Wednesday, September 6, 2017

No. 232: Suicide—A Recent Court Case Illustrates the Tragic Consequences of an Intractable Life Insurance Problem

Blogger's note: S. Travis Pritchett is Distinguished Professor Emeritus of Finance and Insurance at the University of South Carolina—Columbia. He is one of my closest friends. Before he began his outstanding professional career in education and research, he worked for several years as an investigator in the claims division of a major life insurance company. In that capacity he handled many cases of suicide or suspected suicide. I sought his comments on a draft of this post. He does not agree with my bottom line. Therefore, with his permission, I present his thoughts at the end of this post, thus allowing readers to draw their own conclusions.

Belth's Thoughts on the Collins Case

The nature of life insurance creates certain intractable problems. One, for example, is the disappearance problem, which is beyond the scope of this post. Another is the suicide problem, which is at the heart of a recent court case illustrating the tragic consequences of the problem. Here I discuss the recent case, which involves rulings by a federal district court and a federal appellate court. (See Collins v. Unum Life, U.S. District Court, Eastern District of Virginia, Case No. 2:15-cv-188, and U.S. Court of Appeals, Fourth Circuit, Case No. 16-1636.)

Background on the Suicide Problem
Suicide in the context of life insurance always has been a problem. If a life insurance policy contract were to pay the death benefit following the insured's suicide at any time during the entire period of the contract, the contract would be viewed as encouraging suicide and therefore contrary to the public interest. On the other hand, if a contract were to exclude payment of the death benefit following the insured's suicide at any time during the entire period of the contract, the contract would be viewed as inadequate protection for the beneficiaries.

Early in the history of life insurance in this country, the typical policy excluded suicide altogether. The reason was that companies felt they needed to protect themselves against those who buy life insurance when they were contemplating suicide. However, the companies came to believe that such a total exclusion was not necessary to protect adequately against adverse selection. Companies, state insurance regulators, and state legislators worked out an admittedly imperfect compromise solution to the problem. Today policies invariably contain a suicide exclusion (and return of the premiums paid) in the event of the insured's suicide during the first two years (sometimes one year) of the policy, and payment of the full death benefit in the event of the insured's suicide at any time thereafter.

Background on the Collins Case
David M. Collins served as a U.S. Navy SEAL for almost twenty years. He endured grueling deployments in Kuwait, Iraq, and Afghanistan. As a result of numerous and continuing traumatic experiences during his deployments, he developed Chronic Traumatic Encephalopathy (CTE), Post-Traumatic Stress Disorder (PTSD), and/or Major Depressive Disorder (MDD).

When Collins left the service in 2012, he went to work for a private firm. It had a basic group life insurance plan providing a death benefit of $104,000 that was paid for in its entirety by the firm. The firm also had a supplemental group life insurance plan providing a death benefit of $500,000 that was paid for by the employee. Collins enrolled in both plans on September 10, 2012. The plans were underwritten and administered by Unum Life Insurance Company of America, and were subject to the Employee Retirement Income Security Act of 1974 (ERISA). Both plans had the same two-year suicide exclusion. Here is the wording:
Your plan does not cover any losses where death is caused by, contributed to by, or results from:
— suicide occurring within 24 months after your initial effective date of insurance; and
— suicide occurring within 24 months after the date any increases or additional insurance becomes effective for you.
The suicide exclusion will apply to any amounts of insurance for which you pay all or part of the premium.
The suicide exclusion also will apply to any amount that is subject to evidence of insurability requirements and Unum approves the evidence of insurability form and the amount you applied for at that time.
Unum approved the $104,000 of coverage under the basic plan effective October 1, 2012. Unum approved the $500,000 of coverage under the supplemental plan effective February 14, 2013.

The complaint in the lawsuit filed later describes in excruciating detail the deterioration in the ability of Collins to function normally, especially in early 2014. The complaint also describes his many medical examinations and the treatments he received.

Developments in 2014
On March 12, during the two-year suicide exclusion period, Collins was found in the driver's seat of his car with a bullet wound in the head and a handgun lying between his legs. That day he had texted Jennifer Mullen Collins, his wife: "Pick up sorry baby I. Love u all." He also had emailed a Navy SEAL friend: "I'm in bad times bro...please make sure my lovely wife Jennifer and children Sam and Grace are taken care of please...hate to do this to you but you know how to get things done. Take care friend." His death was ruled a suicide.

On April 3 Jennifer filed death claims under the basic and supplemental plans. She included the death certificate and a detailed letter from one of her husband's physicians.

On April 8 Unum denied the $500,000 claim under the supplemental plan. Collins had paid for the coverage.

On April 9 Unum approved the $104,000 claim under the basic plan. The employer had paid for the coverage. Unum remitted the payment to Jennifer.

Jennifer filed an appeal with Unum concerning the denial of the $500,000 claim. She submitted extensive evidence from physicians and experts demonstrating that her husband did not commit suicide, was suffering from CTE, PTSD, and MDD, was not able to form the intent to commit suicide, and/or was not sane at the time of his death.

Unum requested all medical records and emails. Jennifer provided the material, which included five medical opinions from different medical centers that her husband did not commit suicide, was suffering from CTE, PTSD, and MDD, was not able to form the intent to commit suicide, and/or was not sane at the time of his death. Unum denied Jennifer's appeal of the denial of the $500,000 benefit.

Later Developments
On April 29, 2015, Jennifer filed a lawsuit against Unum. On May 26 Unum answered the complaint. On December 23 Jennifer filed a motion for summary judgment. On the same day Unum filed a motion for summary judgment.

On May 6, 2016, the district court judge filed an opinion and order denying Jennifer's motion for summary judgment and granting Unum's motion for summary judgment. On June 2 Jennifer filed a notice of appeal to the U.S. Court of Appeals for the Fourth Circuit. On July 6, 2017, a three-judge appellate panel issued a unanimous unpublished opinion affirming the district court judge's rulings.

A Harsh Allegation
The Collins complaint contains a harsh allegation. Paragraph 96 of the complaint reads:
Unum has paid the Basic Policy benefits of $104,000 and denied the Supplemental Policy benefits of $500,000. It appears that this decision may have been strategic, designed to keep Mrs. Collins from challenging its decision to deny benefits under the Supplemental Policy ($500,000) for fear that Unum would reverse its decision and demand repayment of the benefits paid on the Basic Policy ($104,000).
The allegation may have been unjustified. With regard to paragraph 96, Unum said this in its answer to the complaint:
Unum admits the allegations in the first sentence of Paragraph 96 of the Complaint. Unum denies the remaining allegations in Paragraph 96.
Unum also addressed the allegation in a footnote on page 7 of its memorandum in support of its motion for summary judgment. Unum said the suicide exclusion in the basic plan and in the supplemental plan "will apply to any amounts of insurance for which you pay all or part of the premium." Unum also said the employer paid the premiums for the basic plan and Collins paid the premiums for the supplemental plan.

The district court judge addressed the allegation on page 8 of his opinion and order. He cited the footnote mentioned in the preceding paragraph. He said the employer paid the premiums for the basic plan, the suicide exclusion did not apply to the basic plan, Collins paid the premiums for the supplemental plan, "and so Unum denied the claim" under the supplemental plan. The appellate court panel did not address the allegation in its affirmation of the district court judge's rulings.

The Judges
The Collins case was assigned to Senior U.S. District Court Judge Robert G. Doumar (a 1991 Reagan nominee). The Fourth Circuit panel consisted of Chief Judge Robert L. Gregory (a 2000 Clinton nominee), Circuit Judge Paul V. Niemeyer (a 1987 Reagan nominee), and Circuit Judge Pamela A. Harris (a 2014 Obama nominee).

Leimberg's Comments on the Collins Case
I learned about the Collins case when Steve Leimberg, who operates an important email newsletter, posted an article about the appellate court opinion. He gave me permission to include his article in the complimentary package I offer in this post.

General Observations
In making the following observations, I am aware of the "slippery slope" problem. If exceptions are made to the provisions of the insurance contract, the contract might serve no useful purpose.

I am also aware of the "fine print" problem. In this case the suicide clause is buried on page 16 of the 29-page basic plan, and on page 33 of the 58-page supplemental plan. Also the title of the section in both plans is "What Losses Are Not Covered Under Your Plan?" In other words, the titles do not mention "Suicide." Thus it is unlikely that the insured would see or comprehend the significance of the suicide clause.

The judges found that Unum, the underwriter and administrator of the ERISA plan, did not abuse its discretion by denying the claim, and that there was ample evidence to support the reasonableness of the denial. However, if Unum had exercised its discretion and honored the $500,000 claim, there would have been no appeal to Unum, no lawsuit, no appeal to the Fourth Circuit, no attorneys, and no judges.

In 1973, when there was a change in the top management of Unum's parent company and subsidiaries, the organization moved "from a claim payment approach to a claim management approach." In other words, its focus changed from paying claims to denying claims. Over the years I have written extensively about the Unum companies' disability insurance claims practices. My most important examination of the subject was the special 12-page February 2003 issue of The Insurance Forum. The issue includes an internal company memorandum about the change from the claim payment approach to the claim management approach. The issue also includes an article by Mark D. DeBofsky, an expert on ERISA. The article, which I had requested from him, is entitled "Using ERISA Against Those It Was Designed To Protect." DeBofsky explains how ERISA "has been misused and misinterpreted to create a virtually impenetrable shield against redress for misconduct by employers and insurers."

Connecticut Mutual Life Insurance Company (CML) is one of the great names in the history of life insurance. Sadly CML no longer exists. In the January and July 1976 issues of the Forum, I wrote about CML's claims practices. The facts of the cases led me to believe that CML tried to figure out how to pay a claim rather than how to deny a claim. When I corresponded with CML, an official said:
Our claim policy, to the extent it can be expressed in a few words and in general terms, is simply that we expect to pay all benefits that are supposed to be paid when they are supposed to be paid. Whether or not a benefit has been claimed is beside the point—if we have information to suggest that a benefit might be due, we pursue the situation and determine whether or not it is. Our claim practice does not include maximizing profit as one of its objectives—that's the job of other parts of the Company.
One of my readers, in response to one of my blog posts about claims practices, said he was aware of a life insurance company in which for many years the president of the company had to approve personally every denial of a death claim. With the passage of time and the growth of the company, it became impractical to continue the tradition.

In the January and August 1978 issues of the Forum, I wrote about a tragic situation involving an insured's suicide. An agent of Bankers Life Company (now Principal Life Insurance Company) allowed a client to buy a new policy to replace four existing policies that were beyond the two-year suicide exclusion period. The death benefit of the four policies combined was $52,000. When the insured committed suicide less than two years later, the company refunded the premiums paid on the new policy but denied payment of the death benefit. The beneficiary went to court and later entered into a confidential settlement, out of which the beneficiary probably had to pay attorney fees. I think it would have been better for everyone (except the attorneys) if the company had figured out a way to justify paying the full death benefit.

I feel the same way about the Collins case. I realize judges are supposed to follow the law and the facts wherever they lead, and are supposed to ignore the circumstances of the parties. In this case, I think Unum could have figured out a way to justify paying the $500,000 claim. Had Unum done so, it would have saved the time, effort, and expense of the legal battle. At the same time, Unum would have assisted the family of an American hero who gave his life for our country.

Available Material
I am offering an 85-page complimentary PDF consisting of the text of the Collins complaint (18 pages), the district court opinion and order granting the Unum motion for summary judgment and denying the Collins motion for summary judgment (34 pages), the appellate court opinion affirming the district court opinion and order (8 pages), the Leimberg article about the appellate court opinion (6 pages), the February 2003 special issue of The Insurance Forum (12 pages), the January and July 1976 articles in the Forum (4 pages), and the January and August 1978 articles in the Forum (3 pages). Email and ask for the September 2017 package about the case of Collins v. Unum Life.

Pritchett's Thoughts on the Collins Case

The fact that David Collins developed CTE, PTSD, and MDD as a result of his service as a U.S. Navy SEAL is so very sad, to say the least. Yet I do not see how these service-connected conditions are relevant to the decision made by Unum on the supplemental plan where the suicide exclusion applied because Collins had paid the premium for the coverage.

I have had a long time to think about the application of the suicide exclusion. During my five years with a major life insurance company in the 1960s, I investigated many deaths involving the possibility of suicide. I say "possibility" because investigations were not requested by the home office in cases where death was clearly due to suicide during the suicide exclusion period. A fair number of death certificates listed the cause of death as accidental or due to some health condition when in fact the deceased committed suicide. It was these cases that I helped investigate.

My reports to the home office always ended with a recommendation. However, final decisions were made by the home office's claims division, where the staff included attorneys. My boss, the divisional claims manager, always insisted that our primary objective was to try to help claimants (similar to your quote from a CML official). However, we also paid close attention to contract language. Having said this, I saw exceptions by the home office to making decisions strictly on contract provisions.

However, these uncommon exceptions supported the sales force, rather than being based on anything about the insured or the beneficiary. For example, I investigated a case where a marine officer trainee was killed when, while returning from a late date, he drove his convertible under the rear of a tractor trailer. He had signed a life insurance application the previous week but had not paid the premium. Instead the agent had personally paid the premium planning to collect from the insured later. The claim was paid to the insured's father (a respected physician) three days after the death; the agent received a lecture.

In another case, involving a prominent auto dealer, I established during the contestability period that in his application the insured had not told the truth about material health conditions, including the use of drugs for depression. The home office agreed the claim should be denied. However, upon appeal from the insurance agency manager, who claimed that future sales in the area would be hurt if a claim were denied on such a well-known person, the claim was paid. Marketing departments at that time were king in life insurance companies.

I believe strongly that a life insurance policy is a legal contract, and that claim decisions necessarily need to be consistent with policy provisions when facts surrounding a claim are clear. In other words, claim decisions should be objective and consistent with policy provisions—period.

With respect to claim decisions concerning suicide I am not aware that it is or should be relevant whether one is sane or insane, has significant health conditions (regardless of how such conditions materialized), is an American hero, a scoundrel, a rabbi, a priest, moral or immoral. I would venture to say that the typical person who dies due to a non-accidental self-inflicted injury is not thinking rationally at the time of suicide. Having said this, I have not looked at literature in, for example, sociology or medicine, that tries to define suicide and whether external issues ever factor into whether or not they believe a death is due to suicide. The plaintiff apparently tried this approach in the Collins case. It seems to me that Unum's suicide exclusion language rules out consideration of such factors by saying "Your plan does not cover any losses where death is caused by, contributed to by, or results from suicide." I believe that Unum and the judges, in the Collins case, made the proper decisions on the supplemental life insurance.

In my opinion, this claim would have been denied under the application of the old CML practice you quoted because I doubt that a suicide during the suicide exclusion period would have met their test of "simply that we expect to pay all benefits that are supposed to be paid..." I imagine the words "supposed to be" related to CML contract language.

The text message Collins sent to his wife and the email sent to his fellow SEAL on the date of his death are clear evidence that he intended to kill himself. In cases I worked on, such messages (then, notes or other actions, well before the days of texts and emails) were evidence that death was due to suicide.

I would not conclude as you do that Unum should have found a way to justify paying the $500,000 claim. Unum is not a charity or a governmental agency. They should not feel—even though the claim decision maker might personally like to—any more obligation to help a specific American hero than you or I should—today—write large checks to help the family of David Collins. Literally hundreds of thousands (maybe millions) of veterans now unfortunately have service related health conditions like those from which Collins suffered! The prevalence of suicide among these veterans is significantly higher than that for others. The effects of modern warfare are terrible. Perhaps the Veterans Administration, with the authorization of Congress and the President, should do more for Collins and other veterans. However, I do not think life insurance companies should bend contract provisions to do so. That would not just affect shareholders, but also dividends to participating policyholders, experience-rated group premiums and premiums for new individual policies.

I share the opinion that Unum disability insurance claim practices have been deplorable. Yet I question whether that has any direct relevance to the Collins case involving supplemental group life insurance. I think you should reconsider the implication that claim decisions should factor in the likelihood of the insurance company being sued and the time and expense a legal battle might entail.

I fully agree with you that suicide is an intractable problem for life insurance companies. My overall feeling is that it is so sad that Collins suffered due to his service to our country. I hope his family is receiving adequate military retirement, Veterans Administration, Social Security, and other survivor benefits. However, I do not believe that Unum should have paid benefits under the supplemental plan.