Expert Commentary

Greedily Contesting Claim Recovery Can Backfire

Sometimes when an insurance company doesn't do what the person insured wants them to do, the insured sues seeking to profit from the dispute, even though the policy wording is clear and unambiguous. These insureds might do better taking what the policy offers rather than wasting their time in litigation, as a recent case illustrates.


Claims Management
July 2018

In Fiorentini v. Paul Revere Life Ins. Co., 893 F.3d 476 (7th Cir. 2018), Fiorentini gave up the right to partial disability to sue for damages to which the trial court found he was not entitled. The Seventh Circuit Court of Appeals was called on to resolve the dispute.

Background

Henry Fiorentini was the owner and president of Panatech, Inc., a small technology company. When cancer treatment left him unable to perform his job, he received total disability benefits under a policy he held with the Paul Revere Life Insurance Company. Five years later, after Fiorentini was back at work and exercising full control of the company, Paul Revere notified him that he no longer qualified for the benefits. Fiorentini argued that he still satisfied the policy's requirements for total disability because even though he could perform most of his job duties, he was unable to do what it takes to generate new business. Paul Revere rejected that argument, and Fiorentini sued it for breach of contract.

In 1998, he was diagnosed with invasive basal cell carcinoma of the right ear. After minor surgeries failed to remove the cancer, Fiorentini had his right ear amputated in 2008. Several more surgeries and radiation followed, leaving him with permanent hearing loss, fatigue, migraines, dry mouth, tinnitus (a constant ringing sound), and an inability to localize sound. To compensate for the amputation, Fiorentini received a prosthetic ear that was virtually indistinguishable from his left ear.

Ever since Fiorentini's surgery, Panatech survived exclusively on work from its existing clients. Fiorentini claimed he was the only one capable of bringing in new clients and that he could only do so by meeting personally with prospects, giving presentations, and attending seminars. He said that kind of face-to-face contact was impossible because of his continuing symptoms, including tinnitus and fatigue. He dismissed the suggestion that he could solicit new business through phone calls, emails, the Internet, or a marketing company—for his small business, he said, only in-person contact would do.

However, Fiorentini's own testimony contradicted that claim. He admitted to meeting regularly with existing clients at their businesses or over lunch; he also visited job sites weekly to discuss and address computer problems. Fiorentini offered no explanation for why he could meet with existing clients but not prospects. Indeed, his own vocational expert conceded that he was able to conduct face-to-face meetings on a "limited basis," and his own surgeon confirmed that he could "hear and communicate" in one-on-one meetings.

The Insurance Policy

The policy defined the key terms for total disability coverage as follows:

"Total Disability" means that because of Injury or Sickness … You are unable to perform the important duties of Your Occupation.

"Your Occupation" means the occupation in which You are regularly engaged at the time You become Disabled.

Fiorentini listed his occupation as "President & Owner" of Panatech and said that his occupation entailed four "important duties": sales (6–8 hours per week), consulting/meetings (7–10 hours per week), programming (15–25 hours per week), and administrative work (2–3 hours per week). Concluding that Fiorentini was unable to perform these duties, Paul Revere approved his claim and began paying total disability benefits in February 2009.

Disability Ends

Five years later, Paul Revere notified Fiorentini that he no longer met the total disability requirements of his policy. He had been cancer-free since 2009 and was working regularly again. He continued to suffer side effects from the surgery and worked fewer hours than he had before. Nonetheless, he was now well enough that he was exercising full control over Panatech.

While it found him ineligible for total disability benefits, Paul Revere invited Fiorentini to apply for "residual disability" benefits under his policy. Coverage under that provision would have required Fiorentini to show that he was either unable to perform "one or more of the important duties" of his occupation or could only perform his important job duties for "80 percent of the time normally required to perform them" and that he earned at least 20 percent less than he did predisability. Fiorentini did not submit that information; instead, he let his policy lapse and sued Paul Revere, seeking damages for breach of contract, statutory penalties for unreasonable and vexatious conduct under Illinois law, and a declaratory judgment. The district court entered summary judgment for Paul Revere.

Court's Analysis

Fiorentini argued vigorously that the "total disability" clause covered him even though he could still do almost everything his occupation required him to do. He didn't dispute that he was able to perform three of the important duties listed on his claim for total disability benefits: consulting with clients, programming, and administrative duties. His claim turned on his alleged inability to perform the fourth, which he characterized as essential: sales.

Fiorentini's claim that his inability to execute one task rendered him "unable to perform the important duties of [his] Occupation" seized upon an opening in case law. For example, in one case, the court noted that a shortstop who could no longer throw would be unable to do his job even if he could still run, hit, and catch. Fiorentini argued that in-person solicitation is to him what throwing is to a shortstop—utterly essential. And, because he couldn't sell, he couldn't do his job even if he could program, consult with existing clients, and do administrative tasks.

The Seventh Circuit found Fiorentini's analogy inapt. A shortstop who can't throw can't be a shortstop; Fiorentini, on the other hand, functioned daily as Panatech's president. Critically, the total disability provision does not cover the insured who has a diminished ability to perform his occupation, but rather the insured who is unable to continue it.

Fiorentini's ineligibility for benefits under the total disability provision of the policy was underscored by the policy's provision for residual disability benefits. Fiorentini said that he could not perform one of his four important duties; the residual disability provision applied when "you are unable to perform one or more of the important duties of Your Occupation." This is the clause that fits a claim like Fiorentini's; it protects an insured whose disability has reduced but not eliminated his capacity to work, so long as he is earning at least 20 percent less as a result.

Even if the language of the policy were on his side, Fiorentini had a proof problem: the evidence would not permit a reasonable juror to conclude that he was unable to meet with potential clients in person.

Fiorentini's off-the-job activities also undercut his contention that his symptoms render him mentally and physically unable to meet personally with potential clients. In 2013, Fiorentini renewed his pilot's license—which he had originally obtained in the 1980s but had permitted to lapse—and bought an airplane. He spent 75–80 hours a year flying around the Midwest, primarily to have breakfast with other recreational pilots. And, while Fiorentini claimed that he was unable to put on work-related presentations to sell Panatech's product, he conducted a 90-minute seminar for other flying enthusiasts about an iPad application called ForeFlight. Nor was flying Fiorentini's only hobby. Just as his symptoms had not kept him out of the air, they had not kept him off the ice; Fiorentini played in a weekly adult hockey league.

The court noted that Fiorentini had the right to reduced benefits, but Fiorentini chose not to apply for those benefits.

Consequently, the court held that Fiorentini bore the burden of proving that his loss fell within the terms of his insurance policy. His alleged inability to perform one of his four important job duties—sales—did not. Even if it did, and even if the claim that he cannot make sales without in-person meetings, the evidence construed most favorably to him would not permit a reasonable juror to conclude that he is unable to meet with potential clients face-to-face.

Conclusion

Greed, and the apparent joy of suing an insurance company and the potential for punitive damages, is the reason for this type of suit. Fiorentini had the right to reduced benefits but refused those benefits in exchange for the attempt to get damages from the insurer. This was dumb and perhaps a reason to punish those who try for punitive damages without right.


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