The Unum Provident Problem

I have spent some time recently reading a draft version of Yale Professor John Langbein’s article, Trust Law as Regulatory Law: The Unum/Provident Scandal and Judicial Review of Benefit Denials under ERISA. For those of you who have more socially redeeming hobbies (like mowing the lawn, watching paint dry, pretty much just about anything I suspect) than reading law review articles, the good professor essentially argues that the Unum Provident problem, referenced here, shows that the current regime under which ERISA benefit claims are litigated is one giant failure and that the Supreme Courts needs to alter the jurisprudence governing denied benefit claims. For those who would like more detail on what the article has to say in full, without having to spend the time reading the article in its entirety, the abstract of the article is here.

I have a few initial thoughts in response to the article, some of which perhaps I will flesh out in greater detail in future posts if time allows. Here they are, however, in a nut shell.

One, the good professor makes the case that Unum Provident’s conduct in handling claims and the questionable conduct uncovered in investigations into its conduct show that the governing legal regime needs to be changed. Not really. To avoid the obvious fact that Unum Provident may simply be an outlier, which has already been caught by the system currently in place, Professor Langbein has to create a straw company, asserting that Unum Provident was caught, but only because it was clumsy and the regime should be fixed to protect against other companies acting the same way, only with more subtlety. I don’t see any evidence that other companies are doing this, or that, if so, they are so good at what they are doing they won’t be caught in the same way that Unum Provident was nabbed. Indeed, the professor points out that Unum Provident was partly caught by a long run of federal court decisions in which judges found Unum Provident’s claims decisions to be highly questionable under the standards of review currently in force; a different insurer trying the same thing is going to run into the same problem. Hiding from shadows is what I would call it, changing an entire legal structure on the theory that somewhere, there might be someone doing something wrong, but we don’t know about it.

Second, on a micro level, the truth is that unscrupulous claims handling of the kind described in the article is caught in litigation in the federal courts, and thus the improper rejection of a particular claimant’s benefit claim can be and is resolved successfully under the current system and standards of review. In fact, if anything, we see courts providing an ever more skeptical review of administrators’ decisions even under the arbitrary and capricious standard of review as it currently exists than we ever have, for the exact reason, I believe, of making sure no administrator is trying to hide improperly motivated decision making behind the cloak of judicial deference that is owed to an administrator who is acting with discretionary authority.

Third, on a macro level, litigation is an awfully blunt instrument for modifying long term corporate behavior, and I am skeptical that changing the standards of review that apply to denied benefit claims will have such an effect. It may well be that the combination of the current standards of review, which do contain effective protections of the rights of individual claimants, with a vigorous state level regulatory apparatus is the correct way to proceed. This combination did, after all, successfully handle the Unum Provident problem.

Fourth, I am not convinced that the Unum Provident problem really shows, as the article wants it to, a problem with courts relying on market place forces to provide some protection against biased and self-serving decision making by administrator/insurers. Courts assume that in the long run, such companies will be hurt by such conduct when competing for business in the marketplace, and that this will have a deterrent effect. Critics of this thinking like to point to Unum Provident and its size in the market to prove otherwise. But I am not sure it proves anything of the sort. As the professor points out, Unum Provident is the product of a series of mergers and acquisitions, and one has to ask whether a company that stands accused of the type of misconduct that Unum Provident is charged with could have grown so large organically. Unum Provident may well show that the problem/hole in the system is in the mergers and acquisition regime, not in the benefit review regime.

Finally, a quick note of thanks to Workplace Prof Blog and Benefits Blog, without whom I would never have noticed the professor’s paper, since I generally don’t spend time surfing faculty websites (their blogs, yes, but not their websites). You can find a link to the the actual paper, by the way, here.

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