Nasty Business

    "I was living the American dream," says the 54-year-old Davis. Then one day it all ended. That was the day at work when he suddenly got very dizzy. At first, he thought he’d feel better if he took time off. He’d return to his job with the product safety reporting section at the company and his life would go on. But that’s not what happened. His health got progressively worse until he lost the ability to read the medical records, legal papers and other government reports his job required. He was put on disability.

    What he didn’t know then--couldn’t have imagined--was that 12 years later he’d be fighting his former employer, now named GlaxoSmithKline after a merger, and the company’s disability insurer, UnumProvident Corp., for disability benefits that even his old company once agreed he had coming. Today, his income, mostly from Social Security, is less than half the roughly $50,000 a year he had earned. He was forced to sell his four-bedroom home in Philadelphia and move 240 miles away, to State College, Pennsylvania, where he lives with his wife and daughter in a three-bedroom condo.

    The story of Thomas P. Davis is one that every worker fears--and employers think they prepare for--but that often comes without a happy ending. After more than a decade of paperwork, lawyers, medical tests and heartache, his ordeal is far from over. Hundreds, possibly thousands, of lawsuits are said to be in the pipeline against Chattanooga-based UnumProvident, involving scores of injured workers like Davis. They allege that the long-term disability insurer wrongfully denied or terminated their benefits to boost profits. So far, workforce management executives have been watching closely from the sidelines. But employers may be drawn into the highly contentious and often emotionally charged legal battleground that is developing around UnumProvident, the nation’s largest disability insurer.

    Plaintiffs’ attorney Raymond Bourhis of San Francisco, who has handled several high-profile individual cases against the company, says class-action lawsuits alleging violations of the federal Employee Retirement Income Security Act may draw in employers like GlaxoSmithKline. "I predict there are going to be a huge number of lawsuits filed against employers, as well as insurance companies, alleging conspiracy and collusion to deprive ERISA-preempted workers’ protections under state law," Bourhis says. "For a long time, insurance companies probably told their clients you can’t be sued, don’t worry about it. I’ve got bad news. You can be sued and you should worry about it."

    Plaintiffs’ attorneys view class-action suits as an alternative to lawsuits filed by individual clients. Suits by individuals have resulted in headline-grabbing awards as high as $84 million, but they are an option only for the self-employed or professionals, such as physicians, who are not covered by group policies. Workers covered by group policies have little recourse because ERISA limits their legal rights, such as the right to a jury trial or compensatory or punitive damages allowed in cases brought by injured workers with individual policies. Lawyers shy away from defending workers covered by ERISA because they say the limited damages aren’t enough to compensate them for the time and expense each case takes. Class-action lawsuits, in which thousands of injured workers are represented in one suit, are a different matter.

    Still another developing source of lawsuits against UnumProvident alleges violations of the federal Racketeer Influenced and Corrupt Organizations Act. Davis is the lead plaintiff in a closely watched class-action suit alleging RICO violations such as illegally engaging in an enterprise to wrongfully terminate or deny benefits by using biased medical examinations and improperly handling paperwork favorable to the injured workers. GlaxoSmithKline is a defendant along with UnumProvident, but it is not accused of RICO violations and is being asked only to restore Davis’s benefits and pay him for the benefits he believes he should have received. Both parties have signed off on an agreement that could drop GlaxoSmithKline from the suit and pave the way for Davis to again begin receiving payments from the company.

    UnumProvident, formed four years ago by a merger between Provident Cos. and Unum Corp., is vigorously fighting the lawsuits. Referring to the class-action suit Davis is part of, Ralph Mohney, UnumProvident senior vice president, says, "We find the claim completely without merit and will defend our company as necessary."

    The company, which is an industry leader in group and individual disability coverage, says it litigates only a relative handful of the millions of claims it processes. Last year, the company says, it paid about 90 percent of 421,000 new disability claims, dispensing $3.7 billion to injured workers. "Less than half of 1 percent of all our new disability claims chose litigation to resolve differences with the company," Mohney said in a written response to questions.

    Still, UnumProvident in recent months has been on the losing end of several high-profile lawsuits. In April, a federal jury returned an $84.5 million judgment against the company--$79 million in punitive damages--finding that it had acted in bad faith in handling a claim by an Arizona cardiologist. That and other lawsuits have resulted in a tsunami of negative publicity. The company’s business practices were questioned on NBC’s Dateline and CBS’s 60 Minutes.

    The Georgia Department of Insurance levied a $1 million fine against the company and its subsidiaries in March, placed it on a two-year probation and clamped down on its claims-handling practices with a tight set of regulatory controls. "We found a corporate culture that disturbed us," said Georgia Insurance Commissioner John Oxendine in an interview with Workforce Management. UnumProvident and its subsidiaries admitted no violation of Georgia law or regulations. Several other states, including California, are reviewing company practices.

    Courtroom problems are only part of UnumProvident’s troubles. Since the merger, the bottom has fallen out of the company’s once strong stock, dropping it from $62 a share to recent prices in the $12-$14 range. Both Moody’s Investors Service and Standard & Poor’s downgraded its credit rating in recent months. In April, the company announced a financial-restructuring plan that included a reduction in its common stock dividend from 59 to 30 cents a share. It raised $1 billion to help shore up its balance sheet. The company also replaced top management, a move applauded by Oxendine. Despite the its problems, UnumProvident for the third year in a row was named one of America’s most admired companies by Fortune magazine.

    For workforce-management executives who are seeking good coverage for their employees, the question remains: Is UnumProvident the company you want to enlist to cover your employees? So far, it appears that the company has been able to ride out the storm. Andy Keowen, a principal consultant with Garner Consulting has been following these developments closely. He provides his large and small clients with regular updates. Only one of his 20 client companies plans to drop the disability insurer, he says. "The rest are saying we still like the product, we still like the pricing."

    For human resources, getting calls from destitute former employees who they thought were being taken care of is a nightmare. Keowen says employers agree that they have an important stake in an employee’s welfare, which is why they buy the insurance. "They say, I buy this so if I have an employee who is disabled, I don’t have to worry about their financial future." GlaxoSmithKline declined to comment on the pending class-action lawsuit involving Davis and other plaintiffs, other than to say through a spokeswoman that it expects to be removed from the case. The case was filed in U.S. District Court in Pennsylvania, and may be consolidated with a number of other class-action suits in Tennessee. As is true of some other suits filed against UnumProvident, Davis alleges that he had already begun receiving disability benefits--from two other insurers--when the monthly payments were cut off by UnumProvident.

    Davis suffers from a medical condition called labyrinth dysfunction, which causes balance and reading disabilities and requires medication that prevents him from working, the suit alleges. He says it began with an inner-ear infection that in turn led to other problems. The condition worsened until he could no longer read the detailed legal and government regulatory documents his job required. He has been disabled since 1991. Davis says GlaxoSmith-Kline urged him to take a disability retirement when various treatments failed. He received monthly income supplements from two other companies, first Prudential Insurance Company and then The Hartford, until 1999, when UnumProvident took over.

    "Enter Dante’s inferno," Davis says. In relatively short order, UnumProvident reviewed his case and stopped the checks. What’s worse, he says, the company argued that he owed $6,000 in overpayments made by Hartford. Davis appealed to GlaxoSmith-Kline for help, and the company stepped in and cleared up the overpayment problem. His checks began arriving once more. But UnumProvident moved in again and terminated him in February 2000. He says he was forced to sell his house and move to a town home in State College to reduce expenses. His daughter, a student at Penn State, had to leave her dorm room and move back home to save money.

    David M. Hoffman, Davis’s attorney, places most of the blame on UnumProvident and is working with GlaxoSmithKline to drop them from the lawsuit. "Tom Davis was paid for eight years by two prior administrators, and all of a sudden Unum comes in and cuts him off," says Hoffman, who is based in New Jersey. "Our only problem with Glaxo was they rubber-stamped the administrator."

    UnumProvident says it wins the majority of cases filed against it, but some of its losses have generated national headlines. The $84.5 million verdict, for example, was returned in favor of Dr. Joanne Ceimo, a Scottsdale, Arizona, cardiologist who suffered a disabling neck injury. The company is appealing.

    The Ceimo case was the largest since a Florida jury two years ago awarded $36.7 million to Dr. John Tedesco, an eye surgeon who was unable to perform surgery because of a hand tremor. UnumProvident subsidiary Paul Revere Life Insurance Co. paid the physician’s benefits for four months, but then dropped them. Later, his illness was diagnosed as Parkinson’s disease. After a subsequent appeal by the insurer, Dr. Tedesco reached a settlement with UnumProvident.

    In another widely publicized case, UnumProvident succeeded in reducing a $31.7 million damage verdict to $5 million on appeal after an eye surgeon claimed that the company fraudulently and maliciously stopped providing him with benefits after anxiety symptoms made it difficult for him to perform surgical operations.

    A disabled chiropractor, Joan Hangarter, was awarded $7.67 million against UnumProvident and its Paul Revere subsidiary in a case handled by Bourhis. Hangarter, a mother of two who practiced in Berkeley, California, suffers from a variety of medical conditions that cause severe pain in her right arm, elbow and neck. She is unable to perform her job. Hangarter began receiving total disability benefits in 1997 from Paul Revere, then had them cut off in what trial testimony showed was a prolonged effort by UnumProvident to terminate certain claims. After losing the disability payments that enabled her to support her family, the onetime $100,000-a-year earner was evicted from her house for nonpayment of rent, and began receiving food stamps and welfare payments. In upholding the jury award, U.S. District Judge James Larson said in a scathing 62-page ruling that UnumProvident had acted in bad faith and ordered the company "to obey the law."

    Plaintiffs’ attorneys involved in lawsuits against UnumProvident believe that disabled workers face the same problems under group policies as they do under individual policies, perhaps more so because limitations under ERISA mean the threat of punitive damages isn’t there. Bourhis is on a crusade to change the ERISA law. "Someone can wind up on welfare, lose their home, and they can’t be compensated beyond the benefits they were entitled to," he says. "If you do make a claim, and the insurance company says we won’t pay you, your sole remedy is to file suit in federal court for past benefits."

    Plaintiffs’ attorneys say they have uncovered documents showing that in a move to control costs, UnumProvident went from a claim-payment to a claim-management approach--an important distinction because of new emphasis placed on terminating claims. In one company memo from 1995, management calculated that for each 1 percent decrease in benefit costs, the company could save $6 million--and as much as $30 million to $60 million annually. The RICO-related allegations arise from arguments that incentives for both UnumProvident and employers to maintain low-cost disability policies deprive disabled workers of legitimate benefits.

    In its rejoinder, UnumProvident’s Mohney says that the savings mentioned in the memo were expected to flow from better claim evaluations and stepped-up efforts to get workers back on the job. Contrary to the allegations, Mohney says the savings were not expected to result from denying claims. The company also contends that the savings are in line with, or even lower than, savings reported by other companies as a result of more efficient management of disability claims.

    Davis, meanwhile, waits for a resolution of his case. Mostly it’s about the $1,500 a month that he believes he is owed by GlaxoSmithKline. He says he paid his share for the long-term disability policy and wants it honored. "That $1,500 may not sound like much to some people, but it was my home, it was living close to my family, my friends, and moving to an area that’s not a place I want to be."