Trust law as regulatory law: The Unum/Provident scandal and judicial review of benefit denials under ERISA

Northwestern University Law Review

Volumn 101, Issue 3, 2007, Pages 1315-1342

  Langbein, John H ^a  

^a YALE UNIVERSITY   (United States)

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EID: 34548255973     PISSN: 00293571     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (44)

1. Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001-1461 (2000).
2. In 2003, employers provided short-term disability insurance for 39% of the workforce, and long-term disability insurance for 30%, AMERICAN COUNCIL OF LIFE INSURERS, LIFE INSURERS FACT BOOK 101 (2005). ERISA-covered plans also provide most of the nation's health insurance. Presently, 91% of private health insurance in force in the United States is employer-provided.
3. see ECONOMIC REPORT OF THE PRESIDENT 86 (2006), although some of those sponsoring employers, notably governmental employers, are exempt from ERISA.
4. See ERISA § 4(b), 29 U.S.C. § 1003(b) (2000). ERISA plans also supply much of the nation's life insurance. By the end of 2004, there was $7.6 trillion of group life insurance in force, virtually all employer-provided, compared to $9.7 trillion of individually purchased coverage. AMERICAN COUNCIL OF LIFE INSURERS, supra, at 88,92.
5. ERISA covers all employee benefit plans as defined in ERISA § 3(3), 29 U.S.C. § 1002(3) (2000). See ERISA, § 4(a), 29 U.S.C. § 1003(a) (2000). This is true except for those excluded under ERISA § 4(b), 29 U.S.C. § 1003(b), most notably the plans of federal, state, and local government employers. See ERISA § 4(b)(1), 29 U.S.C. § 1003(b) (2000) (referencing ERISA § 3(32), 29 U.S.C. § 1002(32)).
6. 489 U.S. 101, 115 (1989), In the years since it was decided, Bruch has been the most frequently cited ERISA case. See JOHN H. LANGBEIN, SUSAN J. STABILE & BRUCE A. WOLK, PENSION AND EMPLOYEE BENEFIT LAW 657-58 (4th ed. 2006).
7. ERISA § 404(a)(1), 29 U.S.C. § 1104(a)(1) (2000) (discussed infra text accompanying notes 66-74).
8. Bruch v. Firestone Tire & Rubber Co., 828 F.2d 134, 144 (3d Cir. 1987), affd in part, rev'd in part, 489 U.S. 101(1989).
9. Bruch, 489 U.S. at 115.
10. Bernard Rudden, Book Review, 44 MOD. L. REV. 610, 610 (1981) (reviewing JOHN P. DAWSON, GIFTS AND PROMISES (1980)).
11. Portions of this account draw upon sources collected in LANGBEIN, STABILE & WOLK, supra note 4, at 669-74.
12. Unum Life Insurance Co. is the demutualized successor to the former Union Mutual Insurance Co. of Maine. Unum merged in 1999 with Provident Life & Accident Insurance Co., which in 1997 had acquired Paul Revere Life Insurance Co. See Steven Lipin & Leslie Seism, Provident Reaches Accord with Textron to Buy Paul Revere Unit for $1.2 Billion, WALL ST. J., Apr. 29, 1996, at A3;
13. see also Leslie Seism and Steven Lipin, Provident's Purchase of Paul Revere Signals Recovery, WALL ST. J., Apr. 30, 1996, at B4. "Unum" is sometimes rendered in upper case, but not in this Essay.
14. See Dean Foust, Disability Claim Denied!, BUSINESS WEEK, Dec. 22, 2003, at 62, 63. In 2006, Unum advertised that it was the "[c]hoice of nearly one of every four U.S. employers who offer group disability insurance coverage providing income protection disability insurance to more than 11 million American workers." UnumProvident.com, About Us-UnumProvident, http://www.unumprovident.com/aboutus (last visited Feb. 26, 2006) [hereinafter About Us - UnumProvident]. The larger figure entioned in the text includes individual and other non-employer-provided policies, reflecting the decline in Unum's business that has resulted from publicity about the investigations and proceedings against the company.
15. Unum advertises that it processed 450,000 new disability claims in 2004 and paid $ 2.4 billion in disability benefits. About Us-UnumProvident, supra note 11.
16. The reported case law is surveyed in STEVEN PLITT ET AL., COUCH ON INSURANCE chs. 147-48 (3ded. 1995 & Supps.).
17. See, e.g., Shyman v. Unum Life Ins. Co., 427 F.3d 452, 456 (7th Cir. 2005) (discussing an insured who claimed to be totally disabled and bedridden on account of headaches, but who "continued to trade soybean contracts (both on the floor at the Board of Trade and electronically from his home)," and was observed coaching basketball and baseball, exercising on a treadmill, and driving his children to and from school). When insurance is provided under ERISA plans, "plan administrators have a duty to all plan participants and beneficiaries to investigate claims and make sure to avoid paying benefits to claimants who are not entitled to receive them." Davis v. Unum Life Ins. Co., 444 F.3d 569, 575 (7th Cir. 2006).
18. Disability insurers commonly limit an insured's disability coverage to a sum well short of his or her full salary. See Hall v. Life Ins. Co. of N. Am., 317 F.3d 773, 775 (7th Cir. 2003) ("People who know that their full income will continue after they stop working may take more risks in their daily lives and will not try as hard to return to work after injury or illness . . . ."). Sales practices, claims processing, and underwriting issues in the disability insurance industry are discussed in CHARLES E. SOULE, DISABILITY INCOME INSURANCE: THE UNIQUE RISK (5th ed. 2002).
19. See Foust, supra note 11, at 64.
20. Dateline: Benefit of the Doubt (NBC television broadcast, Oct. 13, 2002) (transcript on file with author).
21. Minutes: Did Insurer Cheat Disabled Clients? (CBS television broadcast, Nov. 17, 2002) (transcript on file with author).
22. Id.
23. See Dateline, supra note 17.
24. McSharry v. UnumProvident Corp., 237 F. Supp. 2d 875, 877 (E.D. Tenn. 2002).
25. See John H. Langbein, What ERISA Means by "Equitable ": The Supreme Court's Trail of Error in Russell, Mertens, and Great-West, 103 COLUM. L. REV. 1317, 1346-48 (2003) [hereinafter Langbein, Trail].
26. See Foust, supra note 11, at 63.
27. Hangarter v. Paul Revere Life Ins. Co., 236 F. Supp. 2d 1069, 1082 (N.D. Cal. 2002), aff'd, 373 F.3d 998 (9th Cir. 2004). Counsel for the plaintiff has written a book about his experiences in the case. See RAY BOURHIS, INSULT TO INJURY: INSURANCE, FRAUD, AND THE BIG BUSINESS OF BAD FAITH (2005).
28. Moon v. UNUM Provident Corp., 405 F.3d 373, 381 (6th Cir. 2005).
29. Lain v. UNUM Life Ins. Co., 279 F.3d 337, 347 (5th Cir. 2002).
30. Stup v. UNUM Life Ins. Co. of Am., 390 F.3d 301, 310 (4th Cir. 2004).
31. Dandurand v. UNUM Life Ins. Co. of Am., 284 F.3d 331, 338 (1st Cir. 2002).
32. Watson v, UnumProvident Corp., 185 F. Supp. 2d 579, 585 (D. Md. 2002).
33. Radford Trust v. First Unum Life Ins. Co., 321 F. Supp. 2d 226, 247 (D. Mass. 2004).
34. Id.
35. Mike Pare, $1 Million Fine Hits Unum, CHATTANOOGA TIMES FREE PRESS, Mar. 19, 2003, at C1.
36. See Maine Bureau of Insurance, Report of the Targeted Multistate Market Conduct Examination, http://www.maine.gov/pfr/insurance/unum/ Unum_Multistate_ExamReport.htm (last visited Mar. 7, 2007).
37. See Diya Gullapalli, UnumProvident Is Set to Pay $8 Million Penalty in California, WALL ST. J., Oct. 3, 2005, at C3. Unum also agreed to pay nearly $600,000 to cover the costs of the California Department's investigation. Unum will review benefit denials as far back as 1997, under the oversight of an independent consultant assigned by the Department. Id. For the full text of the agreement, see "Cal. Settlement Agreement," In re Certificates of Authority of Unum Life Insurance Co., etc., Nos. DISP05045984-85 (Oct. 2005) [hereinafter Cal. Settlement Agreement] (copy on file with author).
38. Peter G. Gosselin, State Fines Insurer, Orders Reforms in Disability Cases, L.A. TIMES, Oct. 3, 2005, at A1, A12.
39. Jonathan R. Laing, The $675 Million Solution, BARRON'S, May 1, 2006, at 22.
40. Memorandum from Jeff McCall to IDC Management Group & Glenn Feiton, Provident Internal Memorandum, Re: ERISA (Oct. 2, 1995) [hereinafter Unum ERISA Memorandum], reprinted in BOURHIS, supra note 24, at 225.
41. Id.
42. Id. In a series of 5-4 decisions, the Supreme Court has interpreted ERISA to permit recovery only of "benefits due," and to preclude both compensatory and punitive damages. Great-West Life Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002);
43. Mertens v. Hewitt Assoes., 508 U.S. 248 (1993); Mass. Mutual Life Ins. Co. v. Russell, 473 U.S. 134 (1985) (unanimous decision but with dicta regarding remedy that provoked opposing concurrence, dividing the Court 5-4). I have elsewhere explained why the Court's refusal to allow compensatory "make whole" damages misreads the statute. See Langbein, Trail, supra note 22.
44. Unum ERISA Memorandum, supra note 37. The document continues with a wink: "While our objective is to pay all valid claims and deny invalid claims, there are gray areas, and ERISA applicability may influence our course of action." Id.