Insurance Commissioner John Garamendi recently announced a landmark settlement with UnumProvident Corporation that will significantly improve consumer protection and profoundly impact how disability policies are handled in California - and possibly the nation.
The deal requires the nation's largest disability insurers, Unum Life, Provident Life & Accident, and Paul Revere, to pay an $8 million fine, the largest levied in the Department's history. The agreement settles a dispute over thousands of claims by California policyholders who were unfairly denied benefits. UnumProvident will change its policy language and claims handling procedures in dealing with those disputed claims, and all future claims.
Declaring that all disability insurers doing business in California will eventually be required to adhere to the standards set in the UnumProvident agreement, Commissioner Garamendi announced the settlement at the Glendale Adventist Medical Center's Therapy and Wellness Center near Los Angeles.
This is a new day for policyholders whose disability insurance claims have been wrongly denied by insurance companies,said the Commissioner. "I am making it clear today that policies sold in California will deliver what they promise. In this state, insurers will live up to their end of the bargain."
The case stems from an exhaustive Department investigation begun in 2003 into allegations of unfair claims settlement practices by the Tennessee-based UnumProvident. The investigation uncovered more than 25 business practices that violated California law, including:
• Knowingly applying the wrong definition of total disability in claims handling;
• Selectively and inappropriately using independent medical exams and other medical information to the company's own advantage;
• Mischaracterizing certain non-sedentary nursing occupations as sedentary, which required policyholders to find sedentary nursing work instead of receiving the disability benefits to which they were entitled
Last year, UnumProvident signed a settlement with 48 other states over some of the same practices, in addition to paying a fine of $15 million. Commissioner Garamendi declined to sign that agreement, working instead to seek further consumer protections consistent with California law.
The Commissioner noted that many of the provisions of this agreement will eventually apply to all other disability insurers operating in the California market. Today's action goes beyond UnumProvident, he said. "California's disability insurers now have a new standard, one that will provide a better sense of security for policyholders, which is what disability insurance is really all about."
To ensure that all insurers are in compliance with the standards set by the agreement, Commissioner Garamendi will soon commence a data call for purposes of reviewing all outstanding policies of other carriers writing disability insurance in California.
The terms of the agreement with UnumProvident will apply to California claimants who were denied benefits between January 1, 1997 and September 30, 2005. They are eligible to have their claims reassessed, and if necessary are entitled to a review of the reassessment by an independent expert.
Important aspects of the settlement include:
• California claimants who opted in under the multistate settlement will be reassessed under California settlement standards;
• A higher standard must be met for the insurer to reject a claimant's doctor's opinion on disability, and the reasons must be documented in claim files;
• Claimants or their doctors may request an independent medical examination;
• All other claims handling changes implemented in the multistate settlement are incorporated within the California settlement.