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Unclaimed Property Probe Escalates

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WASHINGTON—New York’s attorney general and comptroller have apparently sidestepped the state’s Department of Financial Services, headed by Benjamin Lawsky, in a new escalation of the probes by states into insurer compliance with unclaimed property laws.

Also joining the fray was Minnesota, which sent out letters Oct. 28 to at least 12 insurers in the state demanding a “comprehensive review” of their companies’ internal records and policies concerning the processing of death benefits.

The request was made in a letter obtained by National Underwriter. The situation is apparently different in Minnesota than in New York, where the state’s Commerce Commissioner, who apparently also functions as insurance regulator, joined with state Attorney General Lori Swanson in undertaking the probe.

Mary Jane Wilson-Bilik, a partner at Sutherland Asbill & Brennan in Washington, D.C., voiced deep concern. Wilson-Bilik, who has been advising several clients on the issue, said the New York and Minnesota action “appears to represent competition amongst the regulators as to who is going to be the toughest on this issue.”

In New York, Attorney General Eric Schneiderman and State Comptroller Thomas P. DiNapoli joined Thursday in vowing “to undertake the largest and most comprehensive investigation of life insurance practices in the country.”

They said the decision stems from data uncovered by both offices that indicated some funds may have been improperly withheld.

Schneiderman said the decision to pursue the investigation stemmed from information uncovered by the Attorney General’s Taxpayer Protection Bureau.

Schneiderman created the agency earlier to probe fraud against the state and local governments. This includes monies owed to the state’s unclaimed property fund which might have been improperly withheld, Schneiderman said.    

Schneiderman said that, “Our goal is to make sure that life insurance companies make good on their promises to beneficiaries and their obligations to the state of New York.”

DiNapoli added that, “By combining the Attorney General’s enforcement authority with the Comptroller’s Office audit methodology, we can achieve the maximum public benefit.”

Schneiderman launched the New York probe in early July by subpoenaing the records of nine large insurers, some based outside New York state, on their policies regarding use of the Social Security Death Master File in handling of life insurance and annuity claims.

It followed a determination some weeks earlier by California, using an outside vendor, that some insurance companies were using the death master file only to terminate annuity policies with living benefits features, and not in finding beneficiaries of  holders of life insurance policies that had died.

The subpoenas preempted action by the state’s Department of Financial Services on the issue. The DFS followed several days later by asking the 172 insurance companies and fraternal organizations in the state to disclose their policies on the issue by Sept. 30, and to continue to disclose to the agency on a monthly basis through March 2012 if they had found cases where they had not paid off policies in cases where the owner had died. Or, in the alternative, turned over the funds in the account to the state, as required by law.

The New York DFS wanted the insurers to check records going back 25½ years; the AG just wanted records checked for the past 10 years.

Under pressure from the insurers, the DFS delayed the initial responses a month, until Oct. 31.

Wilson-Bilik said at a conference of insurance lawyers Thursday that part of the probe involves use of an outside vendor’s proprietary software that matches Social Security numbers against the Social Security Death Master File.

However, Wilson-Bilik said, there is a question whether such a simple linkage meets the legal criteria established to determine whether there is a “claim” for benefits under a particular policy.


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