The John Hancock Companies have been hit with a class action lawsuit regarding their life insurance death benefit payments policy.
The lawsuit is a new turn in an investigation of insurance companies by an outside auditing firm that began in 2008, in an attempt to resolve a disparity between the practices insurers use in dealing with paying death benefits on life insurance policies to beneficiaries and those they use to stop payments on living benefit annuities.
Other insurers declined to comment, but outside counsel to several insurers involved in the probe privately acknowledged concern that the latest development could represent a new escalation of the unclaimed property practices of insurers.
State insurance regulators have already acknowledged that 42 insurers that market nationwide are the targets of the probe.
Besides the five largest insurers, the audits are now underway at medium-sized insurers, the lawyers acknowledged.
The probe was initiated by California Comptroller John Chiang, who used an outside auditing firm based in Connecticut that used its own software to examine the payment practices of 21 life insurance companies nationwide.
The premise behind the lawsuit was that Hancock and the other insurers used the Social Security Death Master File to routinely determine whether insureds with living benefit riders to annuities had died, and acted promptly to stop payments when an annuitant died. However, the DMF and other means were not used as frequently to ensure that beneficiaries of life insurance policies were promptly notified that a relative with a life insurance policy had died, and the funds paid.
In the case of the latest lawsuit, the lead plaintiff claims that he was notified only in 2010, four years after the death of the insured, and then only by the state of Illinois Treasurer’s Office. He received only a small sum, and it was only in June 2012 that a larger sum was remitted, without detailed explanation.
Hancock reached its own settlement with Chiang in April 2011, and another settlement with a number of state insurance agencies in November of last year. The latest settlement expands on what John Hancock must do to comply with state regulations regarding unclaimed property. It also imposed a $3.3 million fine that is being divided up between the states.
John Hancock, based in Boston, is a unit of Manulife Insurance Financial Corp., Toronto.
A spokesman for the company in Boston said in response to the suit that, “It is company policy not to comment on matters in litigation.”