UnumProvident Enters Settlement Agreement

Three of UnumProvident Corp.’s insurance subsidiaries have entered into a settlement agreement with the California Department of Insurance, concluding a market conduct examination and investigation of the subsidiaries’ disability claims handling practices.

As part of the settlement, UnumProvident has agreed to change certain practices and policy provisions related to its California business and consistent with state case law. The settlement also incorporates claims handling practices previously covered by the multistate agreement reached last year with 48 other states, and includes certain additional claim handling changes. Additionally, the company has agreed to pay a fine of $8 million to CDI.

In entering the settlement, the company did not agree with the allegations and characterization of the company’s past claims handling practices made by the Department. Nevertheless, the company said it concluded that settling was in the best interest of its customers and the company.

Under the terms of the settlement, UnumProvident will change a number of provisions specific to California disability policies, including the definition of “total disability.” The company also will receive approval from California for the use of new individual and group disability policy forms, which will become available for sale on Nov. 1, 2005.

CDI is expected to notify all disability providers who do business in the state of its concerns about the lawfulness of certain provisions contained in present policy language, and to spell out an approach for addressing these concerns.

The settlement also incorporates the claim reassessment process and the changes in claim handling practices contained in the November 2004 multistate regulatory settlement agreement that was previously ratified by 48 other states. California claimants were included in the 2004 multistate settlement and could choose to participate in that claim reassessment process, although California did not join the multistate agreement.

Reassessment notices will be mailed to approximately 26,000 individuals whose claims were denied or terminated between Jan. 1, 1997, and Sept. 30, 2005. Additionally, an individual whose claim denial or termination is upheld in the reassessment may request an independent review by a member of a panel established for that purpose.

UnumProvident plans to amend the multistate settlement agreement to include mailing a notice of the claim reassessment process to approximately 29,500 individuals whose claims were denied or terminated between Jan. 1, 1997, and Dec. 31, 1999. Under the original multistate agreement, claimants during this period could request participation in the reassessment process, but they were not sent a notice.

Based on the settlement agreement and related matters, UnumProvident will record a charge of $75 million before tax or $51.6 million after tax ($0.16 per diluted common share) for the third quarter of 2005. The pre-tax charge is comprised of four elements: $14.3 million of incremental direct operating expenses to conduct the reassessment process; $37.3 million for benefit costs and reserves reopened from the reassessment; $15.4 million for additional benefit costs and reserves from claims already incurred and currently in inventory that are anticipated as a result of the claim process changes being implemented; and the $8 million fine.

The ongoing expenses of changing certain claim practices and policy provisions in California insurance forms will be included in the company’s operating expenses as incurred going forward. The company anticipates that the ongoing expenses will not materially affect its results of operations, and it expects its ratings will be reaffirmed.

Topics California Claims