Federal Court Rejects as "Unconscionable" First UNUM's Argument in Disability Insurance Coverage Dispute
Shareholder, Anderson Kill & Olick, P.C.
On August 18, the United States District Court, Southern District of New York, rejected First UNUM's attempt to reargue an important disability insurance coverage case, John E. McCauley v. First Unum Life Insurance Co., in which the U.S. Court of Appeals, Second Circuit had issued a stinging rebuke to First UNUM.
On Dec. 24, 2008 the Second Circuit, citing "First UNUM's well-documented history of abusive [claims handling] tactics," reversed a District Court decision and ruled against First UNUM, finding "powerful evidence that First UNUM's denial of McCauley's appeal [for disability benefits] was arbitrary and capricious." The Second Circuit remanded the case with direction that the trial court enter summary judgment for plaintiff and calculate the disability benefits to which Mr. McCauley was entitled.
On remand, First UNUM again tried to limit plaintiff's recovery saying that because Mr. McCauley had tried to go back to work, he should be denied about 13 years of benefits under its "recurrent disability provision." The Court rejected First UNUM's argument, holding that to do so would be both substantively and procedurally unconscionable. The Court held that since the Second Circuit had found that Mr. McCauley was totally disabled as a matter of law, First UNUM had initially wrongly denied him benefits. Mr. McCauley's aborted efforts to return to work was compelled by his poor financial condition which had resulted from First UNUM's wrongful denial of benefits. Judge McKenna stated, "(t)o describe McCauley's return to work to Schroder's as voluntary or his eight month tenure there as anything other than 'agony' would defy the facts in the record."
Invoking the doctrine of unconscionability as defined in Gillman v. Chase Manhattan Bank, which holds that a "contract is unconscionable if it is 'so grossly unreasonable or unconscionable in the light of the mores and business practices of the time and place as to be unenforceable according to its literal terms,' the District Court found that "a literal reading of the recurrent disability provision that would allow First UNUM to wrongfully deny benefits to an insured, and then penalize him for attempting to earn some income, even as he is disabled and at potential peril to his health, would be unconscionable. Such a literal reading of that provision will not be given effect."
Mr. McCauley was represented by Eugene R. Anderson, Michael J. Lane, Jeffrey E Glen and Rene Hertzog of Anderson Kill & Olick, P.C.
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