If you purchased an individual disability insurance (IDI) policy—one where you are the named insured and the contract is between you and the insurer—you or your insurance broker may have assumed your policy would be governed by state law protections, including the ability to sue your insurer for bad faith if they wrongfully deny your claim. Unfortunately, insurers like Unum Group and its subsidiaries have a different playbook. Time and again, Unum has attempted to manipulate the legal landscape by “ERISAfying” individual disability policies into the Employee Retirement Income Security Act (ERISA) framework and by misclassifying injuries as sicknesses to reduce their exposure. These tactics can strip policyholders of critical legal protections and significantly reduce the benefits they deserve. An experienced ERISA attorney can help you fight back against these unfair practices.
The recent case of Dr. William P. Potthoff, a Michigan physician who holds an individual disability income policy originally issued by Provident Life and Accident Insurance Company (now part of Unum), illustrates exactly how these tactics play out in practice. At The Garner Firm, our attorneys have decades of combined experience representing individuals and classes of plaintiffs in ERISA and bad faith litigation, and we understand the intricate ways insurers attempt to manipulate the system. This blog post explores Unum’s practices, the specific policy provisions that create financial incentives for manipulation, and what policyholders can do to protect themselves.
Why the IDI vs. ERISA Distinction Matters
The legal framework governing your disability insurance claim can dramatically impact your rights and remedies. Individual disability insurance (IDI) policies purchased directly by the insured—not through an employer-sponsored plan—are typically governed by state insurance law. Under some state laws, like in Pennsylvania, policyholders enjoy robust protections, including the ability to pursue bad faith claims, seek extra-contractual damages, and potentially recover punitive damages if the insurer engages in oppressive or fraudulent conduct.
ERISA, on the other hand, provides far fewer remedies. Under ERISA, claimants are generally limited to recovering only the benefits owed under the policy, with no entitlement to consequential damages, emotional distress awards, or punitive damages. Additionally, ERISA cases are tried before judges—not juries—and courts often apply a deferential “abuse of discretion” standard that makes it harder for claimants to prevail.
This disparity creates an enormous financial incentive for insurers to argue that ERISA applies whenever possible. If an insurer can successfully invoke ERISA preemption, it effectively immunizes itself from the most significant penalties for bad faith claims handling.
The Potthoff Policy: A Case Study in IDI Ownership
Dr. Potthoff’s policy is a textbook example of an individually owned disability income policy. The policy declaration page clearly identifies Dr. Potthoff as “the Insured,” and the contract states it is “a legal contract between you and us,” meaning between the individual policyholder and Provident Life and Accident Insurance Company. The policy is non-cancellable and guaranteed continuable at guaranteed premiums—a hallmark of individual disability coverage that cannot be altered unilaterally by the insurer. There is no employee benefit plan, which is a necessity for ERISA to apply.
While the policy contains a “Salary Allotment Premium Payment” rider that allows Dr. Potthoff’s employer, Thirlby Clinic P.C., to remit premium payments on his behalf, this administrative convenience does not automatically transform an individually owned policy into an employer-sponsored ERISA plan. The rider explicitly states that if the salary allotment arrangement is voided—whether because employment ends, the agreement terminates, or the employer fails to pay—”premiums will be due and payable as required in the policy,” meaning Dr. Potthoff can continue paying directly.
Courts have recognized that payroll deduction arrangements and employer facilitation of premium payments do not, standing alone, automatically create an ERISA-governed plan. The Department of Labor’s “safe harbor” regulation excludes insurance programs from ERISA where the employer’s involvement is limited and the policy is voluntary.
Unum’s Practice of Pigeonholing IDI Claims Into ERISA
Despite clear policy language establishing individual ownership, Unum has repeatedly attempted to transform individually owned disability policies into ERISA-governed plans through litigation. This tactic involves asserting ERISA preemption as a defense even when the policy was sold, marketed, and administered as a state-regulated individual policy.
In December 2025, a federal court in the Central District of California decisively rejected this tactic in Koo v. Unum Group et al.. In that case, Unum argued that an individually owned disability policy was subject to ERISA preemption. The court disagreed, finding that Unum failed to establish the existence of any ERISA-governed employee benefit plan. The policy was individually underwritten, paid entirely by the insured with post-tax dollars, voluntary, and expressly disclaimed by the employer as non-ERISA.
The Koo court emphasized that Unum’s own enrollment materials and internal records repeatedly characterized the coverage as an individually owned, state-regulated policy. The court rejected Unum’s attempt to “ERISA-fy” the policy after years of administering it as a California contract. As a result, the insured’s state-law claims—including potential claims for bad faith, extra-contractual damages, and punitive damages—were permitted to proceed.
Similarly, in Shrago v. Unum Life Ins. Co. of America, a Maryland federal court held that ERISA did not preempt the plaintiff’s state-law contract claims because the policy fell within the Department of Labor’s safe harbor regulation. The court found no evidence that the employer was involved in negotiating, securing, administering, or overseeing the policy, meaning it could not be said to have “established or maintained” a plan under ERISA.
It is unclear why Potthoff brought the claim under ERISA, but this may have been a strategic decision.
The Injury Versus Sickness Classification: Following the Money
Perhaps no tactic better illustrates the financial gamesmanship of disability insurers than the strategic classification of claims as arising from “sickness” rather than “injury.” Dr. Potthoff’s policy demonstrates exactly why this distinction matters so much—and why insurers have every incentive to manipulate it.
The Dramatic Difference in Benefit Periods
Under Dr. Potthoff’s policy, the Maximum Benefit Periods for Total Disability differ dramatically depending on whether the disability results from an injury or a sickness:
For Injuries:
- Total Disability starting before the insured’s 65th birthday: Benefits payable for LIFE
- Total Disability starting on or after 65th birthday but before 75th birthday: 24 months
- Total Disability starting on or after 75th birthday: 12 months
For Sickness:
- Total Disability starting before 60th birthday: Benefits payable for LIFE
- Total Disability starting on or after 60th but before 61st birthday: To 65th birthday
- Total Disability starting on or after 61st but before 62nd birthday: 48 months
- Total Disability starting on or after 62nd but before 63rd birthday: 42 months
- Total Disability starting on or after 63rd but before 64th birthday: 36 months
- Total Disability starting on or after 64th but before 65th birthday: 30 months
- Total Disability starting on or after 65th but before 75th birthday: 24 months
- Total Disability starting on or after 75th birthday: 12 months
The financial implications are staggering. Consider a physician who becomes totally disabled at age 62 due to an accidental injury. Under the policy’s injury provisions, that physician would receive $15,000 per month for life. However, if Unum can successfully reclassify the same disability as arising from a “sickness,” the benefit period drops to just 42 months.
For Dr. Potthoff, with a monthly benefit of $15,000, the difference between lifetime benefits and a 42-month limitation could easily exceed one million dollars in avoided claim payments. The insurer’s financial incentive to misclassify injuries as sicknesses is obvious and enormous.
Policy Definitions Create Battlegrounds
The policy defines “Injuries” as “accidental bodily injuries occurring while your policy is in force” and “Sickness” as “sickness or disease which is first manifested while your policy is in force”. While these definitions appear straightforward, they create significant battlegrounds for insurers seeking to minimize claims exposure.
Courts have addressed this very issue. In Stein v. Paul Revere, the court granted summary judgment in the insured’s favor, determining that the cause of his permanent disability “was an accidental bodily injury” and ordering the insurer to pay the full lifetime benefits the policy provided for injury-based disabilities.
Unum has also employed related tactics by labeling physical conditions as primarily “mental” in nature, thereby triggering policy provisions that limit mental health benefits. In Bencivenga v. Unum Life Ins. Co. of Am., a court found that Unum improperly labeled the claimant’s disability as mental so it could apply a 24-month coverage limit, even though the underlying condition had significant physical components. Similarly, Kamerer v. Unum Life Ins. Co. of Am. involved Unum’s internal consultant stating “it was clinically reasonable” to conclude the claimant’s disability was mental-based, a characterization the court ultimately rejected.
Unum’s Documented History of Biased Claims Handling
These tactics are not isolated incidents. Unum has a well-documented history of problematic claims administration that stretches back decades. In 2004, Unum agreed to a Regulatory Settlement Agreement (RSA) with state insurance regulators and the U.S. Department of Labor to address what investigators described as “a deliberate program of bad faith denial of meritorious benefit claims”.
The RSA identified several areas of concern, including excessive reliance upon in-house medical professionals to discount treating physicians’ opinions, unfair interpretation of medical reports, failure to evaluate claimants’ total medical condition, and placing inappropriate burdens on claimants to justify benefits eligibility.
Despite the RSA, federal courts have continued to criticize Unum for the same practices it promised to correct. A comprehensive 2021 law review article catalogued dozens of post-RSA decisions finding that Unum engaged in cherry-picking from medical records, disregarding evidence favorable to claimants, mischaracterizing job duties, ignoring treating physicians’ opinions, and disregarding Social Security Administration disability determinations.
As the Supreme Court recognized in Metropolitan Life Ins. Co. v. Glenn, an administrator’s conflict of interest “should prove more important (perhaps of great importance) where circumstances suggest a higher likelihood that it affected the benefits decision, including, but not limited to, cases where an insurance company administrator has a history of biased claims administration”.
What Policyholders Can Do to Protect Themselves
If you have a disability insurance policy—whether purchased individually or through your employer—understanding your rights is critical. Here are key steps to protect yourself:
- Determine whether your policy is governed by ERISA. Your claim is may not be covered by ERISA if you purchased an individual disability policy directly from the insurer, you are self-employed or an independent contractor, or you work for a church, religious organization, or government agency.
- Review your policy’s definitions carefully. Understand how your policy defines “disability,” “injury,” and “sickness,” and what benefit periods or limitations apply to each category. As Dr. Potthoff’s policy demonstrates, the difference can be worth hundreds of thousands—or even millions—of dollars.
- Document the cause of your disability thoroughly. If your disability results from an accidental bodily injury, including repetitive use injuries, ensure your medical records clearly establish the traumatic or accidental nature of the condition.
- Consult experienced ERISA and disability insurance counsel. Navigating these complex issues requires attorneys who understand both ERISA’s intricacies and the specific tactics insurers employ to minimize claims.
Contact The Garner Firm: An ERISA Attorney or Insurance Attorney Can Help
At The Garner Firm, we represent individuals and classes of plaintiffs in disability insurance disputes across the country. Our attorneys have extensive experience challenging improper ERISA preemption arguments, fighting misclassification of injuries as sicknesses, and holding insurers accountable for biased claims handling.
If you believe your disability claim has been wrongfully denied, terminated, or underpaid—or if you suspect your insurer is attempting to manipulate the legal framework governing your claim or misclassify the cause of your disability—we want to hear from you. Contact The Garner Firm today for a confidential consultation. We are committed to ensuring that our clients receive the benefits they are entitled to under the law.