By Russell Mokhiber and Robert Weissman
June 13, 2005
You are a corporation.
You are the largest disability insurance company in the world.
Your big money is selling to independent professionals.
If they can't work, their livelihood is at stake.
They pay you big premiums.
In return, if they are disabled, you pay them a good chunk of money a year to help pay their bills.
You get about 120,000 claims a year.
You know that insurance regulation is very weak.
There is no federal regulation.
The industry took care of that 60 years ago when it pushed through Congress the McCarran-Ferguson Act, which outlawed federal regulation of insurance.
State regulation of insurance ranges from spotty to non-existent.
The only effective deterrence to wrongdoing of any kind are a handful of lawyers who specialize in suing insurance companies for bad faith insurance.
Bad faith insurance is where an insurance company decides to wrongfully deny legitimate claims.
Knowing all of this, you decide to deny 2,000 legitimate claims a year.
This brings you in an additional $1 billion a year in profits.
Ray Bourhis has built a million dollar legal practice suing UnumProvident, the nation's largest disability insurance company, alleging that it operates its business in bad faith.
Bourhis has been suing UnumProvident in courtrooms around the country, claiming that the company engaged in exactly this practice -- denying thousands of legitimate claims a year, knowing that it would get away with most of it.
His litigation practice has made him a millionaire.
But he doesn't like what he sees and he wants someone to put a stop to it.
So, he approached New York Attorney General Eliot Spitzer.
And he turned over internal memos, deposition transcripts, trial transcripts, court opinions, rulings -- everything he had.
He mapped out the case against the Chattanooga, Tennessee-based giant.
He wanted Spitzer to threaten the company with criminal prosecution unless it cleaned house and changed its practice.
Instead, in October 2004, Spitzer announced that UnumProvident would pay a $15 million fine to settle accusations that the company had inappropriately denied claims for benefits.
At the time, Spitzer said that the settlement "sends a strong message to disability insurance companies that improper denials of disability claims will not be tolerated."
Bourhis says Spitzer is full of it.
"Spitzer left his balls in the parking lot," Bourhis told us. "He fined the company $15 million -- which is like fining you and me 45 cents. It is totally ridiculous. It sounds good for the press release, but it is B.S. This is a multi-billion company and they have billions at stake. If you ask a company that has financial inducements in the hundreds of millions and possibly billions of dollars and you fine them $15 million -- that's like paying your monthly phone bill, or your rent, or taking out advertising -- it's a cost of doing business. It is not going to have any deterrent effect whatsoever -- none, zero, nada. It's B.S. It is a B.S. fine."
There is little doubt that Spitzer is the toughest state attorney general in the nation on corporate crime. But Bourhis delivers a powerful criticism. Spitzer's office declined to respond to request for comment.
The settlement with Spitzer requires the company "to reassess approximately 200,000 claims that previously had been denied."
But Bourhis says by allowing the company to investigate itself, "Spitzer is handing to the company on a silver platter the opportunity to say -- we reviewed these claims and find that most of them are correct -- and then everybody will say -- okay, most of them were correct."
Bourhis says that UnumProvident has to deny only 2,000 claims a year to rip off a cool $1 billion a year.
"What they don't say is this -- you take an average claim of $4,000 a month," Bourhis explained. "That's worth $50,000 a year. The person is 55 years old. And the life of the claim is 10 years. And you multiply that by 2,000 -- that's $100 million a year that you are going to save every year for the next 10 years. And that is only based on the claims that you have terminated in 2005. So, year one you are saving $100 million. Year two you are saving $200 million, because you now have a new 2,000 terminated claims. Year three, you are saving $300 million. By year 10, the year that you phase out the first claims that you terminated, you are saving $1 billion a year. And that is only based on 2,000 claims" a year.
Bourhis said that his firm was nailing UnumProvident in courtrooms around the country -- including a $5 million punitive damage award in the Joan Hangarter case, which is profiled in his new book -- Insult to Injury: Insurance Fraud and the Big Business of Bad Faith (Barrett-Koehler, 2005)
"We were winning lawsuit after lawsuit, getting punitive damage awards in the trial courts," he said. "The awards were being upheld by federal judges who the company thought were going to overturn them. And then conservative courts of appeal =85 that the company thought for sure was going to overturn these awards -- instead unanimously upheld the awards. And then we turned a ton of documentation over to Spitzer. And Spitzer then folded like an accordion."
Bourhis says that Spitzer's reputation of being a tough white-collar crime prosecutor "is as phony as a three dollar bill."
When contacted for comment, Unum launched an attack on Bourhis.
"We have not seen an advanced copy of Mr. Bourhis work and don't intend to add it to our summer fiction reading list," said Mary Clarke Guenther, a spokesperson for UnumProvident. "Because we represent a potential revenue stream for Mr. Bourhis, we have come to expect statements from him that are sensationalized, fear-based and extremely misleading. We expect his book will be more of the same."
What about the $5 million in punitive damages awarded to Joan Hangarter in a case that is profiled in Bourhis book?
"We maintain that the facts of the case do not support the Court's decision and we remain extremely disappointed in the outcome," Guenther said.
As for Bourhis' allegation that the company intentionally denies 2,000 legitimate claims a year to make excess profits of $1 billion, Guenther calls this "hogwash."
"Each year, we process nearly a half-million disability income protection claims," she told us in an e-mail response to a question. "In 2004, 91 percent of these claims were paid. Of the remaining, approximately 8 percent were individuals who were no longer claiming benefits when benefits become due, or were not eligible for benefits under the terms of the contract. Another 1 percent were determined not to be disabled under the terms of the contract. Of all the claims closed, fewer than 2 percent of those individuals questioned the decision through an appeal."
Like Bourhis says -- all they have to do is deny a small percentage of legitimate claims, and they're up a cool $1 billion a year.
Russell Mokhiber is editor of the Washington, D.C.-based Corporate Crime Reporter, (www.corporatecrimereporter.com). Robert Weissman is editor of the Washington, D.C.-based Multinational Monitor, (www.multinationalmonitor.org). Mokhiber and Weissman are co-authors of On the Rampage: Corporate Predators and the Destruction of Democracy (Monroe, Maine: Common Courage Press).