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Appeals Court Rules Against Unum in LTD Dispute

A unit of Unum Group abused its discretion and operated under a conflict of interest when it denied disability benefits to a cancer sufferer, a federal appeals court has ruled.

December 31, 2008
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A unit of Unum Group abused its discretion and operated under a conflict of interest when it denied disability benefits to a cancer sufferer, a federal appeals court has ruled.

The 2nd U.S. Circuit Court of Appeals’ December 24 ruling in John E. McCauley v. First Unum Life Insurance Co. stems from long-term disability coverage initially provided by Sotheby's Holdings Inc. for its employees.

McCauley was working as a senior VP for Sotheby's tax department in 1991 when he was diagnosed with advanced colon cancer, court records show. He eventually required intravenous chemotherapy treatments and surgeries while intermittently receiving short-term disability benefits. In 1994, McCauley notified Sotheby's that he could no longer work because of the effects of his cancer treatments, court records show.

In 1995, Unum Life, an underwriting unit of Chattanooga, Tennessee-based Unum Group, denied long-term disability benefits to McCauley under coverage provided by Sotheby's.

He then attempted to return to the workforce and took on new jobs at different companies, court records show. Unum in 1996 also denied long-term disability benefits to McCauley under conversion coverage he purchased when leaving Sotheby's.

McCauley sued Unum, claiming bad faith for denying coverage under both policies. But a U.S. District Court in New York granted summary judgment favoring Unum, finding that Unum’s actions were neither arbitrary nor capricious and thus were justified, court records state.

But the New York-based appeals court found that in light of a 2008 U.S. Supreme Court decision regarding plans governed by the Employee Retirement Income Security Act, Unum was operating under a conflict of interest. In Metropolitan Life Insurance Co. v. Wanda Glenn, the Supreme Court ruled in 2008 that lower courts should consider an insurer's potential conflict of interest when reviewing cases of employee benefit denial in which the insurer is both the claims administrator and the benefits payer.

The appeals court also found that "Unum deceptively indicated to McCauley that a medical professional assigned to review his records was a medical doctor when the individual was in fact a nurse, failed to obtain a physician’s recommendation, and mischaracterized its rationale for continuing to deny benefits."

Additionally, the appeals court cited past litigation in which Unum benefit denials were found to be unlawful. It also cited "60 Minutes" and "Dateline" news stories that found Unum's tactics to be unscrupulous.

The appeals court therefore reversed the trial court and found Unum's denial of benefits to McCauley both arbitrary and capricious.

"While ordinarily it would be appropriate for us to vacate and remand for further proceedings," the appeals court decision states, "there is not need to do so because the evidence in the record conclusively shows that McCauley is entitled to judgment as a matter of law."

Unum did not immediately return a call seeking comment.

Filed by Roberto Ceniceros of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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