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In a huge victory for plaintiffs in insurance bad-faith cases, a federal judge has ordered four insurers to comply with broad discovery requests related to their “business practices, procedures and policies” after concluding that nearly all of the plaintiff’s inquiries are relevant to his argument that his long-term disability payments were cut off as part of a “pattern and practice” of terminating valid claims in order to improve profits. In his 58-page opinion in Saldi v. Paul Revere Insurance Co., U.S. District Judge R. Barclay Surrick sided with the plaintiff on dozens of specific requests and flatly rejected arguments from defense lawyers who insisted that the plaintiff was on a “fishing expedition.” Surrick ordered the four insurers — Paul Revere; Provident Cos. Inc.; Provident Life and Accident Insurance Co. of America; and UnumProvident Corp. — to turn over potentially hundreds of documents relating to plaintiff Thomas Saldi’s claim that he was a victim of a nationally implemented plan to begin denying disability claims because the insurers had discovered that they were proving to be unprofitable. Defense lawyers argued that under the U.S. Supreme Court’s 2003 decision in State Farm v. Campbell, plaintiffs in bad-faith cases should be strictly limited to discovery of documents relating to their own cases. But Surrick found that the defense lawyers were reading the State Farm decision too broadly and that plaintiffs have the right to build their cases and to seek out relevant evidence that could prove that the alleged bad-faith handling of their claims resulted from companywide policies. In State Farm, the justices overturned a jury’s award of $145 million in punitive damages after concluding that it may have been improperly based on conduct that occurred outside the plaintiff’s state. Surrick found that the justices’ “main interest” in State Farm was “to prevent the due process problems created when the jury punished the defendant for conduct that ‘bore no relation to the [plaintiff's] harm.’” But the ruling did not impose strict limits on discovery, Surrick found, and imposed no specific limits on the nature of the evidence a plaintiff can present. “Contrary to defendants’ assertions, the court in State Farm did not establish a requirement that the plaintiff provide specific types of evidence to show that there is a sufficient nexus between the actions of the defendant and the specific harm to the plaintiff,” Surrick wrote. “Instead, the court appears to have entrusted the lower courts with determining how to prevent juries from punishing defendants for unrelated prior transgressions,” Surrick wrote. As a result, Surrick concluded that nearly all of the discovery orders issued in the case by U.S. Magistrate Judge Arnold C. Rapoport were proper. In a detailed opinion that addressed the insurers’ objections to Rapoport’s rulings, Surrick ordered the defendants to turn over numerous categories of documents, including the following: � Any “profitability analyses” relating to the type of policy Saldi purchased, as well as other information regarding “cash flow underwriting,” interest rate projections or the relationship between investment income and premiums charged for individual policies. � Any documents that show the insurers “had knowledge of the lack of profitability of the own-occupation disability policies.” � Any documents relating to the insurers’ alleged goal to “terminate as many own-occupation claims as possible in order to improve their financial status.” � Training materials used to train the employees who handled Saldi’s claim. � Studies commissioned by the insurers — including one done by a law firm — to “analyze their claims management strategies and help them improve corporate profits.” Internal company manuals on “procedures, ethics, training and claims handling.” Depositions or affidavits of the employees who handled Saldi’s claim or their supervisors in other cases involving allegations of bad faith. The ruling is a victory for plaintiffs attorney Alan H. Casper, who contends in the suit that the decision to terminate Saldi’s disability benefits stemmed from a companywide practice of routinely denying claims for trumped-up reasons. According to the suit, Saldi purchased an “own occupation” private long-term disability policy from Paul Revere in 1990. At that time, Saldi was the general manager of Bucks County Roses, a large, commercial rose grower. In 1992, the suit says, Saldi was diagnosed with multiple sclerosis, a progressive, degenerative disease of the central nervous system. In April 1996, the suit says, Saldi was forced to stop working because his MS prevented him from working in the elevated temperature and humidity of the greenhouse. When Saldi applied for long-term disability benefits, Paul Revere at first decided that he was entitled and began making payments. But after 17 months of payments, the suit says, Saldi was told that his benefits were terminated because the insurers had conducted an investigation and determined that he was no longer unable to work. The suit alleges that the termination came soon on the heels of a pair of corporate mergers in which Provident acquired Paul Revere in March 1997, and was in turn acquired by Unum in 1998 to create a new company called UnumProvident Corp. In court papers, Casper alleges that the insurers’ profits were suffering in the late 1990s due to poor management decisions in their past pricing and structuring of insurance policies. From the mid-1980s to the early 1990s, Casper contends, Provident and Paul Revere were involved in an intense competition for the sale of individual disability policies and had “poorly underwritten and underpriced” their non-cancelable, guaranteed renewable, own occupation policies, such as Saldi’s. After a peak in 1990, Casper argues, the insurers saw their profits begin to fall because claims were being made and depleting their reserves. As a result, Casper contends, the insurers started redesigning and repricing their policies, as well as changing their claims processes. Provident, he says in his brief, went from a “claim payment” orientation to a “claim management” orientation, meaning that it set a budget for claim payments and focused on terminating claims in order to keep payments within the budget. To back up his arguments, Casper filed numerous documents obtained from Provident in other similar lawsuits. The evidence, the brief says, shows that Provident attempted to increase claim terminations by brainstorming grounds for termination at “roundtables” and by shifting its use of independent medical examinations, or IMEs, from their previous role of fairly evaluating claims to a new role as part of the claim termination process. The suit alleges that Provident attempted to justify the termination of Saldi’s benefits by “redefining” his occupation to an occupation he was still capable of performing. Intense discovery battles erupted when Casper served the defense lawyers with extensive interrogatories demanding numerous documents that, he says, could help prove his claim. Now, after a three-year battle, Surrick has sided almost entirely with Casper. “We find that plaintiff’s requests for more information about defendants’ policies and practices regarding own-occupation insurance policies are reasonably likely to produce relevant information that could contradict defendants’ proffered reasons for denying plaintiff’s disability claim,” Surrick wrote. Defense attorneys Andrew F. Susko and Thomas M. Dunn of White & Williams argued in court papers that Saldi’s broad discovery requests should be rejected because any information about the denial of his claim should be obtained either from the claims handlers’ testimony or his claims file. As a result, they said, Saldi should not be entitled to investigate the insurers’ businesses in an attempt to discover non-existent materials that raise questions about the accounts of the claims handlers and his claims file. Surrick disagreed, saying, “While there are some courts that have chosen to limit discovery in bad faith insurance cases after considering individual circumstances, we disagree with defendant’s assertion that the case law broadly limits discovery in all of such cases.” Instead, Surrick said, “courts have consistently held that when a bad faith policy or practice of an insurance company is applied to the specific plaintiff, the plaintiff is entitled to discover and ultimately present evidence of that policy or practice at trial in order to prove that the insurer intentionally injured the plaintiff and to show the insurer’s reprehensibility and recidivism in order to assist the jury in calculating appropriate punitive damages.” Significantly, Surrick also rejected the defense lawyers’ arguments that some of the documents were protected by the attorney-client privilege. Casper demanded access to several studies commissioned by the insurers, including one conducted by the law firm of LeBouef Lamb Greene & MacCrae. The LeBouef firm’s study, Casper alleged in court papers, recommended that the insurers involve lawyers in claim denial decisions in order to protect mistakes by creating attorney-client privilege over internal memos. The LeBoeuf Report also allegedly explains that every case has an optimal point for the termination of the claim. Casper argued in court papers that the recommendations showed a “bad faith corporate state of mind.” In his discovery papers, Casper requested the LeBouef Report itself as well as any documents referring to its adoption and implementation. Defense lawyers argued that the documents are irrelevant, have no bearing on Saldi’s claim and are proprietary, privileged and confidential. Surrick disagreed, saying, “We find that these documents are relevant to defendants’ state of mind and that defendants have failed to meet their burden to show that they are protected by any privilege.” Susko could not be reached for comment Tuesday on the judge’s rulings.

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