UNTIL a few years ago, Debra Potter made sure that her family could cruise the Caribbean, watch the NFL on a big-screen TV and keep her elderly mother and in-laws at home in comfort.
She did so by earning $250,000 a year selling more insurance than almost anybody else in Virginia, virtually all of it disability and health policies that she thought put a safety net under middle-class and affluent families such as her own.
Potter so believed in the protection she was providing that she made sure she was covered under a policy her employer, Southeastern financial services giant BB&T;, had with UnumProvident Corp., the nation's largest disability insurer.
But when Potter began falling down in 2002 and was subsequently diagnosed with multiple sclerosis, she discovered that the protection didn't work at all like she'd expected.
UnumProvident, whose policies the 50-year-old insurance agent had been selling, questioned whether Potter really was disabled and refused to pay her. Although the firm, based in Chattanooga, Tenn., relented a few weeks ago, the reversal took three years and did not come before the Potters had run through most of their savings, yanked one of their five children from college for lack of tuition and hired a lawyer.
The $10.5 billion-a-year insurer denies mishandling Potter's case, saying only that "new information" caused it to start paying.
"People need safety nets, and that's what I thought I was selling them," Potter said. "But here I am with all my knowledge of insurance and I couldn't make it work for me."
When middle-class Americans talk about safety nets, they usually mean such things as food stamps or housing subsidies - public assistance on which generally only the poor depend. In fact, working people up and down the income spectrum lean heavily on a long list of protections such as health care coverage, unemployment compensation and pensions or 401(k)s.
But an examination of Potter's experience, UnumProvident's legal and regulatory record and the practices of several other insurers suggests that a key component of working Americans' protective shield fails with unnerving regularity.
Disability insurance - carried by more than 50 million Americans - generally promises to replace at least half of a person's wages in case of illness or injury. However, in a substantial number of cases, especially those involving workers with long-term or permanent disabilities, it doesn't deliver.
The chief reason - and one that affects not only disability but the whole universe of employer-provided benefits - is a series of court decisions dealing with the federal benefits law known as ERISA. The decisions have prevented states from extending almost any form of consumer protection to these benefits and have severely limited individuals' ability to successfully sue their insurers.
"People who file disability claims today are worse off than they were two or three decades ago," said Judge William M. Acker Jr., who was appointed to the U.S. District Court in Alabama by then-President Ronald Reagan. "The law that was supposed to protect them has been turned on its head; the chief beneficiaries are now the insurance companies," said Acker, who has presided over a variety of disability insurance cases and has written extensively on the subject.
That such a sweeping change could occur and that it could upend someone as well-heeled as Potter illustrates how close most Americans are to the economic edge, where a few setbacks at work or in health can send a person tumbling.
"The safety nets designed to protect people from being run over by economic forces beyond their control have been shredded," said California Insurance Commissioner John Garamendi, whose department is investigating UnumProvident.
The scope and importance of the disability safety net has increased drastically since the 1960s.
Much of the expansion was driven by economic changes that spurred the need for disability coverage. The changes required many families to begin fielding not just one full-time worker, but two, in order to afford a middle-class life. As a result, families lost their "reserve player," the non-working spouse who could enter the work force if the other fell ill or was injured, and so found it increasingly important to take out insurance against that possibility.
However, by the late 1970s and early 1980s, many politicians and business executives had become convinced that matters had gone too far, that industry and government could not afford many of the promises already made, and that some programs were leading people to fake or exaggerate problems to collect benefits.
At the U.S. Supreme Court and at many federal appeals courts, attention focused on the Employee Retirement Income Security Act of 1974.
According to its preamble, ERISA's goal was to "protect ... participants in employee benefit plans and their beneficiaries." Although the 208-page law's chief focus was pensions, it also superseded virtually all state laws that "relate to any employee benefit plan."
Over the last 25 years, the Supreme Court has read the "relate to" provision so broadly that claimants who believe they have been wrongly denied benefits are rarely able to sue for punitive damages under state bad-faith or fraud laws.
The court has said the most that claimants generally can win by suing in federal court is the original benefits due them, no matter how long their wait or, often, how steep their legal fees.
In addition, the court has effectively granted insurance companies and benefit plan administrators a special status that requires those whose claim has been denied to prove not just that the denial was wrong, but that the officials making the decision acted in an "arbitrary and capricious" manner.
The insurance industry argues that the recent trend has strengthened, not weakened, the employee benefit system.
UnumProvident Chief Executive Thomas R. Watjen and others at UnumProvident defend the company's operations, especially its handling of claims. "We strive to set the standard for fair and objective claims handling," said Senior Vice President George A. Shell Jr.
As evidence, Shell said UnumProvident paid more than 90 percent of the 450,000 disability claims it received last year, at a cost of $4.2 billion. He said that in an additional 8 percent of cases, the firm did not pay because of what he described as technical reasons, as in cases where claimants returned to work before they became eligible for benefits. Only in the remaining 2 percent of cases or less - involving no more than 9,000 claimants - did the firm limit or deny benefits that led claimants to appeal.
But experts say that the profitability of disability insurers hinges not so much on the mass of routine claims, which typically are for short periods and involve small sums, but rather on a small number of long-term claims by people who were making good - and therefore expensive-to-replace - incomes.
"There's no question claims costs are driven by the adverse experience of a small percentage" of claimants, said Charles E. Soule, retired chief executive of Paul Revere Life Insurance Co., one of three firms that merged in the late 1990s to form UnumProvident.
The ability to deny even a fraction of these high-cost claims and to ensure that those denials stick can make a huge difference to the finances of an insurer.
UnumProvident's claim denial practices have made it the target of several recent government investigations, a treatment that regulators say other insurers either already face or are likely to face in short order.
"In the last 12 months alone, we've seen the largest insurance brokers in America, the largest property and casualty companies in America, the largest title insurance companies, the largest financial service firms and the largest disability insurers all engaged in flagrant violations of their most basic obligations to their customers," said Garamendi, the California insurance commissioner. "This is not just a UnumProvident problem; it's an insurance industry one."
Although ERISA prohibits state regulators from intervening to help individuals in most disputes over employer-provided disability insurance, states can investigate insurers' overall conduct, penalize firms for bad behavior and, in some cases, ban companies from doing business within their boundaries.
In an investigation concluded last year, regulators representing all 50 states looked at a random sample of almost 300 UnumProvident cases to see whether the company was engaged in "systemic unfair claim settlement practices," then examined 75 more cases after the firm said it had made improvements. The examiners concluded that both sets of cases had problems "sufficient to merit further regulatory action."
However, 48 of the 50 states decided to settle with UnumProvident. The company agreed to pay a $15 million fine, review its decisions in more than 232,000 claims denied or closed over the last five years and revamp its entire claim-handling system.
The major holdout from the agreement was California, which is conducting its own investigation and negotiating a separate settlement with the firm.
In an interview, Shell, the UnumProvident senior vice president, emphasized that those states that did settle made no formal finding of wrongdoing against the firm. He said the problems that the states uncovered were not representative of the firm's overall performance because examiners looked only at "contentious" closed cases. He characterized the changes agreed to by the company as the furthest thing from an admission of failure.
"I look at them as improvements from the past," Shell said.
However, Garamendi said that among his chief complaints about the settlement was that it failed to allege specific violations by the insurer, a deficiency that he said rendered the accord legally useless.
"Any settlement we sign will ... allege specific violations of law and regulations," he said. "We want there to be no mistake in the minds of the company or the public about what the company did wrong and that it can't continue to do it."
The Los Angeles Times is a Tribune Publishing newspaper.