Top Disability Insurer Cheated Social Security, Boston Federal Jury Says

By ROBERT WOODMAN MCSHERRY, Andrews Publications Staff Writer

UnumProvident Corp., America’s leading private disability insurer, defrauded the Social Security Administration on disability claims, a Boston federal court jury has found following a bellwether trial.

Chris Collins, Unum’s senior vice president and general counsel, said in a statement that the claims underpinning the verdict “have no merit.”

“We think we will ultimately prevail upon appeal,” he said.

At stake may be the disability insurance industry’s practice of requiring claimants to apply for Social Security disability insurance and offsetting any consequent payments against the carriers’ own claims liabilities.

Whistle-blower Patrick J. Loughren, a Pittsburgh attorney who reportedly learned of the alleged fraud from Unum employees, filed the case against the Chattanooga, Tenn.-based insurer eight years ago in the U.S. District Court for the District of Massachusetts.

The suit says the insurer’s SSDI application requirement violates the False Claims Act. Unum’s management services subsidiary, Wayne, Pa.-based Genex Services Inc., is also a defendant.

The FCA allows private citizens to file suit on behalf of the government in fraud cases involving federal funds and to share in any consequent settlement or court award.

The government declined to intervene in Loughren’s suit four years ago but has since said in court filings that it reserves the right to enter the case in the future.

According to the suit, Unum forced policyholders to apply for SSDI and threatened to cut off their benefits if they refused.

The definition of a “disability” is more stringent for SSDI than for Unum disability insurance policies, and Loughren claimed that the applications were illegal because Unum knew or should have known that many of its policyholders did not qualify for the government benefits.

In a second amended complaint he alleged that the government spent up to $6.2 billion denying SSDI applications from 1999 to 2005, including many “false claims” submitted by Unum policyholders at the insurer’s “express direction.”

Since 2003 Loughren has successfully beaten back Unum’s motions to dismiss and for summary judgment, most recently on Sept. 15.

Three days earlier U.S. District Judge Patti B. Sarris had ordered a bellwether trial on six of 62 false-claims cases, with each side choosing three cases. In her order, the judge said she hoped the outcome of the trial would lead to “serious settlement discussions.”

“If settlement efforts fail, the court will have a much better understanding about Unum’s policy and will attempt to resolve the remaining claims by summary judgment and/or another jury trial,” she said.

Five of the cases went to trial, resulting in two jury verdicts for Loughren – one of which was on a case Unum had picked – and two for the insurer. The fifth case ended with a hung jury, and Judge Saris issued a directed verdict in favor of Unum on the sixth.

The 19-day trial included four days of jury deliberations.

Loughren’s attorney, Colette G. Matzzie of Phillips & Cohen in Washington, said trial testimony supported allegations that Unum’s business practices resulted in the filing of unlawful SSDI applications and that in some instances the insurer even knew its claimants had the ability to work as defined by Social Security regulations.

The U.S. attorney’s office for the District of Massachusetts did not respond to an e-mail asking whether it planned to intervene in the case now that a jury has found that Unum sent fraudulent claims to the government.

Matzzie said her side is ready to move forward with the suit regardless of the government’s position.

“We are prepared to do whatever is necessary to finish up this case,” she said.

Matzzie and Phillips & Cohen also represent the plaintiff whistle-blower in a companion case in the same court. United States v. Cigna Corp., No. 03-CV-12382.

In that case, former Cigna Corp. employee Dawn Barrett says the insurer and its wholly owned disability insurance subsidiary Life Insurance Company of North America sent thousands of false claims to the SSDI program from 1997 to 2004.

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United States ex rel. Loughren v. UnumProvident Corp., No. 03-CV-11699, jury verdict returned (D. Mass., Boston Oct. 22, 2008).

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