RAPID CITY, S.D. – A federal judge Monday ruled a $6.2 million judgment against CUNA Mutual Group in a disability case to be excessive and unconstitutional and reduced the damages to a total of $2 million, but the judge had harsh words for the credit union insurer and called its behavior “reprehensible” in the case.
Judge Karen Schreier asserted in her 58-page decision that CUNA Mutual “intentionally implemented a plan to make more money by denying and delaying claims... for reasons that were unsupported by the insurance policy and otherwise against South Dakota law.”
The ruling affirms a $200,000 compensatory judgment in the case and reduces the penalty judgment to $1.8 million.
The award, unless overturned on appeal, will go to the estate of Teri Powell, a high school Spanish teacher who died from cancer in 2007 at age 58. Powell had taken out a home equity loan at Highmark FCU in 2001 to make improvements on her home and bought disability insurance from CUNA Mutual, along with the loan.
Over the next year, Powell's health deteriorated, and doctors advised her to retire. When she was diagnosed with cancer in 2005, Powell applied for benefits from CUNA Mutual reaching back as far as 2002, when she was forced to stop working full time.
In 2006, CUNA Mutual denied Powell's claim, noting that Powell had not contacted the insurer when she first became disabled in 2002. CUNA Mutual eventually paid Powell $3,080 to reimburse her for mortgage payments made from May 2002 to May 2003, but refused to reimburse her for payments made from May 2003 to 2006.
Powell died in January 2007, after which her personal representative, Sharon McElgunn, replaced her as the plaintiff. Before she died Powell recorded a video deposition in which she said she wanted her representatives to pursue her claim.
CUNA Mutual on Tuesday noted the provision in dispute involves when a policyholder must notify CUNA Mutual of a disability. “This is an important provision to be sure claims are filed in a timely manner so the claim can be appropriately evaluated based on the best available information,” said Maripat Blankenheim, spokesman for CUNA Mutual. “Before the Powell case, this question had been raised in a different case in Alabama, where the court agreed with CUNA Mutual that our interpretation of the provision was reasonable. After the South Dakota court disagreed with our interpretation, we changed how we interpret the provision.”
As a result, CUNA Mutual has reexamined approximately 3,000 claims that had been denied under the time-filing provision dating back to 2002, said Blankenheim. Court documents show the company has paid out an additional $7 million in those cases and expects to pay out as much as $12 million.
In her ruling, Judge Schreier found that CUNA Mutual “caused Powell to suffer emotional, mental, and economic harm. This evidence supports a finding that defendant’s actions were reprehensible.”
“There was ample evidence,” wrote the judge, “that [CUNA Mutual’s] actions were not an isolated incident, but rather one of many incidents in a plan or scheme to similarly deny and delay claims based on an absurd interpretation of the time filing provision and an interpretation of the total disability provision that completely disregarded South Dakota law. In Powell’s case alone, the evidence demonstrated multiple, unsupported denials and numerous, unfounded delays. This factor weighs very heavily in favor of finding defendant’s actions to be reprehensible.”
