CHATTANOOGA, Tenn. (AP) – UnumProvident, the nation’s largest disability insurer, will pay a $15 million fine and reconsider about 200,000 denied claims in response to a multi-state investigation, company executives said Thursday.

Including the penalty, a proposed agreement with insurance regulators in all 50 states would change claims handling and other operations at a total before-tax cost of $127 million in the fourth quarter, a spokeswoman said.

Insurance regulators in Tennessee, Maine and Massachusetts, the lead states in the investigation, signed the agreement, as did officials in New York and the U.S. Department of Labor, spokeswoman Mary Clarke Guenther said.

In trading Thursday on the New York Stock Exchange, UnumProvident shares fell 36 cents to close at $13.73.

The company insures more than 25 million people and has about a quarter of the disability insurance market.

Paula Flowers, commissioner of the Tennessee Department of Commerce and Insurance, said that while problems were noted in a very small percentage of claims there were enough that “corrective action was warranted.”

Flowers said regulators “have met repeatedly with not only management but the entire board of directors. They have dutifully committed to implement this.”

Guenther said insurance regulators in states that sign the agreement would get a share of the fine. She said individual customers would not be affected by whether their states agree.

Final approval of the settlement depends on regulators in two-thirds of the 47 remaining states agreeing. Officials in some states plan to continue their own market conduct examinations.

“California has its own review underway,” Guenther said.

The investigation started last year in response to customer complaints. Georgia’s insurance commissioner, John Oxendine, in March 2003 imposed a $1 million fine on UnumProvident and its subsidiaries, saying his investigation showed a mind-set of looking “for every technical legal way to avoid paying a claim.”

Flowers said “we saw really a lack of diligence in the claims personnel” and insufficient training.

She also said the investigation raised “concerns” that included the company relying “solely on their in-house physicians” in deciding whether to deny or terminate some medically disputed claims, basing denials on “very narrow interpretations” and failing to consider both physical and psychological conditions in some cases.

“We saw an inappropriate…really shifting the burden to the claimants to provide the basis to the eligibility for the benefits…when the claimants had done everything they could do and the claim was still denied or terminated based on what the company called a lack of medical evidence,” Flowers said.

She said the agreement calls for “at least 200,000” denied claims to be re-examined under the continuing scrutiny of regulators. She said regulators would again examine the company’s claims handling after two years.

If the company does not meet the settlement requirements after two years, there is a possible “contingent fine”‘ of up to $145 million.

UnumProvident executives previously said disputes represent a small fraction of the roughly 400,000 disability claims the company processes annually.

Guenther said an additional 75 employees would be hired as part of the settlement, with about 32 of them in Chattanooga, 32 in Portland, Maine and 10 in Worcester, Mass.

UnumProvident, formed with the 1999 merger of Provident Cos. of Chattanooga and Unum Corp. of Portland, Maine, has more than 13,000 employees worldwide.

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On the Net:

http://www.unumprovident.com

AP-ES-11-18-04 1934EST