NU Online News Service, Jan. 4, 12:05 p.m.
A state trial court in New York City has upheld a jury verdict against First Unum Life Insurance Company that awards legal costs as well as $2.8 million in past and future benefits to a dentist.
The attorney’s fees and other legal costs could add up to $1.2 million, according to Michael Hiller, a New York lawyer who represents the dentist, Dr. Peggy Wurm.
Damages and legal costs together could amount to $4 million, Hiller says.
Wurm, who was injured in a horseback riding accident in 1988, has accused First Unum of terminating her benefits in 1994 without good cause.
First Unum will definitely appeal the Wurm ruling, according to Chris Collins, deputy general counsel at UnumProvident Corp., Chattanooga, Tenn., First Unum’s parent company.
“This ruling is just so contrary to the law,” Collins says. “It can’t stand.”
Collins says he worries media coverage in publications such as National Underwriter could give the trial court ruling temporary influence that it ought not to have.
If the ruling survives appeals and becomes a precedent, it could increase the financial risks insurers face when handling disability benefits cases in New York state, Hiller says.
Earlier New York state cases have suggested that an insured could collect attorney’s fees and a large, one-time payment to cover future benefits under certain strict conditions, but Wurm may be the first disability claimant in the state who has received an award that actually includes attorney’s fees and a lump-sum future benefits payment, Hiller says.
Up till now, Hiller says, insurers in New York state have operated under the assumption that the worst outcome of losing a disability benefits dispute would be the need to pay past benefits in the form of a large, one-time cash payment, and future benefits in the form of a stream payments complying with the original benefits payment schedule.
If insureds have an easier time collecting attorney’s fees and lump-sum future benefits payments, losing a claims dispute with an insured could lead to a bigger immediate outlay of cash, Hiller says.
The plaintiff in the disability case, Peggy Wurm v. Commercial Insurance Company of Newark et al., bought a long-term disability policy in July 1988 from a company that was eventually acquired by First Unum. The policy covered Wurm against disabilities that would prevent her from returning to her own occupation, according to court documents.
Wurm says she was injured in horseback riding accident in November 1988. She collected disability benefits until 1994, when First Unum cut off payments.
Wurm sued over the cut-off in a state court in New York City in 1996.
Earlier New York cases permit an insured to collect attorney’s fees if an insurer acts in bad faith, and to collect a lump-sum future benefits payment if an insurer repudiates a policy, Wurm argued.
First Unum rejected Wurm’s interpretation of New York state case law, and it said it had evidence that Wurm had gardened, gone scuba diving and engaged in other activities suggesting that she ought to be able to return to work as a dentist.
Results of an independent medical exam also indicated that Wurm should be able to work as a dentist, the company argues.
Wurm conceded that she could walk and engage in other physical activities, but she said she was still unable to handle the prolonged bending, twisting and stretching involved with the practice of dentistry.
One trial in the case ended with a hung jury, Collins says.
A second jury reached a unanimous verdict throwing out deceptive trade practices allegations against First Unum. But the jury also found that First Unum had acted in bad faith when it cut off Wurm’s benefits, and that the company had behaved as if it were repudiating the policy.
Goodman ruled the jury had the authority to award attorney’s fees if it believed the insurer had acted in bad faith in the Wurm case and repudiated the Wurm policy.
In an opinion explaining the ruling, the judge gave several examples of evidence presented at the trial that could support the jury verdict.
The judge cited testimony that First Unum stopped sending Wurm premium statements for a year as evidence that could support the jury’s decision on the repudiation issue.
The judge cited testimony that First Unum had placed Wurm under surveillance at least 15 times, and a note from her case file stating that First Unum intended to handle her case “aggressively” as evidence supporting the jury’s decision on whether First Unum had acted in good faith.
Collins says the idea that First Unum might have placed Wurm under surveillance 15 times “is just false” and an example of the problems with the ruling.
“That’s completely inaccurate,” Collins says. “It never happened.”
The error sprang up because there were 15 references to surveillance in the Wurm file, not because there were 15 instances of surveillance, Collins says.