Tuesday, October 10, 2017

No. 237: Country Life—A Confidential Settlement Avoids a Likely Court Defeat Over a Disability Insurance Claim

In No. 236 (posted September 28, 2017), I discussed a federal jury award of $6.5 million to Benjamin McClure, an Arizona plaintiff in a lawsuit against Country Life Insurance Company (Bloomington, IL). The case involved a disability insurance claim. A reader immediately informed me of an earlier lawsuit against Country Life involving a disability insurance claim. In this follow-up, I discuss the earlier case. After a legal battle that was going badly for the company, the earlier case ended in a confidential settlement shortly before the anticipated jury trial.

In September 2000 Brian Keith Sell, an Arizona resident, purchased a disability insurance policy from Country Life. The policy initially provided benefits of $2,500 per month, and was later increased to $3,100 per month. The benefit period was to age 65. "Disability" was defined as:
Continuous inability to perform all of the substantial and material duties of your regular occupation because of your injury, sickness, or mental disorder. After benefits (including benefits for partial disability) have been paid for two years, disability means continuous inability to engage in any occupation because of your injury or sickness.
The policy defined "regular occupation" as "your occupation at the time disability begins." The policy defined "any occupation" as "any occupation in which you could be expected to engage," and "consideration is given to your education and training or experience." The policy contained a "recurrent disability" clause which stated that "disability or partial disabilities separated by six months or less are considered one disability." The policy also contained a waiver-of-premium benefit. 

Sell is a certified public accountant. He worked for government agencies and engaged in internet technology consulting work for private clients. The medical problems he encountered are described in excruciating detail in the complaint he filed later.

In January 2010, due to severe pain, Sell underwent an anterior cervical disc fusion of C5-C6. After that procedure his pain was largely resolved and he was able to continue his employment duties.

In June 2011, while getting ready for work one day, Sell suddenly experienced extreme pain in his neck and upper back. An MRI revealed he was suffering from a new moderate left paracental disc protrusion at T7-T8, which was indenting his spinal cord, as well as a broad-based disc osteophyte complex at C4-C5 mildly indenting the thecal sac.

In July 2011 Sell underwent a second neck surgery, this time an ACDF at C4-C5. He continued to suffer from debilitating pain.

In January 2012 Sell underwent a Thoracic 6-7 laminectomy and the placement of a dorsal spinal cord stimulator and internal pulse generator. He suffered and continues to suffer from several co-morbid chronic medical conditions including chronic abdominal pain; chronic diarrhea; irritable bowel syndrome; chronic pain of the lower back, mid back, and neck; chronic pain syndrome; depression; anxiety; and other conditions.

The Claim
In October 2011 Sell filed a claim for disability benefits with Country Life. The company gathered Sell's medical records and certifications of disability by his treating physician.

In February 2012 Country Life notified Sell that his claim had been approved and sent his February check. The company said it had requested additional medical records and other information to approve his claim after February, and later paid his March benefit. The company said that "consideration for continued benefits will be pended," and that "further payments have been placed on hold."

In October 2012 Country Life terminated the claim. The company informed Sell by letter that there was no "medical reason to physically restrict you from performing your occupation."

The Lawsuit
In October 2014, in state court in Arizona, Sell filed a lawsuit against Country Life. The two claims for relief were for breach of contract and for insurance bad faith (breach of the covenants of good faith and fair dealing). Sell sought, among other things, damages for failure to pay benefits, emotional damages for pain and suffering, punitive damages, pre- and post-judgment interest, attorney fees, and costs. In February 2015 Country Life removed the case to federal court. (See Sell v. Country Life, U.S. District Court, District of Arizona, Case No. 2:15-cv-353.)

The case was assigned to U.S. District Judge Diane J. Humetewa. President Obama nominated her in September 2013, and the Senate confirmed her in May 2014.

Sell's state court complaint is attached to the notice of removal to federal court. Country Life's letter terminating Sell's claim is also attached to the notice.

On March 4, 2016, Sell filed a motion for sanctions against Country Life. On June 1, 2016 Judge Humetewa issued an order that was devastating to the company. The "Findings and Analysis" section of the order included discussions of "conduct regarding discovery requests," "credibility of deposition and evidentiary hearing testimony," "defendant's systemic deficiencies regarding discovery obligations," and "appropriate sanction." In the order she granted Sell's motion for sanctions against the company. Here are two portions (without citations) of the final section of the order:
Plaintiff has presented substantial and compelling evidence that demonstrates serious misconduct by Defendant and its counsel in this case. Testimony from the evidentiary hearing, deposition testimony, and documentary evidence, as described above, combine to show a concerted effort to wrongfully withhold evidence, misrepresent the facts, and mislead Plaintiff and the Court to comport with Defendant's and counsels' false narrative. Defendant and its counsel withheld relevant and discoverable evidence by essentially ignoring requests for production of documents and then by frivolously asserting the documents were privileged. They misrepresented the facts surrounding their conduct during discovery by asserting they had conducted reasonable searches in response to Plaintiff's  requests when they had not. They misrepresented the facts of the case by redacting highly relevant information and making false assertions of privilege. They then presented false deposition and hearing testimony to align with their fabricated account of what occurred. By doing so, Defendant and counsel sought to prevent Plaintiff and the Court from learning the truth about the circumstances surrounding the termination of Plaintiff's disability claim, thereby misleading Plaintiff and the Court into accepting their narrative. The Court finds that the evidence amply demonstrates that Defendant's and counsels' misconduct was willful and done in bad faith....
Defendant's and counsels' misconduct in this case goes directly to the heart of Plaintiff's claims of whether Defendant breached the terms of the disability insurance contract and breached its duty of good faith and fair dealing in its handling of his claim. Had Defendant not been required to disclose the redacted portions of the emails and letters, the evidence would reflect only that Ms. Payne, Plaintiff's claim adjustor with thirty years of experience, agreed with the termination of Plaintiff's physical disability claim. As the evidence now shows, that is simply not the case. Under these circumstances, it is difficult for this Court to see how Defendant's conduct merits anything less than the imposition of severe sanctions....
The Settlement
On April 24, 2017, Judge Humetewa scheduled the final pretrial conference for June 28 and ordered the parties to file a joint proposed final pretrial order by June 7. On May 18 Sell notified the Court that the parties had reached a settlement. On July 6 Country Life filed a stipulation of dismissal of the case in its entirety with prejudice (permanently), and with each party to bear its own attorney fees and costs. The same day the judge dismissed the case in its entirety with prejudice, and with each party to bear its own attorney fees and costs.

General Observations
As indicated at the outset, the Sell case was going badly for Country Life. One of the most significant setbacks—but not the only significant setback—was Judge Humetewa's June 1, 2016 order. Thus Country Life's decision to settle the case confidentially rather than allow the case to go to trial is understandable. Sell had a strong position and Country Life had a weak position in settlement negotiations. For those reasons, the settlement probably was large.

I do not understand why Country Life allowed the McClure case (discussed in No. 236), which also had been going badly for the company, to go to trial shortly after the confidential settlement was reached in the Sell case. Surely the company could have made an offer large enough to persuade McClure to settle the case on a confidential basis rather than allow the case to go to trial and result in a $6.5 million public verdict against the company.

Available Material
I am offering a 42-page complimentary PDF containing Sell's complaint (10 pages), Country Life's letter terminating Sell's claim (3 pages), and Judge Humetewa's June 1, 2016 order (29 pages). Email jmbelth@gmail.com and ask for the October 2017 package about the case of Sell v. Country Life.