A Deceptive Insurer Is Held Accountable

John McCauley applied for disability benefits through his employer’s insurance carrier, First Unum Life Insurance Company. First Unum denied the claim and when McCauley sued, the trial court, utilizing an arbitrary and capricious standard of review, upheld that denial. The appeals court reversed and granted McCauley benefits. Its decision, McCauley v. First Unum, decided a couple of days ago by the U.S. Court of Appeals for the Second Circuit, teaches many lessons.

First, the factual background for the case. McCauley was a senior vice president and director of Sotheby’s tax department when he was diagnosed with advanced colon cancer. Fortunately, an aggressive treatment regimen of extensive surgery and subsequent experimental chemotherapy saved his life. The downside was that he was left with significant residual impairments. He tried working at Sotheby’s and several other positions but could not handle the demands of a full time job, even one with sedentary physical requirements.

He applied for disability benefits but First Unum denied the claim, in large part because his physician simply filled out a form provided by First Unum that did not provide the doctor the opportunity to flesh out his relatively short and terse answers. Although McCauley could not carry out some strenuous physical activities, his physician made clear that McCauley could carry out some of the physical requirements of a sedentary job.

McCauley appealed First Unum’s denial and submitted a more detailed and complete statement of the nature of his limitations. He had chronic diarrhea which he had to work hard to control by carefully timing ingestion of food. Even so, his intestinal problems kept him from being fully functional. He had chronic and acute renal problems which caused blood in his urine and the formation of kidney stones every two weeks. During the time he was passing these stones he was unable to do anything. He had progressive vascular sclerosis as a result of the chemotherapy which resulted in severe chronic headaches. This caused an inability to focus eyesight and a lack of concentration. He had chronic insomnia that caused lethargy and required him to take naps during the day. He had near constant incisional pain which required the regular use of Percocet, an opiate.

First Unum was not persuaded by this more detailed information. A nurse at First Unum provided her conclusion to others in the company that the nurse felt this additional information did not constitute new medical information and that it was not verified by McCauley’s attending physician. First Unum then sent a letter to McCauley maintaining its denial. It stated that the information McCauley provided was not different than the information presented in his physician’s statement accompanying the initial request for benefits. The letter also represented that McCauley’s detailed statement had been reviewed by First Unum’s in house physician who concluded that McCauley’s restrictions and limitations did not prevent him from working. Finally, the letter did not inform McCauley that First Unum’s denial of McCauley’s appeal was based largely on the fact that the detailed statement McCauley submitted was not signed by a physician.

The trial court’s ruling in favor of First Unum was largely based on the deferential, "arbitrary and capricious" standard of review. The Second Circuit discussed the proper standard of review in light of MetLife v. Glenn, 128 S.Ct. 2343 (2008), decided after the trial court’s decision. The Second Circuit makes clear that, like all insurers acting both as payers of benefits and as ERISA fiduciaries administering plans, First Unum acted under an inherent conflict of interest that courts have to factor into a case by case evaluation of whether the insurer acted in an arbitrary and capricious manner in denying a claim.

In this particular case, the Second Circuit was particular irked by First Unum’s deceptive statements to McCauley in its response to his appeal. These "deceptions" included 1) the insurer’s assertion that the detailed statement McCauley provided to the insurer about his ailments and their effect on his activities of daily living were no different that what had initially been provided by McCauley, 2) its failure to tell McCauley that a primary reason for rejecting McCauley’s appeal was that the detailed statement was not verified by McCauley’s physician, 3) its refusal to consider and investigate the detailed information provided by McCauley, 4) its self-interested and selective reliance on the earlier, relatively incomplete, statement of McCauley’s physician’s statement of McCauley’s limitations in preference to McCauley’s later more detailed and complete statement, and 5) its statement to McCauley that First Unum’s physician had reviewed McCauley’s detailed statement and found it wanting as proof of disability.

Finally, the Second Circuit picked up on the language of Glenn that courts could properly consider whether an insurer has a history of biased claims administration. The Second Circuit was concerned with the fact that First Unum has a long and well-established history of "erroneous and arbitrary benefits denials, bad faith contract misinterpretation, and other unscrupulous tactics." This "well-documented history of abusive tactics" together with the absence of any evidence to show that the company had mended its ways was yet another factor that caused the Second Circuit to reverse the denial of benefits and order payment of the funds McCauley sought.

I’d like to report that insurer's cherry picking of information, misleading communications to claimants, willful disregard of information and plain refusal to acknowledge undisputed facts is unusual when insurance claims are filed. But in my experience, it is not unusual at all.

McCauley was fortunate to have one of the greatest plaintiff’s insurance lawyers of the last half century, Eugene Anderson, as his attorney. My hearty congratulations to Gene for his work in helping to get a just result for his client. But it’s sobering to realize that few individuals with wrongfully denied insurance claims will be able to find counsel as skilled and tenacious as Gene. And often the highest quality advocacy is necessary to successfully challenge an insurer’s wrongful denial of insurance claims.