UnumProvident Settles Claims Probe

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October 4, 2005 latimes.com

UnumProvident Settles Claims Probe

By G. Gosselin, Times Staff Writer

The nation's largest disability insurer will take a $75-million

charge against profit to pay for a sweeping settlement with

California insurance regulators and resume benefit payments to

thousands of disgruntled customers in the state and elsewhere.

The charge announced Monday by UnumProvident Corp. raised to more

than $200 million the amount the Chattanooga, Tenn.-based company has

devoted to settling regulators' complaints that the firm

systematically denied customers' claims in an effort to improve its

finances.

Word of the charge came as California Insurance Commissioner

Garamendi announced a settlement with the company that required it to

pay an $8-million civil penalty — the largest ever levied by

Garamendi's agency — review as many as 26,000 California cases

dating

to 1997 and change the policies it sells in the state to add greater

consumer protections.

Garamendi told separate news conferences in Los Angeles and San

Francisco that he intended to impose similar policy provisions on all

companies selling disability insurance in the state, a move that

analysts said could substantially change the industry. Among the

policy changes: use of a definition of " total disability " that favors

claimants and removal of " discretionary authority " language that

gives companies sweeping power to interpret their own policies and

limits claimants' ability to successfully sue their insurers.

The California settlement " could have broad implications for the

company and potentially for the industry, " said Moody's Investors

Service analyst Ann .

Writing about the definition change, A.M. Best analysts Carl L.

Auston and Frino said, " This change will impact all

individual and group long-term disability income carriers that sell

business in California by causing higher-than-anticipated loss ratios

and may temporarily reduce the availability of coverage. "

In addition to agreeing to reopen the California cases, UnumProvident

said it would notify about 50,000 non-California claimants whom it

had not previously contacted that it was willing to review their

cases as well. The latest California and non-California cases raise

to more than 300,000 the number whose claims the firm has agreed to

reopen.

Disability insurance — now carried by more than 50 million

Americans —

is intended to replace generally half or more of a person's wages if

he or she is unable to work because of illness or injury.

UnumProvident is by far the nation's largest disability insurer, with

half the U.S. market.

Based on the California settlement and related matters, company

executives said UnumProvident would take a charge of $75 million

pretax and $51.6 million, or 16 cents a share, after-tax. The new

charge comes atop a $127-million charge that the company took last

fall to pay for an earlier settlement with insurance regulators in 48

of the 50 states. Only California and Montana were holdouts from that

settlement.