Great Benefit’s 1991 claims-denial experiment

Great Benefit’s 1991 claims-denial experiment was a deliberate, year-long effort to increase company revenue by rejecting claims and relying on policyholders’ reluctance to seek legal help. Its most consequential example was the Black family’s claim for treatment for Donny Ray Black: the company continued to deny a claim its employees knew was valid, while Donny Ray was terminally ill. The experiment’s exposure in court transformed an apparently individual insurance dispute into evidence of a systematic business practice.

Policy and financial incentive

Debit insurance, sometimes called street insurance, consisted of inexpensive policies sold door to door to lower-income customers, with agents returning periodically to collect premiums. Max Leuberg described the market as one in which companies could count on policyholders being unfamiliar with lawyers and the legal system. He cited studies suggesting that only about one in thirty bad-faith denials ended up in court. Jackie Lemancyzk later described the company’s expectation in different terms: it believed no more than one in twenty-five policyholders would consult a lawyer. These figures explain the calculation behind the experiment: denied claims could generate savings if most customers gave up rather than challenge the decision.

According to Lemancyzk’s testimony, the policy began on January 1, 1991, and lasted twelve months. During that period, Great Benefit denied every claim over $1,000, regardless of whether it was legitimate. Some smaller claims were also denied if the company could find an arguable reason. The company sometimes paid claims after an insured obtained legal help, but those payments did not undo the economics of the policy: the experiment’s purpose was to compare the money saved through denials with the cost of quick settlements. Lemancyzk testified that the scheme produced roughly $40 million in additional revenue.

How the denials were maintained

The process described by Cooper Jackson and reflected in Great Benefit’s manuals depended on delays and divided responsibility. A claims handler first sent a denial, then requested as much as five years of medical records. A later letter might say that the claim remained denied pending further review. The file then moved between claims and underwriting, accompanied by memos directing one department not to pay until it heard from the other. Meanwhile, the policyholder received correspondence from both departments, although the employees were working for the same company and, Jackson said, often did not know what the other department was doing.

Section U in the claims and underwriting manuals formalized this exchange. The two sections, read together, directed departments to deny claims, document each step, and pass files back and forth without resolving the payment. In the claims manual, paragraph three directed handlers to deny every claim within three days. Claims potentially worth more than $5,000 were sent to underwriting with a denial letter, while other provisions described how to document a customer’s reaction. A further instruction called for a check to be prepared but held from mailing until claims gave further word; the promised instruction never arrived. The paperwork could make the process appear to be an evaluation, even as the delay kept payment from reaching the insured.

The manuals’ absence from the copies supplied in discovery became part of the case. Rudy Baylor compared his copy with a complete claims manual obtained from Jackson and showed that the latter contained Section U while his did not. Everett Lufkin, Great Benefit’s vice president of claims, acknowledged that the section had been removed but could not say who had done it. The complete underwriting manual also contained a Section U that was missing from the version provided to Baylor. When Kermit Aldy, the vice president of underwriting, was shown the complete copy, the concealed procedure became harder to explain as a routine system of checks and balances.

The Black claim and the cost to the insured

Lemancyzk testified that she handled the initial claim submitted by Dot Black and denied it under the policy then in force. The claim attracted particular attention because Donny Ray had acute leukemia and the policy did not exclude bone marrow transplants. Lemancyzk said that the company’s employees knew the medical records showed that the leukemia would return and ultimately prove fatal without a transplant. She described the denial as continuing despite that knowledge, because the company was playing the odds that the family would not consult a lawyer.

Dot Black’s testimony gave the policy’s repeated denials a human and documentary chronology. She described trying to find treatment and help for her son, then read the jury seven denial letters. The stated reasons shifted: the letters referred to review by the other department, a preexisting condition, Donny Ray’s adult status, lack of transplant coverage, and the claim that the treatment was experimental. Dr. Walter Kord’s testimony challenged the last rationale: he explained that transplants were performed nationwide and that Donny Ray had a donor. Donny Ray’s recorded deposition, edited to thirty-one minutes, then placed his own testimony before the jury. The sequence joined the paperwork and corporate policy to the illness and the family’s experience of trying to obtain care.

Exposure and significance

Baylor used the manuals and testimony to present the denials as a coordinated practice rather than a succession of unrelated errors. Lemancyzk linked the policy’s start date, its twelve-month duration, its financial result, and the treatment of the Black claim. Lufkin’s testimony about the claims manual and Aldy’s account of Section U allowed the jury to see how responsibility was divided between departments while the denial remained in effect. The company’s method of documenting its reviews thus became evidence of how the denials were organized and prolonged.

In closing, Baylor put Great Benefit’s 1991 policy and claims figures on a chalkboard, turning the company’s records into a concise account of the year-long experiment. He also presented the company’s available cash, reserves, and undistributed surpluses as totaling $475 million, against an admitted net worth of $450 million, to argue that a punitive award could be measured against the company’s resources. Great Benefit’s 1991 claims-denial experiment therefore mattered not only because it explained the Black family’s rejected claim, but because it showed how a company could make the low likelihood of legal challenge part of its operating calculation—and how testimony and withheld documents could expose that calculation in court.