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.”
The lawsuit was filed Wednesday in federal district court in Boston. The suit was filed by Swartz & Swartz P.C. in Boston and named Richard Feingold of Lake County, Ill., as the named plaintiff.
According to the filing, the lawsuit “arises from Defendants’ pattern and practice of avoiding payment of life insurance policy death benefits that are owed to beneficiaries.”
It seeks damages for Feingold and others who did not find out until years later that their relatives had purchased life insurance policies from John Hancock for which they were the beneficiary.
The lawyer who filed the lawsuit at Swartz & Swartz, Alan Cantor, did not return phone calls seeking comment.
The lawsuit was likely prompted by the settlement John Hancock reached last November regarding its unclaimed property policies with the insurance departments of six states.
The audit turned up a widespread practice of companies failing to pay beneficiaries off with insurance policies. Rather, the companies in many cases drew down cash reserves in the policies to continue collecting premium payments from the deceased. Once reserves are gone, the companies cancel the policy. The audit found companies did not routinely check dormant accounts against lists of deceased. In other cases, the companies knew the policyholder had died, but the companies didn’t notify beneficiaries.
According to the lawsuit, Feingold was the beneficiary of a life insurance policy purchased in 1945 by his mother, Mollie.
She died in 2006, but he learned that she had the policy only in 2010, through a website on unclaimed property that said he was owed $459.
According to the lawsuit, he took that money, but only received an additional $1,349.71 “without explanation as to why this money was not escheated to the state of Illinois when the dividend monies were escheated, or explaining with any degree of certainty what the check was for.”
The suit also alleges that Feinberg “never received a copy of the insurance policy, never received an explanation or accounting for the amount paid to him of $1,349.71, never received an explanation of why the $459 was escheated to the State but the $1,349.71 was not, and never received an explanation of why the information forming the basis to stop making dividend payments was not shared to effect the life insurance policy benefits.”
According to officials at the California Insurance Department, 53 jurisdictions adopted the settlement, including D.C. and all states except New York and Minnesota.
The territories that signed on include: Guam, Northern Mariana Islands, Puerto Rico and the U.S. Virgin Islands.