beware of these tactics. Eve-Lynn Gisonni of Saxe, Doernberger & Vita, P.C., with offices in Florida, is a member of the litigation team representing Dr. Allen. If you have questions about “own occupation” disability insurance or denied disability claims, contact Eve-Lynn at firstname.lastname@example.org or call 203. 287.2158.
1Allen v. First Unum Life Ins. Co., et al., No. 2:18-cv-00069, 2022 WL 485223 (M.D. Fla. February 17, 2022).
2Allen, No. 2:18-cv-00069, 2022 WL 485223, at *18, FN 10.
3Rosen v. Provident Life and Casualty Ins. Co., No. 2:14-cv-0922, 2014 WL 260839 (N.D. Ala. January 21, 2015); Schwartz v. Provident Life and Accident Ins. Co., 280 F. Supp.2d 937 (D. Ariz. 2003).
4Allen, No. 2:18-cv-00069, 2022 WL 485223, at *8.
5Langbein, John H., Trust Law as Regulatory Law: The Unum/Provident Scandal and Judicial Review of Benefit Denials Under ERISA, 101 NW. U.L. REV. 1315, 1321 (2007); Flagg v. Ali-Med, Inc., 728 F. Supp. 2d 1, 7, n.3 (D. Mass. 2010), citing, 26 HOFSTRA LAB. & EMP. L.J. 387, 389, n. 14 (2008), citing, Memorandum from Jeff McCall to IDC Mgmt. Group & Glenn Felton (Oct. 2, 1995).
6Tedesco v. Paul Revere Life Ins. Co., Docket No. 8:99-cv-02552 (M.D. Fla. May 25, 2001).
7Hangarter v. Paul Revere Life Ins. Co., 289 F.Supp.2d 1105 (N.D. Cal. 2003).
8Chapman v. UnumProvident Corp., Docket No. CV-013434, California Superior Court, Marin County, (2003).
9Merrick v. Paul Revere Life Ins. Co., 594 F. Supp.2d 1168 (D. Nev. 2008).
10Florida Statute §624.155 (4) & (5).