The saga of National Union’s disability policy
Accidents happen all the time. They affect millions of Americans every year. They can also be disabling, which in turn can result in financial disaster to a household. That’s why many employers offer their employees short-term and long-term disability insurance. That’s also why, back in the late 1980s and early 1990s, companies like Unum, Provident Life and Accident Insurance Company, and Paul Revere Life Insurance Company attempted to corner the market on individual disability policies. They targeted high-earning professionals such as lawyers and doctors with noncancelable, guaranteed renewable coverage. At the right price, who wouldn’t want to protect themselves? Who wouldn’t want the peace of mind of knowing they are financially protected should personal disaster strike?
Then people started filing claims and carriers stopped selling these “Cadillac” policies.
Years later, in the early 2000s, came another disability product – for accidental permanent total disability. Underwritten by National Union Fire Insurance Company of Pittsburgh, PA, an AIG company, the policy offered lump sum benefits of as much as $1 million or $2 million dollars. If that wasn’t appealing enough, the monthly premiums were often less than $20.
Against this backdrop, who wouldn’t want to protect their family by having a low-cost “blanket” accident insurance policy?1 For some, the lump sum represented more money than they would earn in an entire lifetime.
Accidents happen all the time. They can bring financial disaster. Families need to be protected. Using some of this exact same language, National Union marketed and telemarketed “Accident Disability Plus”2 insurance to millions of Americans, nationwide. Working in concert with some of the country’s biggest banks and financial institutions that were eager to monetize their customers’ personal information, the “blanket accident insurance” policy was packaged as a “special offer” available exclusively to bank customers.
Even better, the sales pitch went, premiums would be deducted directly from the insured’s bank account. Every month. Forever.
There was only one problem. National Union’s accidental permanent disability coverage offered protection that was far different from the reasonable expectations of coverage conjured up by the company’s marketing campaign. It did not protect insureds from accidents resulting in permanent total disability. Those with the peace of mind that comes with having a disability policy, who paid premiums month after month and year after year, confident that they would have an income stream if they suffered from a totally disabling accident, were in for a rude awakening.
Accidental permanent total disability was not enough. National Union claim approvals were limited to accidents that resulted in double dismemberment, complete blindness, or major paralysis. Every other kind of disabling accident was excluded from coverage.
This was the ultimate bait and switch. The company knew a campaign selling dismemberment insurance would fall flat, so it scrupulously, and repeatedly, omitted this information. The campaign was simple, market and sell accidental total disability coverage that in fact was a type of accidental death and dismemberment policy.
Most insureds had no idea of the coverage they were purchasing, aside from the reasonable expectations created when someone is offered disability protection. Indeed, the marketing scheme was carefully crafted to avoid any use of the words dismemberment, paralysis, or blindness, much less to clearly inform potential insureds of these dramatic limitations on coverage.
It was the classic telemarketing scam. Most of the conversations were not recorded. That part that was recorded contained often vague references to limitations and exclusions, and potential insureds were instead encouraged to read the “package” of materials they would receive upon enrollment.
In reality, this package of materials was simply more deceptive marketing, designed to ensure that insureds didn’t cancel coverage. For example, this package opened with a welcome letter congratulating the insured on their “enrollment in the Accident Disability Plus Program.” Some welcome letters reiterated that the insured was “now covered for up to $1,000,000 under the program’s long-term disability benefits to be paid in one lump sum.”
In an appeal clearly intended to prevent policy cancellation, the welcome letter reminded that “Permanent total disability can bring economic uncertainties to a household or family, particularly if the victim was a primary wage-earner before the covered accident.”
The best part of this welcome letter: not once do the words dismemberment, paralysis, or blindness appear.
National Union did not send actual policies to its insureds. Instead, it provided a multi-page Description of Coverage. The first page is the declarations page. It summarizes the coverage at issue with terms like “Blanket Accident Insurance.” It then lists a “Permanent Total Disability Benefit, generally payable in a lump sum. In the DL Law Group litigation, we have seen lump sum benefit amounts as much as $2 million.
The best part of the declarations page: nowhere do the words dismemberment, blindness, or paralysis appear together. Sometimes they don’t appear at all. Nowhere are they associated with the lump sum benefit.
How can this be possible? How does National Union defend such obviously unfair and deceptive business practices? The answer lies buried deep in the multi-page description of coverage. Though the descriptions of coverage sent to insureds vary, they all, at some point, contain the following language:
PERMANENTLY TOTALLY DISABLED/PERMANENT TOTAL DISABILITY means:
- That the Insured Person suffered from any of the following:
- Loss of both hands or both feet; or
- Loss of one hand and one foot; or
- Loss of sight in both eyes; or
Note that being accidentally dismembered is not enough for a claim approval – an insured would have to experience a double dismemberment.
Nor is being accidentally blinded in one eye sufficient – only total blindness qualifies.
And if someone were to suffer an accident causing paralysis, every type of paralysis except for hemiplegia, paraplegia and quadriplegia is excluded from coverage.
In light of such extreme limitations and exclusions, some might say the proffered accidental total disability insurance is illusory.
Litigating these cases is not, however, easy. Many law firms look at the definition of permanent total disability, find out the insured did not suffer a double dismemberment, total blindness, or paralysis, and decline representation.
National Union, for its part, will contend, often in a motion to dismiss, that its insured received the policy documents, read or should have read these policy documents, and is therefore bound by the limiting language found buried in the policy documents. No coverage, the company contends, so case closed.
Some courts have agreed with this position.
However, in many states, including California, this scheme reads like a primer to the host of legal doctrines meant to protect consumers against deceptive marketing and sale of insurance coverage. For example, while it is true that insureds should know the nature of the coverage they have purchased – California insurance law goes further, to protect insureds. In fact, “an insurer’s direction to the subscriber to read the entire policy “is not a substitute for notice to the subscriber of a loss of benefit.”3
The California Supreme Court further explained that:
the rule [presuming parties are familiar with contract terms] should not be strictly applied to insurance policies. It is a matter almost of common knowledge that a very small percentage of policyholders are actually cognizant of the provisions of their policies.... The insured usually confides implicitly in the agent securing the insurance, and it is only just and equitable that the company should be required to call specifically to the attention of the policyholder such provisions as the one before us.4
Also foundational in insurance law is the requirement that policy limitations be clearly and conspicuously laid out. The greater the limitation, the more prominent it must be. Here a carrier is selling accidental disability coverage where virtually every type of accident is excluded. No wonder.
California courts have long been disinclined to effectuate clauses of limitation of liability which are unclear, unexpected, inconspicuous or unconscionable. . . when the policy does not clearly define the application of exclusions to the basic coverage the insured could reasonably expect, courts will not relieve the insurer of liability on the basis of those exclusions.5
As for National Union, its policy language is at best ambiguous. But since an insurance contract is a contract of adhesion, ambiguities shall be resolved in favor of the non-drafting party or consumer.6 As a result, the policy language should be reformed to adhere to an insured’s reasonable expectations of coverage.
In the spirit of “all good things must come to an end,” eventually National Union’s deceptive marketing practices caught the eye of the regulators. A multistate examination by insurance commissioners nationwide ensued.
The regulators did not like what they saw.7 First, before the investigation was even completed, National Union entered into a consent order in which the company agreed to shut down the entire marketing campaign. No longer could National Union and its banking partners package accidental double dismemberment, total blindness and paralysis coverage under the banner of accidental blanket permanent disability coverage. The marketing and sale of these National Union policies has not resumed since. Previously sold policies are still in force, however, leaving many insureds with coverage they would never have purchased or desired.
Ultimately, the investigators and the investigated reached the classic compromise settlement. National Union agreed to a substantial fine – up to $51 million – but admitted to no wrongdoing. The company also agreed to submit a corrective action plan, and to undergo future audits of its marketing practices. Under the terms of the settlement, these documents are confidential. As might be expected, National Union zealously guards them, requiring practitioners to seek a court order compelling disclosure.
By the time most insureds seek representation, they have already suffered a disabling accident, filed a claim, and been denied. Often they don’t understand National Union’s denial. Of course they are not dismembered, they will say. But at the same time, they would never have purchased the “special offer” of accidental disability insurance had they known National Union’s true intent regarding policy limitations and exclusions.
These are precisely the type of insureds who need representation. Successful resolution of such cases can, quite literally, be life-changing for an insured. For the practicing plaintiff’s attorney, National Union cases represent an opportunity to hold an insurance company accountable, and maybe even change someone’s life.
David Lilienstein practices at The DL Law Group, a San-Francisco firm specializing in insurance bad faith and ERISA litigation. The firm litigates all aspects of insurance law, but primarily in the areas of disability, health care and long-term care insurance, and on both individual claims and class actions. Mr. Lilienstein, along with his DL Law Group partner, Alice J. Wolfson, were on the trial team that won a $9 million verdict in Hangarter v. Provident Insurance Company.http://www.DLLAWGROUP.com
Katie Spielman practices at The DL Law Group, a San-Francisco firm specializing in insurance bad faith and ERISA litigation. The firm litigates all aspects of insurance law, but primarily in the areas of disability, health care and long-term- care insurance, and on both individual claims and class actions. Katie regularly litigates cases against Unum Group and its many subsidiaries.
2019 by the author.
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