FOCUS - 1 OF 1 CASE

          John W. Dishman, Plaintiff, vs. UNUM Life Insurance Company
               of America; The Adams, Duque & Hazeltine Long Term
                      Disability Income Plan, Defendants.

                              CASE NO. 96-0015 JSL

            UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF
                                   CALIFORNIA

          1997 U.S. Dist. LEXIS 22676; 98 Daily Journal DAR 10340; 21
                                  E.B.C. 2941


                             May 9, 1997, Decided
                   May 9, 1997, Filed; May 15, 1997, Entered

CORE TERMS: disability, occupation, disabled, migraine, suspension, bad
faith, neurologist, claimant, executive director, regular, disability
benefits, good faith, claim file, headaches, administrator, capricious,
administrative record, partial disability, medical condition, unable to
perform, psychiatric, termination, terminated, earnings, medical
information, claims procedure, medical record, de novo, accommodations,
unscrupulous


COUNSEL:   [*1]   For Plaintiff: Thomas E. Shardlow, Esq., Pasadena, CA.


For Defendants: Lesley C. Green, Esq., Los Angeles, CA.

JUDGES: Hon. J. Spencer Letts, United States District Judge.

OPINIONBY: J. Spencer Letts

OPINION: FINDINGS OF FACT AND CONCLUSIONS OF LAW

   After trial in this matter, the Court makes the following findings of
fact
and conclusions of law. The Court has carefully considered the findings
proposed by plaintiff's counsel, which are based in large part on the
Court's oral announcement of intended ruling, and adopts those findings
as its own. Any finding under the "findings of fact" category which is a
conclusion of law is adopted as a conclusion of law. Any conclusion
under the "conclusions of law" category which is a finding of fact, is
adopted as a finding of fact.

   FINDINGS OF FACT

   BACKGROUND FACTS


   1. Mr. Dishman became the Executive Director of the law firm of
Kindel and
Anderson in 1981.

   2. Mr. Dishman became the Executive Director of the law firm of
Adams, Duque & Hazeltine ("AD&H") in 1986.

   3. As Executive Director of AD&H, Mr. Dishman was in charge of
essentially
all non-legal matters for AD&H.

   4. The job of Executive Director was extremely demanding and required
Mr.
Dishman  [*2]  to work a minimum of 40 hours per week.

   5. Mr. Dishman is currently 61 years of age.

   6. Effective June 1, 1989, AD&H adopted a long-term disability plan
for its employees by obtaining a long-term disability policy from
defendant UNUM Life Insurance Company of America (hereinafter "UNUM").
The policy (Exhibit 36) constitutes the entire plan document for the
AD&H Group Long Term Disability
Plan.

   FACTS CONCERNING MR. DISHMAN'S INITIAL CLAIM FOR DISABILITY BENEFITS

   7. Mr. Dishman began to have migraine headaches before the age of
ten, which have grown increasingly severe over the years.

   8. From approximately 1972 to 1995, Mr. Dishman's primary care
physician was an internist, Joshua Shere, M.D. Dr. Shere referred Mr.
Dishman to a series of specialists in search of a cure for the
migraines. In 1995, Dr. Shere left the practice of medicine in
California, and Mr. Dishman thereafter has been under the continual care
of other physicians.

   9. Over the years, Mr. Dishman has been seen by multiple
neurologists, an ENT specialist who performed nose surgery in the hope
that it would lessen the frequency or severity of the migraines, another
ENT specialist who performed a septoplasty in  [*3]   the same hope,
several allergists, and a pain (acupuncture and biofeedback) specialist.

   10. Mr. Dishman has also been examined by physicians at the Scripps
Medical Clinic and by several professors of neurology at the UCLA School
of Medicine.

   11. None of Mr. Dishman's physicians have ever suggested that Mr.
Dishman's migraine problem is not genuine or that it is not severe.



   12. Mr. Dishman took the prescribed narcotic, Percocet, which he has
used
over the years, to permit him to "work through" his migraines.

   13. Mr. Dishman's headaches began to worsen significantly between
late 1992 and early 1993. Mr. Dishman's job performance began to be
adversely affected. He had problems with his memory. His writing and
math skills were affected. He appeared to be tired and worn. He left
early in the afternoon much more frequently than he previously had. He
was irritable and had problems with the staff. The amount of work Mr.
Dishman did fell off. The number of the extensive reports to the
Executive Committee decreased significantly. Mr. Dishman began to assign
more miscellaneous matters to Mr. Frazer, the AD&H controller, that Mr.
Dishman would previously have taken care of himself.

   14. From  [*4]   January 1, 1993 through the date that Mr. Dishman
left AD&H, Michael Lathrop was the Chairman of the Executive Committee
of AD&H. During this period of time, Mr. Lathrop was Mr. Dishman's
supervisor, and worked more closely with him than any other attorney.

   15. Around March of 1993, Mr. Dishman told Michael Lathrop that he
questioned whether he would be able to continue on as Executive
Director. Mr. Lathrop wanted Mr. Dishman to continue working, and made
accommodations in his job in an attempt to retain Mr. Dishman's
services.


   16. However, by around July of 1993 it was clear to both Mr. Lathrop
and Mr.  Dishman that Mr. Dishman could not perform the essential duties
of his job, even with the accommodations that had been made, and that no
further accommodations would change that fact. Mr. Dishman applied for
long-term disability benefits with Mr. Lathrop's knowledge and consent.

   17. Mr. Lathrop, as Chairman of the Executive Committee, signed Mr.
Dishman's disability form verifying that "migraine headaches made it
impossible to continue working," that the job had been modified to the
extent possible and that no additional accommodations were possible. Mr.
Lathrop actually and reasonably  [*5]   held those opinions in August
1993, and does so today.

   18. At the time Mr. Dishman's claim for benefits was granted, UNUM
was an
important client of AD&H. AD&H thus had a special interest in making
sure that none of its employees submitted improper claims for benefits
to UNUM.

   19. Dr. Joshua Shere, Mr. Dishman's attending physician in 1993,
certified, among other things, on Mr. Dishman's initial claim
application that "Patient cannot perform required job functions
consistently. Anxiety, pain and stress results from his attempts to
ignore the symptoms."

20. UNUM granted Mr. Dishman's claim for benefits. UNUM made the
determination that "clm (claim) appears payable for the following
reasons: 1.
The clmt (claimant) has had cx (condition) since childhood. 2. He sought
out
work alternatives to remain at work longer. 3. His employer tried to
accommodate his cx. (condition). 4. The ap (application) information
seems very credible." UNUM commenced making disability payments to Mr.
Dishman after a 90-day waiting period, effective November 18, 1993.

   21. From November 18, 1993 through July 18, 1995, Mr. Dishman
received
monthly benefit payments in the amount of $ 11,500 from the UNUM Long
[*6]
Term Disability Contract.

   FACTS RELEVANT TO MR. DISHMAN'S CONTINUED DISABILITY AND THE DISPUTE
WITH
UNUM

   22. Since granting Mr. Dishman's claim for disability benefits, UNUM
has
requested and received at least two detailed reports from his examining
neurologist. Each report demonstrates that there has been no improvement
in Mr.  Dishman's condition.

   23. In August 1994 UNUM received a report from DS Rehabilitation
Consultants, a company which UNUM had retained to prepare a vocational
report on Mr. Dishman. The report concluded that:

"The medical record strongly established that Mr. Dishman has been
suffering
from migraine headaches for a very long period of time. The medical
record
equally establishes that Mr. Dishman has tried numerous and varied
medical
treatments in order to improve his condition without success. The
medical record establishes that the frequency and duration of the
headaches has increased to the point that he cannot maintain a full-time
work performance. As evidenced by the medical record, as well as Mr.
Dishman's report, he has made numerous attempts to overcome his
disability and improve his work capacity. None of these efforts have
succeeded. It  [*7]   is unlikely that any further medical information,
such as an independent medical evaluation, could render any information
which would be useful in this claim."

   The Court concludes that these statements from the DS Rehabilitation
Consultants report were and are accurate.

   24. The DS Rehabilitation Consultants report also indicates that Mr.
Dishman  was willing to consider a settlement of his claim. The report
"strongly recommended" that the author or a UNUM representative contact
Mr. Dishman to discuss, among other things, settlement of his case.


   25. In April 1995, Mr. Dishman's case was referred to the Complex
Claims
Unit. UNUM policy requires that there be two "criteria" present in order
for a referral to be made, one of which is that the "reserve" for the
claim must
exceed $ 140,000. In Mr. Dishman's case, the criteria for the referral
were: i)a reserve of $ 497,154, and ii) "we have exhausted risk
management tools at this time." Ms.  Puthoff  defined risk management
tools as any investigative or medical review of a claim file. Thus, the
referral to the Complex Claim Unit was based upon the size of the
potential liability to Mr. Dishman, and the fact that previous
investigation  [*8]   and medical review of the claim file had indicated
no basis for ceasing payments to Mr. Dishman.

   26. Mr. Dishman's case was assigned to Frankie  Puthoff  in the
"Complex
Claims Unit," who, in her own words, began an "investigation." Ms.
Puthoff
initiated the investigation by requesting that an outside investigative
agency do a "Work and Sports check," and requested two so-called IME's
(independent medical examinations), one with a neurologist and one with
a forensic psychiatrist.

   27. The Policy contains a limitation for benefits for mental
illnesses.
However, that limitation applied to classifications of employees which
did not include Mr. Dishman. Propensity to migraine headaches cannot, in
any event, reasonably be considered a mental illness.


   28. The "Work and Sports check" which Mrs.  Puthoff  ordered
subsequently
came back with the ambiguous information which suggested the possibility
that
Mr. Dishman might be employed at Semiotix, Inc., a company located in
Denver,
Colorado. The report did not indicate the amount which Mr. Dishman was
being
paid, or whether any payments were the result of Mr. Dishman's ownership
of a
minority interest in Semiotix, Inc. rather than compensation  [*9]   for

services rendered as an employee.

   29. Under the terms of the policy, if Mr. Dishman is unable to
perform each of the material duties of his regular occupation, but is
able to perform and is performing some of the duties of his regular
occupation, or another occupation, the amount of disability payments to
him might be reduced. Mr. Dishman was entitled to receive earnings of up
to $ 47,891.56 (20% of his indexed pre-disability earnings) per annum
before any reduction. If Mr. Dishman earned more than $ 47,891.56, there
would be a partial reduction in benefits. Mr. Dishman would have to have
earned an amount equal to his indexed pre-disability earnings ($
47,891.56 / 20% or $ 239,458) in order for no benefits to have been
payable.

   30. On July 18, 1995 Ms.  Puthoff  received a report from Joe Wyllie
&
Associates (Ex. 225, pages 17 et seq.) which stated that Mr. Dishman
traveled
three times roundtrip between Denver and Los Angeles, and that he was a
chairman and member of the board of directors of Semiotix, Inc. The
report did not indicate that Mr. Dishman was employed by Semiotix, Inc.,
or the purpose of the trips.

   31. Based on these two reports, Ms.  Puthoff  telephoned Mr. Dishman
[*10] at 8:15 in the morning on July 18, 1995 and informed him that she
was cancelling the medical appointments with the neurologist and the
psychiatrist and that his claim was being denied. Prior to this Mr.
Dishman had no knowledge that he was being investigated, or that any
consideration was being given to ceasing disability payments to him.

   32. Mr. Dishman informed Ms.  Puthoff  that he was not employed by
Semiotix, and that her information was incorrect. After speaking with
Mr. Dishman, Ms. Puthoff  told Mr. Dishman that she was going to
"suspend" his benefits rather than deny his claim, and that he was to
provide her with a statement of his relationship with Semiotix, his
travel to Colorado, and his investment with any other businesses, and
also copies of his 1993 and 1994 tax returns and Semiotix's 1993 and
1994 tax returns.

   33. About a half-hour prior to phoning Mr. Dishman, Ms.  Puthoff
wrote a
memorandum confirming her request that UNUM's internal investigative
division
("SIU" or Special Investigations Unit) perform additional investigations
of
Mr. Dishman. Thus, Ms.  Puthoff  called Mr. Dishman to tell him that his
claim was being denied despite the fact an active investigation was
[*11]   still underway.

   34. Ms.  Puthoff  testified that she suspended benefit payments,
rather than terminate them, because she believed that she needed
additional information before she could determine whether Mr. Dishman
was entitled to a continuation of benefit payments.

   35. Neither the policy nor ERISA's claim procedure contain any
reference to the so-called suspension of benefit payments. Ms.  Puthoff
was unable to
explain to the Court the authority for a "suspension" of benefit
payments, or
what it meant to suspend benefit payments, rather than terminate them.
Ms.
Puthoff  did make it clear, however, that the benefits would not have
been
reinstated merely because she received the information that she was
requesting.  Rather, a reinstatement, if any, would only follow a
subsequent determination by her that Mr. Dishman was entitled to
continued disability payments under the policy.

   36. The benefit payments to Mr. Dishman were never reinstated and
remain
"suspended."


   37. Ms.  Puthoff  in fact terminated Mr. Dishman's payments on July
18, 1995, without giving Mr. Dishman any notice or opportunity to
provide information. The Court finds that the only practical difference
between the suspension  [*12] of benefits and a termination of benefits
is the fact that Ms.  Puthoff  had significant concerns as to whether
her decision to terminate Mr. Dishman's benefits was warranted. ERISA's
claim procedure rules require that a claim denial be reconsidered at the
request of the claimant. Therefore, the cessation of benefit payments to
Mr. Dishman constituted a termination even if Ms. Puthoff  intended to
reconsider her decision in light of the information she requested from
Mr. Dishman.

   38. UNUM terminated Mr. Dishman's benefits without receiving any
medical
advice (from either UNUM's own staff physician's or any physician who
was not
employed by UNUM) that Mr. Dishman was no longer disabled. UNUM
terminated Mr. Dishman's benefits without attempting to make any
determination as to whether the activities they thought Mr. Dishman
might be engaged in indicated that he was capable of performing his "own
occupation." UNUM terminated Mr. Dishman's benefits without having
obtained any information which suggested that any funds that Mr. Dishman
might have been receiving from Semiotix, Inc. were sufficient to require
a reduction in benefit payments to him under the terms of the contract,
and certainly  [*13]   without having any information which suggested
that any funds that Mr. Dishman might have been receiving from Semiotix,
Inc. were sufficient to reduce his disability benefits to zero.

   39. The additional investigations ordered by Ms.  Puthoff  on July
18, 1995 reported to UNUM that Mr. Dishman was not an employee of
Semiotix, Inc.
Nevertheless, benefit payments to Mr. Dishman were not reinstated.

   40. There followed a series of correspondence between Frankie
Puthoff  and Mr. Dishman's counsel. Of relevance are the following
facts:

   a. Mr. Dishman proposed that he be examined by a neutral neurologist,

selected by UNUM's neurologist and Mr. Dishman's attending neurologist.
UNUM
declined.

   b. In lieu of providing copies of his complete tax return, which Mr.
Dishman was reluctant to do because of concerns about confidentiality,
Mr. Dishman asked UNUM to give consideration to what assurances UNUM
might be given concerning Mr. Dishman's lack of employment. In response,
UNUM insisted that Mr. Dishman was obligated to provide them with
"information on all income, perks, dividends or other compensation
received by Mr. Dishman's immediate family," Mr. Dishman's "complete
financial information"   [*14]   and "his personal income from any and
all sources."


   c. However, UNUM abandoned its request for Mr. Dishman's tax returns
and the other information requested on July 18, 1995 and replaced it
with a demand that Mr. Dishman arrange to allow a so-called independent
"forensic certified public accounting firm" to visit [Semiotix] on sight
[sic.] and review any document they deem necessary for this purpose." If
Mr. Dishman was "unwilling or unable" to allow such investigation, his
claim would be "closed."

   d. In response to Mr. Dishman's objection to being examined by a
forensic
psychiatrist, Ms.  Puthoff  stated that a forensic psychiatrist was
necessary
because "in this instance the question of law would be whether Mr.
Dishman was disabled from a psychiatric disorder as defined in the long
term disability contract." When it was pointed out to Ms.  Puthoff  that
under an amendment to the insurance policy, the mental illness
limitation of the policy did not apply to AD&H's partners or the
executive director, Ms.  Puthoff  simply insisted that Mr. Dishman had
to agree to a psychiatric examination or his benefits would be
terminated. UNUM has never renewed its request that Mr. Dishman be
examined [*15]   by UNUM's neurologist, despite the fact that Mr.
Dishman expressly stated that he had no objection to such examination.

   e. Although Mr. Dishman complained that UNUM had not requested an
updated
opinion from any physicians on his disability, UNUM never requested any
medical information from Mr. Dishman, nor any additional medical
information from any of Mr. Dishman's physicians.

   f. Mr. Dishman's first request for a copy of the claims procedure
UNUM
followed with respect to cessation of disability payments was ignored.
Mr.
Dishman repeated his request as follows: "Does UNUM have any procedures
applicable to the suspension and threatened termination of Mr. Dishman's

benefits? If so, is UNUM willing to provide me with a copy?" UNUM's
unequivocal response was "UNUM does not have a Claims Procedure with
regard to the suspension and termination of benefits." In addition, UNUM
did not provide Mr. Dishman or his counsel with a copy of any claims
procedure.

   41. Under the UNUM policy, a class-one employee (partner or executive

director) is disabled if he or she is unable to perform each of the
material
duties of his regular occupation. This type of policy is referred to as
an "own occupation"   [*16]   policy.

   42. The partial disability provisions of the policy call for a
reduction of benefits if Mr. Dishman "while unable to perform all of the
material duties of his occupation on a full time basis" performed some
of the material duties of his occupation, or another occupation and
earned an amount in excess of $47,891.56. Neither the partial disability
provision of the contract, nor any other provision, obligates Mr.
Dishman to look for or accept employment if he remains unable to perform
his own occupation.

   43. The disability and partial disability provisions of the contract,
read
together, evidence the fact that a class-one employee is disabled if
there is a single material duty of his occupation which he cannot
perform. UNUM's grant of disability benefits to Mr. Dishman in 1993
supports this interpretation, since it is clear that in 1993, Mr.
Dishman could perform some of the material duties of his occupation.
This interpretation is further supported by Ms.  Puthoff's explanation
that Mr. Dishman was not entitled to disability benefits if he "is able
to work full-time in his own occupation . . . ."

   44. Notwithstanding the above, none of the decisions of the Court
would
differ  [*17]   if the policy were interpreted as requiring that an
employee be unable to perform sufficient material duties of his
occupation such that
employment in that occupation becomes impossible.

   45. UNUM determined in 1993, and subsequently on the basis of
accurate and
complete information provided by Mr. Dishman, his physician and
employer, that Mr. Dishman's medical condition was such as to meet the
definition of disability under the contract. The Court does not believe
that UNUM has the right to now question its own determination. However,
the Court independently determines that Mr. Dishman was in fact disabled
within the meaning of the policy on August 18, 1993 and at all times
thereafter.

   46. The Court determines that Mr. Dishman's claim application was
complete
and accurate in all material respects.

   47. Mr. Dishman received $ 32,129.00 from Semiotix, Inc. in 1992, and
$
43,690.40 from Semiotix, Inc. in 1993. Mr. Dishman has not received any
payments from Semiotix, Inc. since 1993. Although the amounts received
by Mr. Dishman from Semiotix, Inc. in 1992 and 1993 were reported as
wages, the Court determines that the payments were made to Mr. Dishman
to compensate the Dishmans for certain  [*18]   loans incurred by them
in connection with Semiotix, Inc., and as compensation for the personal
guarantee by the Dishmans of certain Semiotix, Inc. loans.

   48. Mrs. Dishman received $ 51,680.40 from Semiotix, Inc. in 1994,
and
$53,499.50 from Semiotix, Inc. in 1995. The Court finds that of those
sums,
$43,690.40 per year was paid to Mrs. Dishman to compensate the Dishmans
for the above-referenced loans and as compensation for the
above-referenced personal guarantees. The Court finds that the balance
of the payments were paid for services performed by Mrs. Dishman as an
employee of Semiotix, Inc.


49. Mr. Dishman was never "partially disabled" within the meaning of the

policy as opposed to disabled if for no other reason than the fact that
since
his disability he has never earned in excess of 20% of his
pre-disability
indexed earnings.

   50. The activities of Mr. Dishman at Semiotix, Inc. were performed by
him in his capacity as an owner attempting to protect his ownership
interest in
Semiotix, Inc. None of the activities performed by Mr. Dishman in
relationship to Semiotix, Inc., or contended by UNUM to have been
performed by Mr. Dishman in relationship to Semiotix, Inc., suggest
that  [*19]   Mr. Dishman is capable of performing each of the material
duties of his own occupation as an executive director. Mr. Dishman's
activities with respect to Semiotix, Inc. were entirely consistent with
passive investment.

   51. Although Frankie  Puthoff  may have been attempting to tell the
truth at trial, as she understood it, I did not credit her testimony in
many respects. Based in part on the lack of credibility of her
testimony, and in part on the Court's determination that the
"suspension" of benefits was made without any reasonable basis, the
Court concludes that UNUM was not motivated by a legitimate purpose in
"suspending" Mr. Dishman's benefits and demanding
information from Mr. Dishman. The Court suspects that the "suspension"
may well have been intended to place pressure on Mr. Dishman to settle
his claim on favorable terms to UNUM.

   52. Mr. Dishman, though he made reasonable attempts to do so, was
unable to persuade David Stalker, his co-shareholder and the president
of Semiotix, Inc., to permit the on-site inspection of records demanded
by UNUM. No reasonable person in Mr. Stalker's position would have
permitted the type of search of the records of his company which UNUM
demanded.   [*20]

   53. Mr. Dishman acted reasonably and properly in declining to undergo
a
psychiatric examination at UNUM's behest pending a determination of this
Court as to whether such request was proper. The Court determines that
such request was not proper, and grants Mr. Dishman's request for a
declaration that he is not obligated to undergo such an exam. UNUM was a
fiduciary with respect to the AD&H Long Term Disability Income Plan and
had an obligation to request an examination only for legitimate purposes
related to the administration of the contract. UNUM failed at trial to
advance any reasonable explanation for its demand that Mr. Dishman
undergo a psychiatric examination. UNUM's initial explanation that "in
this instance the question of law would be whether Mr. Dishman was
disabled from a psychiatric disorder as defined in the long term
disability contract" demonstrates that, at best, the request for a
psychiatric examination was based upon a mistaken belief that the mental
illness provision of the policy applied to Mr. Dishman.


   54. At the time UNUM approved Mr. Dishman's disability application,
and
through the date of trial, there does not appear to have been any known
remedy for Mr.   [*21]   Dishman's condition that he has not tried. The
Court finds that no reasonable person in possession of the information
contained in UNUM's claim file could believe that a psychiatric exam
would produce any information of relevance to whether Mr. Dishman was
disabled within the meaning of the contract. Further, although Mr.
Dishman's attorney objected to the invasion of privacy which might
result from such an examination, as revealed by articles sent by UNUM to
Mr. Dishman's attorney, UNUM did not provide any assurance that the
examination would exclude any of the matters which the articles
suggested would be part of the examination. The possible scope of the
proposed psychiatric exam far exceeded anything which Mr. Dishman should
have been exposed to, and far exceeded any legitimate need by UNUM.

   55. The policy provides that a disabled individual will be entitled
to
continued disability payments if, upon request of UNUM, the insured
provides
proof of continued disability, and regular attendance of a physician. On
each
occasion that UNUM asked for proof of continued disability and regular
attendance of a physician, Mr. Dishman provided such information to
UNUM. Since the initiation  [*22]   of this action, no request for proof
of continued disability or regular attendance of a physician has been
made to Mr. Dishman. UNUM has been able to obtain any information it may
wish in that regard through discovery. Furthermore, Mr. Dishman proved
at trial that at all points in time he has been under the regular care
of a physician, and remains disabled within the meaning of the policy.

   56. Mr. Dishman was honest and forthcoming with UNUM in his initial
claim,
and in all subsequent contacts with UNUM. The information provided to
UNUM by
Mr. Dishman and/or his physicians was accurate in all material respects.
UNUM's actions with respect to the "suspension" of Mr. Dishman's
benefits has been, if not a calculated effort, at least an undesirable
effort to take advantage of Mr. Dishman's truthfulness.

   57. Mr. Dishman made no efforts to conceal the existence of Semiotix,
Inc.
from UNUM. The Court determines that Ms.  Puthoff's  testimony, and
memorandum which suggest to the contrary, are not credible or accurate.

   58. Mrs. Dishman did not draft any of the material items of the
physician's report which was part of the initial claim for benefits, but
provided clerical services only. In  [*23]   any event, the Court does
not believe that it is improper for a claimant to assist in the
preparation of a physician's report. The relevant consideration, in such
event, is whether the report was approved by the physician and whether
it is accurate.


   59. No significant changes have occurred in Mr. Dishman's medical
condition since UNUM's initial determination that he was disabled. Such
slight improvement as has occurred is the natural consequence of Mr.
Dishman's no longer being employed as an executive director, a fact
supported by the defendants' own evidence that migraines can be caused
or aggravated by stress.

   60. Both the plaintiff and the defendants informed the Court that
they did
not believe that a doctor's testimony would provide the Court with any
relevant information, but rather that the dispute was entirely over Mr.
Dishman's activities with respect to Semiotix, Inc. and the truthfulness
of the information provided by him to UNUM. In the circumstances of this
case I agree; a doctor's testimony or additional medical information
concerning Mr. Dishman's current medical condition would not have been
helpful to the Court as a trier of fact.

   61. The Court is unable to conclude  [*24]   from the evidence
presented by the defendants that the conflicts between the partners at
AD&H differed
significantly in kind or intensity from those present at many large law
firms or organizations. However, such evidence certainly emphasizes the
difficulties inherent in the job as an executive director, and the
reasons why Mr. Dishman's severe and persistent migraines make it
impossible to function as an executive director.

62. Mr. Dishman has suffered irremediable harm as a result of the
termination
of benefit payments to him. He has been forced to sell stocks and make
distributions from his IRA in order to pay living expenses. As a
consequence, he has incurred taxable income which might have been
deferred or avoided. Mr.
Dishman is not entitled under ERISA to any compensation for such
consequential damages. Mrs. Dishman has been required to return to
full-time employment. Finally, the purpose of disability payments is to
provide a disabled individual with periodic income with which to pay
living expenses. The receipt of a lump sum at the conclusion of an
appeal of this case will not compensate Mr. Dishman for the loss of
periodic income.

   63. The Court finds that it would be inequitable  [*25]   under the
circumstances of this case to require UNUM to pay less than 16%
pre-judgment
interest.

   CONCLUSIONS OF LAW

   1. A claimant for disability benefits has the burden of demonstrating
the
existence of the disability. However, one relevant consideration in
determining the existence of a disability is whether any significant
changes have occurred in the individual's condition since the insurer's
initial determination that the covered individual was disabled.

2. The "own occupation" test adopted in the plan requires that the trier
of
fact give meaningful consideration to plaintiff's vocational options.
With
respect to any job which the insurer proposes that a claimant is capable
of
performing, a determination must first be made as to whether such job is
an
occupation which is plaintiff's "own occupation." Evidence linking the
claimant's medical condition and other qualifications to his ability to
perform specific jobs functions must be considered. None of this was
done by UNUM either prior to or after the "suspension" of Mr. Dishman's
benefits.

   3. Plaintiff did not fail to exhaust his administrative remedies
because he was given inadequate notice of both the denial of his
[*26]   claim and the appeals procedure available to him. See  Diaz v.
United Agricultural
Employee Welfare Benefit Plan, 50 F.3d 1478, 1484; 29 C.F.R. @
2560.503(1)-(F).  UNUM directly and in bad faith refused to give
adequate notice of

denial or of the proper procedures for appeal, even after requested to
do so by the plaintiff. It would be manifestly unjust to require the
plaintiff to exhaust the administrative procedures because the
overwhelming weight of the evidence indicates that the process would be
futile.

   4. The standard of review in this case is de novo. The absence of a
claims
procedure, and especially an administrative appeal procedure, means that
the
claim file is not an adequate administrative record to review, which is
a
necessary prerequisite to a review under the arbitrary and capricious
standard.

   5. Where a matter is being considered de novo, the Ninth Circuit
scope of
review permits the District Court in its discretion to allow evidence
that was not before the plan administrator when circumstances clearly
establish that additional evidence is necessary to conduct an adequate
de novo review of the benefit decision.

   6. Were the arbitrary and capricious standard  [*27]   to be applied,
the
result would be the same. Less deference is due under the arbitrary and
capricious standard to the extent that the fiduciary making a decision
has a
conflict of interest. Mr. Dishman has provided material, probative
evidence,
beyond the mere fact of the apparent conflict, tending to show that
UNUM's
self-interest caused a breach of UNUM's fiduciary obligations to Mr.
Dishman.
The principles of trust law require the Court under such circumstances
to act
very skeptically in deferring to the discretion of an administrator who
appears to have committed a breach of fiduciary duty.   Atwood v.
Newmont Gold Co., Inc., 45 F.3d 1317, 1322-1323 (9th Cir. 1995).

   7. If an arbitrary and capricious standard were otherwise to apply,
the Court would normally be restricted to considering the evidence in
the administrative record. Any such administrative record would
necessarily include the claim file. The claim file reveals on its face
that, at a minimum, UNUM acted arbitrarily and capriciously.

   8. Under either standard, however, review is not limited to the
administrative record because it would be inappropriate to restrict the
evidence to be considered by the Court where the  [*28]   claimant was
not given a reasonable opportunity through a reasonably available
administrative appeals process to provide information to be included in
the administrative record.

   9. Mr. Dishman is disabled within the meaning of the policy and has
been at all times since August 18, 1993. Notwithstanding the Court's
determination of the appropriate scope of review, the Court would reach
the same conclusion under either the de novo standard or the arbitrary
and capricious standard, and whether it considered all evidence, or just
the evidence in UNUM's claim file.

   10. Under the civil enforcement provisions of ERISA @ 502(a) a
participant
may, among other relief, obtain "an injunction against a plan
administrator's
improper refusal to pay benefits."  Pilot Life Insurance Co. v. Dedeaux,

481 U.S. 41, 53, 95 L. Ed. 2d 39, 107 S. Ct. 1549 (1987).

   11. Such an injunction against discontinuing future disability
payments is
warranted in this case, and has been included in the judgment issued by
this
Court.

   Further Opinion

   This Court has always strongly believed in preserving the remarkably
successful balance of competing interests struck by Congress when it
enacted
ERISA. ERISA provisions must be construed to  [*29]   preserve the
integrity of the actuarial presumptions upon which ERISA plans are
funded, and to contain the costs of such plans in order to make them as
widely available as possible. Indeed, the judgment in this case falls
squarely within the Court's own prior decisions and other controlling
precedents which follow directly from the language of ERISA.

   However, the facts of this case are so disturbing that they call into

question the merit of the expansive scope of ERISA preemption. UNUM's
unscrupulous conduct in this action may be closer to the norm of
insurance
company practice than the Court has previously suspected. This case
reveals that for benefit plans funded and administered by insurance
companies, there is no practical or legal deterrent to unscrupulous
claims practices. Absent such deterrents, the bad faith denial of large
claims, as a strategy for settling them for substantially less than the
amount owed, may well become a common practice of insurance companies.

Consequently, ERISA may need to provide a greater deterrent to bad faith

conduct in the administration of ERISA plans. The Court continues to
believe
that providing for punitive, "bad faith," or compensatory damages  [*30]

beyond the amount of the claimed damages would adversely disturb the
balance
struck by ERISA. However, for the first time, it believes that at least
in the case of insurance-funded and administered plans the public
interest would be advanced if ERISA contained a statutory penalty which
could be imposed by the Court in extraordinary cases.

   Insurance companies do not have the same practical incentives as
employers to administer benefit plans in good faith. For
self-administered and even
self-insured plans, employers are motivated to act in good faith not
only in
order to comply with the law, but by the practical considerations of
maintaining employee loyalty and morale. Employers must take into
account the effects on loyalty and morale of denying or terminating
legitimate claims. For many employers, trying to hold down the costs of
employee plans through unscrupulous practices may undermine employee
morale and loyalty even more than not having an employee plan at all.
Further, the individual administrators of these plans have significant
peer pressure to act in good faith, even though part of their job
function may be to contain plan costs. These administrators must look
the wronged  [*31]   employee in the eye, and face the displeasure of
co-workers,associates, and friends when they unjustly deny a fellow
employee's claim.

These practical incentives may be strong enough to foster a norm for
good
faith conduct in claims administration in a system which encourages
private
employee benefit plans, but does not make them mandatory. These
practical
incentives, however, place no direct pressure on plans funded and
administered by insurance companies. Moreover, it is not likely that
insurance companies will face these pressures indirectly through the
decisions of employers. It should not be assumed that employers will
always punish insurance companies for bad faith denials by moving their
plan to another insurance company. Deflecting the blame for bad faith
denials on insurance companies, effectively allows employers the benefit
of unscrupulous practices (lower plan costs) while avoiding the price of
such practices (corrosion of employee morale and loyalty).

   Without these practical incentives, there is no counter-balance to
insurance companies interests in minimizing ERISA claims. Claim
minimization is a necessary part of the insurance business. It is
precisely the task that  [*32] claims adjustors are paid to do. The CCA
handling Dishman's claims was not required to explain to Dishman's
friends or co-workers why Dishman's claims were denied. She was allowed
to deal with Dishman at arms length, without a history of working
together with him or at least for the same employer. She need not be
concerned with how her actions would be perceived by other employees of
Dishman's former employer. Her employer would place no value on her
decision to continue benefits. On the contrary, her job performance
would be evaluated by her ability to cut and reduce employee benefits.
She was a member of a "Complex Claims Unit" that appears to have the
function of re-evaluating large claims that could not be reduced by the
standard "risk management tools" of UNUM.

   The Court is appalled by how UNUM handled Dishman's claim. When UNUM
decided to discontinue Dishman's disability payments, it had no concrete
knowledge about his financial situation. It had no reason to believe
that Dishman and his wife had any means of support other than his
monthly benefit. It had received no information which suggested that his
medical condition or his capacity for full time employment had changed
since  [*33]   the date upon which his disability claim was allowed. The
decision to suspend payments was made on such clearly pre-textual bases,
that it is impossible to avoid the conclusion that it made in bad faith.
*

- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - -
- - - -

   * UNUM acted solely on the basis of information which could have led,
at
most, to a good faith suspicion that Dishman might have earnings which
would
trigger the partial disability offset, and that he was not disclosing
that fact. The information was unreliable on its face, and was rendered
even more doubtful by other information which UNUM either had at the
time or received immediately thereafter. The financial information
obtained by UNUM indicated that Semiotix was a small company which was
having trouble meeting its financial obligations, and which, in fact,
caused Semiotix to expire within a period of months thereafter.
Moreover, there was no basis for believing that a partial disability
offset might exist which would justify complete nonpayment.

- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - -
- - - -

   The CCA had before her an insured that both the prior claims  [*34]
administrator and the occupational therapist had found to be completely
cooperative and genuinely disabled. Both of them had suggested that the
best
course of action would be for Dishman to settle his disability claim for
a lump sum. Dishman had been receptive to this proposal because it would
enable him to acquire a business that could be run by his family and
which he could be involved with as his health dictated.

   If dealt with in good faith, this proposal might have been the best
solution for all concerned. Instead, UNUM chose to cut off Dishman's
income entirely so that it would have all of the leverage while
negotiations proceeded. That UNUM's coercive bargaining strategy did not
succeed is entirely due to Dishman's unique ability and willingness to
persevere. Dishman's financial reserves, his knowledge of the law, and
his wife's ability to find employment to provide income during the
litigation, allowed Dishman to stand up to UNUM rather than to
capitulate. Most persons in Dishman's position would not have had the
legal sophistication or financial ability to wait for the bad faith
denial to be redressed by a court. Their only option would have been to
settle on terms very favorable  [*35]   to the insurance company,
because of the financial jeopardy in which the insurance company's bad
faith denial had placed them.

   The fact that most people in the Dishmans' situation would have had
to
capitulate is the most troubling aspect of this case. The need to deter
insurance companies from behaving in this matter is why "bad faith"
liability
exists under almost all state laws. ERISA preempts all such laws. Under
ERISA, no matter how unfounded the denial of a claim may be, the only
recovery permitted to the claimant is the amount of the benefit.

   As this case demonstrates, the reform of shifting the attorney's fee
to the insurer is not enough to deter this type of conduct. UNUM's bad
faith acts placed pressure on the Dishmans because they were deprived of
monthly income which they needed to live. A lump sum benefit after a
lawsuit, even with interest and free from legal expense, did nothing to
alleviate the pressure upon them at the time the claim was denied and
during the entire course of the litigation. UNUM was not deterred by the
prospect of paying the Dishmans' attorneys' fees, because it had every
reason to believe that the economic straits in which it had placed the
Dishmans  [*36]   would force a favorable settlement long before any
substantial fees had been accumulated.

   It is still the Court's view that bad faith tort liability under
state law is so extreme and unpredictable that it would detrimentally
disturb the ERISA
balance. However, without any statutory or other legal deterrent it is
entirely predictable that insurers will go overboard to minimize claims.


DATED: May 9, 1997

   The Hon. J. Spencer Letts

   United States District Judge

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Created: April 15, 1999


Last Updated: May 28, 2000