Ninth Circuit Court of Appeals Upholds FR’s Bad Faith Verdict Against UnumProvident and Paul Revere

San Francisco, CA

In 2004, FR obtained an $11.6 million verdict against UnumProvident and Paul Revere on behalf of Clinton Merrick, a disabled venture capitalist. Merrick submitted his disability claim in 1995 after testing at the Mayo Clinic revealed a diagnosis of chronic fatigue syndrome, an illness that prevented him from performing his duties. After paying benefits for a year, Paul Revere stopped paying the claim asserting “lack of objective medical evidence” in 1996. At the time of benefit termination, Paul Revere was being acquired by UnumProvident which had begun imposing its claims handling philosophy on Paul Revere even before the acquisition was complete.

The jury found that neither company had any reasonable basis to deny Merrick’s claim and returned a verdict for Merrick, awarding him $1,147,355 in unpaid benefits and $500,000 for mental and emotional distress, to be paid by the insurers jointly and severally. The jury also imposed $2,000,000 in punitive damages on Paul Revere and $8,000,000 on Unum Provident.

The Ninth Circuit’s August 31, 2007 decision, Merrick v. Paul Revere Life Ins. Co. , (No. 05-16380), affirmed the jury’s award of compensatory damages and the trial court’s finding that the insurance companies had withheld documents in violation of prior court orders. The Court found that the evidence was more than sufficient to support the jury’s bad faith verdict and that the insurers should be liable for punitive damages. The Court pointedly noted that the it had “previously found that these defendants’ improper claim-scrubbing supports a finding of bad faith claim denial,” citing Hangarter v. Provident Life and Accident Ins. Co., 373 F.3d 998, 1010-11 (9th Cir. 2004). However, due to changes mandated by the U.S. Supreme Court’s recent decision in Philip Morris USA v. Williams, 127 S. Ct. 1057, 1063 (2007), the Court found that a new trial is necessary to determine the amount of punitive damages to be assessed against these companies.

With the Court’s decision, Merrick will now be able to collect the underlying compensatory award plus interest ($2.3M). The parties will return to Las Vegas and another jury will be empanelled to decide solely the amount of punitive damages to be paid by Paul Revere and UnumProvident. With all of the other issues already decided in Merrick’s favor, the focus of that trial will be on the reprehensible claims handling philosophy employed by these companies that have come to dominate the disability insurance industry. FR is confident that a significantly larger punitive damage award can be obtained in the retrial.