Disability in Dispute

The pain shot from court reporter Susan McGregor's fingertips to her shoulder

muscles. Years of rapid fire stenotyping were taking their toll as she recovered every

word spoken in a Francisco courtroom.

She was glad she'd bought a disability insurance policy to cover her severe

repetitive stress injuries - until her underwrite denied her claim.

Sharing McGregor's discomfort are plaintiffs nationwide who assert there afflictions

are aggravated by disability insurers that cut claims through unfair benefit denials and

improper reliance on federal preemption of state consumer-protection laws.

The insurance industry retorts that it must defend its rights by policing policyholders

who exaggerate their ailments.

"We have an enviable record that we're proud of," said Chris Collins, the deputy

general counsel for UnumProvident Corp. od Chattanooga, Tenn., the nation's

biggest disability insurer. "We're not perfect. This company is constantly being self-

critical and trying to improve."

Now, a pair of federal cases could reform the ground rules for handling claims in

health insurance disputes.

A 9th US Circuit Court of Appeals decision handed down Jan. 15 affirmed

McGregor's $1.2 million federal jury award against UnumProvident over her claim

denial. The appellate panel including language in its opinion that may make it harder

for insurers to withhold benefits in other cases, according to McGregor's attorney,

Ray Bourhis. McGregor v. Paul Revere Life Insurance Co., 2004 U.S App. Lexis 730.

A second case, set for oral argument March 23 before the U.S. Supreme Court,

includes San Francisco lawyer Arnold R. Levinson's amicus plea to revoke the insurance

industry's immunity from state regulation under a federal pension law. Aetna Health

Inc v. Davila, 02-1845. (See related story)

In 1987, the Supreme Court interpreted the law, the Employee Retirement Income

Security Act, or ERISA, to limit plaintiffs' recovery in coverage-denial cases to the sum

they should gave gotten under an existing policy. That excluded state statutes

allowing bad-faith and attorney-fee claims, lowering the cases' value to the point

where most could not be litigated, because the award wouldn't pay attorney fees.

When ERISA fails to shield insurers, they sometimes dispute the meaning of "total"

disability. That's what happened in Susan McGergor's case.

Bourhis, of San Francisco's Ray Bourhis, intends to use his McGregor win in

representing Los Angeles orthopedic surgeon Alan M. Gross. UnumProvident denies

Gross' disability claims in 2003 despite his diabetes-related incapacity to wield a

scalpel.

Bourhis is one of UnumProvident's several critics. He blasts the company as "a ruthless,

lawless S.O.B., the biggest bully around," a corporate wrongdoer that methodically

boosts its bottom line by withholding benefits from clearly disabled clients.

Collins said Bourhis is off base.

"The notion that we have a systematic method to deny claims is hogwash," he said in

a telephone interview. "It makes for good closing arguments, but it's not true."

Even so, UnumProvident agreed Feb. 19 to pay $100,000 to its fired medical director,

Patrick McSharry, to settle his federal lawsuit accusing the company of routinely

denying legitimate claims. UnumProvident's medical advisers were expected to "

provide language and conclusions"to support the denials, the suit said.

Also, in march 2003 the Georgia Department of Insurance fined UnumProvident $1

million and put the company on probation for two years over its claims-handling

practices. The state's insurance commissioner, John Oxendine, said UnumProvident

sought "just about every technical legal way to avoid paying a claim."

And more then 40 states are engaged in a coordinated investigation of the way

UnumProvident handles claims, Collins confirmed. The company is cooperating fully

with the probe, he said. UnumProvident, which in 2002 had 25 million customers and $9.6 billion in revenues,

says its processes about 400,000 claims each year and pays out about $4.8 billion

annually.

"The number we deny is miniscule, around 2 percent," Collins said, adding that only

about 0.5 percent end in litigation.

McGregor's was one of them. Her lawsuit against UnumProvident concluded where

it began: in a courtroom.

She'd sit at her steno machine in the well of the court, the throbbing in her arms

stinging so bad she couldn't help crying as she typed. Turning her face so Superior

Court Judge Alfred G. Chiantelli wouldn't see. At night McGregor's husband

wrapped her wrists in elastic bandages. Her doctor prescribed stronger painkillers,

then fitted braces to her forearms.

"It was real agony," she said.

The splints slowed her typing speed until she couldn't keep pace with fast talking

lawyers. McGregor reluctantly ended an 18-year career transcribing complex

medical jargon in asbestos cases, emotional testimony in criminal trials and the

impassioned dialogue of settlement talks.

Luckily, she thought, she'd paid $1,000 a year for almost two decades for an

occupational disability insurance policy. Paul Revere Life Insurance Co. at first

agreed she was a disabled and began paying her $1,800 a month. The welcome

checks kept coming for four and a half years.

The checks stopped soon after UnumProvident acquired Paul Revere in 1996. The

company suddenly ended the payouts and disputed the extent of her disability,

contending she was not totally disabled because she could still perform one of the

important duties of her job: proofreading other court reporters' work, a task called

scoping.

That's a ploy UnumProvident uses to cut claims in a lot of cases, according to Bourhis.

"This company has a bag or tricks to terminate benefits to policyholders," Bourhis said

last week. " A favorite is to redefine your occupation and your duties within the job.

They'll say, 'You're not actually disabled because you can still perform one of the

important duties of your job.' It's a cockamamie reasoning, and courts are rejecting

it."

Collins, the UnumProvident house counsel, said the cases often turn on the degree of

disability suffered by the frequently involve separate state Supreme Court decisions

on two types of disability insurance.

In total disability policies, an insured can collect benefits only when unable to

perform all the important duties of an occupation, as explained in Erreca v. Western

States Life Insurance Co., 19 Cal. 2d 388 (1942).

Policies that cover total and partial disabilities, by contrast, require claimants to

demonstrate whether they can no longer perform my part of their occupation or

whether they are unable to do "one or more important daily duties" of their jobs.

Dietlin v. General American Life Insurance Co., 4 Cal. 2d 336 (1935)

"There's a big distinction there," Collins said. "Modern day disability policies provide

both total and partial benefits.

So courts often are left to decide whether claimants are totally or partially disabled.

Too often, judges and juries find claimants have suffered total disability when in truth

they have only a limited handicap. Collins said.

"I don't know what it is about the jurisprudence out there in California,"he said,

complaining that courts tend to rely on Erreca and ignore Dietlin, to the

disadvantage of insurers. "It could be the persuasiveness of the plaintiffs bar."

McGregor sued her insurer in 1997. The court reporter had her own day in court as

she sought to refute UnumProvident's assertion that her acknowledged ability to

proofread left her eligible at most for partial disability payments.

UnumProvident's claims-denial logic brought a horselaugh from Chiantelli, who

testified for McGregor at her federal jury trial.

"The defense asked me on cross-examination if the fact she could scope didn't mean

she was able to do her work," the retired judge recalled last week from his offices at

ADR Services in San Francisco."I said, 'If Chopin had broken fingers, he could still read

music, but he couldn't play the piano' "

A unanimous jury awarded McGregor about $450,000 for the past and future

value of her policy and about $616,000 for a bad-faith claim linked to the coverage

denial.

"Everybody knows what a court reporter is," Bourhis said following the trial. "The

argument that because someone can proofread they're not disabled is neither a

persuasive or convincing argument to an objective person. who are they kidding?"

The circuit panel agreed with the jury and upheld the award in a 2-1 unpublished

decision Jan 15.

The decision cited Erreca to show that McGregor must be unable to perform all of

her important occupational duties in order to recieve benefits.

"The parties dispute whether McGregor's inability to stenotype rendered her unable

to perform all of the 'important duties' of a court reporter," wrote Judges Proctor Hug

Jr. and Betty B. Fletcher in a memorandum opinions. "We conclude that it does - a

person who cannot stenotype cannot work as a court reporter."

They added: "McGregor offered substantial evidence for the jury to find that there

was no genuine coverage dispute and that Paul Revere denied McGregor's benefits

unreasonably."

Indeed, the appellate judges pointed out, things could have gone worse for

approval the words of District Judge Pyllis J. Hamilton of San Francisco, discussing the

jury's decision not to award punitives:

"Viewing the evidence in plaintiff's favor, a reasonable jury could find clear and

convincing evidence that Paul Revere's stated rationale for terminating the benefits

was false, and that to this day it has yet to explain the reasons it terminated benefits,

in other words, a reasonable jury could find either the required fraud or malice

necessary to award punitive damages."

The dissenting panelist, A. Wallace Tashima, agreed with that language but differed

over the details of figuring the future benefits award. The circuit denied UnumProvidents petition

for review Feb. 19, Collins said there will

be no further appeal.

"That ends the case," he said.

Maybe not, Bourhis and McGregor think. They hope the McGregor ruling will live on,

adding ammunition to plaintiffs arguments in other cases. McGregor, who has waited

eight years for her $1.2 million, smiles at the prospect.

"It brings me great glee to think that I not only have my own case to beat those

bastards over the head with. But that the result could be so much more far-reaching,"

she said.

"I hope [Bourhis] tries to do it," Collins said, disputing the notion that McGregor will be

useful to the other plaintiffs. "Bourhis would read these policies so that if you can't do

one [element of your occupation], you're totally disabled."

Unpublished opinions ordinarily have small value as case law, because they cannot

be cited as precedent governing other cases except under limited circumstances.

But Bourhis is enthusiastic about this one. Circuit rule 36-3 allows unpublished opinions

to be cited for factual purposes such as "notice." Bourhis said he believes that gives

him the right to use this opinion in other cases as evidence that disability denials

based on a disabled policyholder's remaining functionality won't fly.

Bourhis hopes the opinion will persuade District Judge Stephen V. Wilson of Los

Angeles to change his mind in the case of Gross, an orthopedic surgeon who had to

end his operating room career because of eye problems and numbness in his hands

and feet.

The doctor claims he's covered because he bought a policy as an orthopedic

surgeon and he can no longer perform surgery.

The judge in November issued a partial ruling for UnumProvident, defining total

disability as an plaintiff's inability to perform all the important duties of his job - and

extending the scope of his occupation beyond surgery. Gross v. UnumProvident, CV

03-4335SVW.

Yet to be litigated is whether Gross fits the definition fits the definition.

UnumProvident insists that Gross still earns a substantial income running a successful

orthopedic practice. The judge held Gross "is not totally disabled solely by virtue of his

inability to perform surgeries" but has yet to decide how far his policy covers him.

Collins said the judge's view is sound. "The court decision in Gross is a much stronger

indication of where the law is going in California" than the unpublished McGregor

holding, he said.

Bourhis stands his ground.

"Unum is between a rock and a hard place," he said. "Either they insured Dr.Gross as

an orthopedic surgeon or they sold him a bill of goods, and now they're running off

to court to try to reinterpret what the contract says. If the policy doesn't mean what it

says, you may not have bad faith. You have fraud"