Sun Life Facing Proposed Class Action in Michigan Over Clauses in Disability Policies

A company of Canada’s Sun Life Financial is facing a proposed class-action lawsuit in the United States from a policyholder over discretionary proof clauses in its disability insurance contracts.

The suit, filed by an occupationally disabled woman with a severe back injury, alleges Sun Life Assurance Company of Canada violated insurance reforms issued by Michigan’s insurance commissioner and that apply to disability insurance policies issued in the state, according to the law firms of Mantese Honigman Rossman and Williamson and John J. Conway, P.C.

The complaint, filed in the U.S. District Court for the Eastern District of Michigan, seeks class-action status for people who were covered under short- and long-term disability policies issued by Sun Life after June 1, 2007, that contained these clauses and whose claims the company allegedly denied.

Alexi Maravel, a spokesman for Sun Life Financial’s U.S. operations, based in Wellesley, Mass., said the company doesn’t comment on ongoing litigation.

Discretionary clauses have been the subject of scrutiny by state insurance regulators. They provide that an insurer will pay a disability claim only if it is satisfied with the policyholder’s proof. Despite proof of medical disability, including treatment records and surgical reports, many insured people allege Sun Life and other carriers leave them without disability coverage, the firms said.

John J. Conway, an attorney representing the proposed class, said he estimates thousands would be affected by the discretionary clauses in this case. At a minimum, money damages call for the company to readjust wrongfully denied, suspended or terminated disability claims, he said.

On June 1, 2007, Michigan’s insurance commissioner banned insurers from inserting any discretionary clauses in disability contracts issued in the state, the firms said. The insurance industry challenged the Michigan regulation but in March 2009, the Sixth Circuit U.S. Court of Appeals found the regulation was lawful, they said. The case was titled the American Council of Life Insurers v. Ross.

California was one of the first states to enact these reforms because it determined that discretionary clauses were “misleading and ambiguous,” Conway said.

The suit was filed by Reyna Allen, a former hourly employee for a pharmaceutical company. Her disability claim was allegedly denied after attempts to overturn the denial using Sun Life’s appeals process failed.

However, Sun Life maintained for years that the language unambiguously conferred it with the discretion to decide whose claims it would or wouldn’t pay, the firms said.

Sun Life and other insurers have been using discretionary clauses for many years to wrongfully deny valid disability claims, Conway said in a statement. Sun Life denies claims by holding policyholders “to a higher level of proof than Michigan law requires,” said Gerard Mantese, one of the attorneys representing Allen, in a statement.

In January, the Texas Department of Insurance asked all insurers writing accident, health and life policies to suspend the filing of policy forms containing discretionary clauses while it considered prohibiting their use. The state Office of Public Insurance Counsel, a separate agency, asked Insurance Commissioner Mike Geeslin to consider a ban in October 2009 (BestWire, Jan. 13, 2010).

In a letter to Geeslin, America’s Health Insurance Plans Regional Director Cindy Goff said at that time discretionary clauses protect employers and individuals by providing consistency to benefit eligibility determinations and interpretations of policy terms. “They operate to ensure that employers and consumers are afforded reliable, uniform and affordable benefits” (BestWire, Jan. 13, 2010).

Sun Life Assurance Company of Canada currently has a Best’s Financial Strength Rating of A+ (Superior).

(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)