Great Benefit’s claim-denial scheme

Great Benefit’s claim-denial scheme turned the processing of insurance claims into a source of corporate savings: during 1991, the company denied every claim above $1,000 at the outset, even when it was legitimate, and relied on review procedures that could leave payment indefinitely stalled. The scheme’s exposure in the Black case connected that institutional process to a specific human cost: Donny Ray Black’s claim for a bone marrow transplant was denied even though the policy did not exclude the treatment and the company knew his illness was terminal.

Background and economic incentives

Great Benefit sold debit insurance: low-cost policies marketed to low-income customers, with agents collecting premiums on regular visits. Max Leuberg described the market as one in which customers could be wary of lawyers and the legal system, while companies routinely found reasons to deny claims. He cited studies suggesting that only about one in thirty bad-faith denials reached court. Cooper Jackson later described a related estimate: the company counted on no more than one in twenty-five policyholders consulting a lawyer. These figures concern different stages of the process, but both point to the same imbalance: a denial could save the insurer money while many customers lacked the means, confidence, or persistence to challenge it.

The expected cost of a challenge could also appear small beside the potential savings. Leuberg explained that juries might award a plaintiff’s legitimate medical bills but hesitate to impose substantial punitive damages on a wealthy company. His example contrasted a $5,000 covered medical claim against an insurer worth $200 million: a jury might award the bills and only a small additional penalty. In that calculation, even a claim that should have been paid could be worth denying if few customers sued and the penalties in the cases that reached trial remained modest.

The 1991 experiment and its procedures

Jackie Lemancyzk testified that, beginning January 1, 1991, Great Benefit adopted a one-year experiment to deny every claim over $1,000, regardless of legitimacy. Some smaller claims were also denied when the company could find an arguable reason. Larger claims might be paid only after the policyholder hired a lawyer and threatened legal action. According to Lemancyzk, management treated the policy as a way to compare the money saved through denials with the cost of quick settlements. She estimated that it generated about $40 million in additional profit.

The denial process could be prolonged through a handoff between claims and underwriting. Cooper Jackson described a handler first denying a claim, then ordering five years of medical records. The insured could receive another denial pending review while the file moved to underwriting, whose instructions could tell claims not to pay until further notice. Further correspondence and disagreements between the departments followed. Because each department waited on the other, the promised further notice might never arrive. Jackson emphasized that the two departments worked for the same company but could be kept apart and unaware of one another’s actions; meanwhile, policyholders received a succession of letters, a burden likely to make some give up.

The Section U provisions in the company’s claims and underwriting manuals formalized that machinery. Jackson found that both manuals contained a Section U directing the departments to deny claims pending further review and send files between them with instructions not to pay. The sections also prescribed documentation that could make the process look like a careful evaluation. The manuals Great Benefit had produced in discovery did not contain Section U. Jackson concluded that the sections had been removed before production, and the trial later established through testimony that at least the underwriting section had been taken out.

The Black claim and the scheme’s exposure

The Black claim made the policy’s consequences especially stark. Lemancyzk testified that Donny Ray’s claim was initially denied like the others. Once the company recognized the words acute leukemia, Russell Krokit monitored her work. The claim became particularly serious because the policy did not exclude bone marrow transplants and the treatment involved a large expense. Lemancyzk said that company personnel knew Donny Ray was terminally ill: his medical records indicated that the leukemia would return and would ultimately be fatal unless he received a transplant. She testified that the company continued the denial because it was counting on the odds that the family would not consult a lawyer.

At trial, Rudy Baylor presented the denials as a sequence rather than an isolated paperwork error. Dot Black read the first seven letters to the jury: they gave shifting reasons, including preexisting conditions, household membership, lack of coverage, and the treatment’s supposed experimental status. The letters also passed responsibility between claims and underwriting. The final letter, known as the Stupid Letter, caused visible disbelief in the courtroom when Dot read it. The changing justifications gave the jury a concrete record of how the family’s claim had been handled.

The company’s internal account emerged through testimony and documents. Everett Lufkin, its vice president of claims, initially described his oversight responsibilities and the claim file; questioning also established that Lemancyzk had left the company two days before her scheduled deposition. She later testified about the 1991 denial policy and the treatment of the Black claim. M. Wilfred Keeley denied authorizing cash payments to her and challenged her account, while Kermit Aldy acknowledged that Section U had been removed from the underwriting manual produced in discovery. Baylor then produced a complete copy, exposing the section’s actual procedures. The two manuals made the relationship between the departments’ instructions clearer than either one alone.

Trial arguments, consequences, and significance

Great Benefit’s defense tried to frame the dispute as a disagreement over the limits of an inexpensive policy. Leo F. Drummond argued that a policy costing $18 a week did not cover a $200,000 transplant and characterized the claim for additional damages as excessive. The policy excluded other transplantable organs but did not mention bone marrow; a revised policy later supplied to Baylor did exclude bone marrow transplants. The defense also relied on the treatment’s alleged experimental nature. Dr. Walter Kord testified that only a small fraction of acute leukemia patients received transplants because suitable donors were difficult to find, while about 7,000 transplants occurred nationwide each year. Baylor pointed out that Donny Ray had a donor and that the defense had offered no medical evidence contradicting Kord’s testimony.

The defense’s expert, Payton Reisky, presented Great Benefit’s procedures as generally consistent with industry practice and emphasized that its average denial rate over ten years was slightly under 12 percent. Baylor’s closing argument instead focused the jury on the 1991 figures: policies, claims, and denials. He also used the company’s own financial statements to identify $475 million in cash, reserves, and undistributed surplus, alongside an admitted net worth of $450 million. His argument tied the scale of the proposed penalty to the company’s resources, presenting punishment as a way to make a fine consequential to a wealthy insurer rather than a symbolic cost of doing business.

After the trial, reports described investigations of Great Benefit in at least seven states, including Ohio, and policyholder suits being filed around the country. The Memphis case was expected to prompt further litigation. The scheme’s significance lies in the contrast between its ordinary-looking instruments—letters, manuals, review steps, and divided departments—and the coordinated financial result alleged and exposed in court. What could appear to an individual policyholder as a confusing delay or a disputed clause was, in the 1991 experiment, part of a company-wide policy whose success depended on many claimants never reaching a courtroom.