Life insurance companies continue to grapple with state regulators over efforts to collect unclaimed life insurance benefits under state unclaimed property laws (UPLs). Until recently, states have largely reserved the fight for the larger insurers with significant market-share within the industry and their efforts have culminated in settlements with, among others, AIG, MetLife, Prudential, John Hancock and Nationwide. With the taste of success, and the assistance of contingency-fueled independent audit firms, the states have taken their fight industry-wide, with mid-sized insurers now being subject to audit.
As if state regulators and independent audit firms were not enough, the life insurance industry may now have the plaintiffs’ bar to wrestle with. In a class-action lawsuit recently filed against John Hancock, entities in federal district court in Boston, plaintiffs seek recovery for monies allegedly lost due to delays in payment of death benefits as a result of the defendants’ purportedly improper death benefit payment practices. The lawsuit marks the latest front in a battle that impacts the past, current and future death benefit practices of an entire industry.
See also: The Verus Financial story
In addition to the class action suit, the following is a summary of some of the latest developments in 10 states across the country:
A pioneer in the area of unclaimed property probes, California has initiated audits of 26 individual insurers since 2008, including an audit of MetLife, Inc. that resulted in a $500 million structured settlement in April 2012. In addition to the large payout, MetLife agreed that California’s three-year UPL dormancy period begins to run on the date of death of an insured as listed in the Social Security Administration’s Death Master File (DMF).
Image: The Golden Gate Bridge, San Francisco, Calif.
Connecticut is home to Verus Financial, LLC, a preeminent third-party auditor hired by at least 37 states to examine the practices of insurers with respect to unclaimed property. Since launching a “formal inquiry into the business practices of life insurance companies regarding timely payment of death benefits to beneficiaries and the protocol used to locate those beneficiaries” in April 2011, the Connecticut Insurance Department has reached settlements with various insurers, including MetLife.
Image: The state capitol building, Hartford, Conn.
The State of Delaware has recently begun a three-year voluntary disclosure agreement (“VDA”) program, designed to allow holders of past due unclaimed property to fully resolve claims for such property by voluntarily disclosing and remitting it. The Secretary of State will not conduct audits or investigations, outside of resolving claims brought pursuant to the VDA program. In addition, to encourage participation, holders that have submitted written notice of their intent to participate in the VDA program by June 30, 2014, will have no exposure to audit by the State Escheator until after July 1, 2015.
Image: A Delaware Bay sunrise.
In April 2012, Kentucky became the first state to pass legislation designed to look like the National Conference of Insurance Legislators’ model Unclaimed Life Insurance Benefits Act (the “ULIBA”). Like the model law, Kentucky’s version of the ULIBA, which became effective January 1, 2013, provides that life insurance companies must compare in-force life insurance policies against the DMF, or an equally comparable database, at least quarterly. In the event that an insurer identifies a match with an insured, the insurer must, within 90 days, make a good faith effort to confirm the death of the insured and determine whether benefits are due under the applicable policy. If benefits are due, the insurer must use documented, good faith efforts to locate beneficiaries and provide them with appropriate claim forms or instructions for making a claim. If beneficiaries cannot be located, the benefits from a life insurance policy, plus any applicable accrued interest, are required to escheat to the state pursuant to its UPL.
Image: Louisville, Ky. at sunrise.
Maryland became the second state (after Kentucky) to pass the model ULIBA when its legislature passed Senate Bill 77 on May 2, 2012. The Maryland statute becomes effective October 1, 2013.