A Kentucky state court Monday rejected a challenge to the state’s new unclaimed property law by three so-called “debit insurance companies” now controlled by Kemper Insurance Companies.
The companies immediately filed a notice of appeal.
The decision upholds a law enacted by Kentucky last year that requires life insurance companies to check their lists of insureds against the Social Security Administration’s Death Master File.
“The traditional industry practice allows insurance companies to stick their heads in the sand and ignore publicly available data regarding the death of their insureds, to the detriment of the beneficiaries and the public,” Judge Philip J. Shepherd in Franklin County Circuit, Frankfort, Ken., said in his decision.
“This statute remedies the problem by requiring insurance companies to check publicly available data bases and to take ‘good faith’ steps to notify beneficiaries,” he said.
See also: Unclaimed property issue escalates
Later, in his opinion, Shepherd said, “In effect, the plantiffs’ expectation was that the legislature would not disturb the traditional industry practice of ignoring publicly available data about the death of insureds, and that the legislature would not impose any regulatory requirement to find or notify beneficiaries.”
Shepherd then noted that the Supreme Court “has decided similarly” that a taxpayer had no vested right in the Internal Revenue Code as written, he said.
“In a highly regulated industry such as insurance, companies should be aware that their rights are always subject to the regulatory power of the state to enact consumer protections such as the one at issue here,” Shepherd added. “Such changes in statute do not violate vested rights, or due process.”
Carol Lynn Thompson, counsel for the insurance companies, said in reaction to the decision that, “We strongly disagree with the Court’s decision to uphold the recently enacted Unclaimed Life Benefits Act and plan to vigorously appeal the decision.”
Thompson explained that, “By effectively requiring the retroactive matching of life insurance policies to the Social Security Administration’s Death Master File—in a manner contrary to the clear and expressed language of the policies – the Act violates Kentucky law and the Kentucky and U.S. Constitutions.”
Thompson added that, “Contrary to the Court’s ruling, the retroactive nature of the Act would have a significant impact on insurers and would undermine business confidence among insurers and policyholders and could ultimately negatively impact pricing and product availability for consumers.
She also said that, “While the companies “are disappointed with the Court’s ruling, we remain committed to paying all valid claims in a timely and efficient manner in accordance with the policy’s terms–as we have for nearly a century.”
The decision upholds for the first time a model law drafted by the National Conference of Insurance Legislators last year, according to lawyers at Sutherland, Asbill & Brennan in an alert issued by its Washington, D.C., office today.
Kentucky is among six states that have enacted the law. Montana became the latest last week. The others are New York, Alabama, Maryland, and New Mexico. The Sutherland bulletin said “several” other states are considering such legislation.
However, the new New Mexico law does not require that the DMF be used for retroactive purposes, only prospectively.
Under the law, if an insurer identifies a match, it must make a good faith effort to determine whether benefits are due to beneficiaries.
If benefits are in fact due, the insurer must then locate the beneficiaries and inform them of proper claim procedures. If the insurer cannot locate the beneficiaries, the benefits should then be turned over to the state where the insured lives. The funds are escheatable to the state effective as of the date of death, the laws say.
See also: Escheatment: Why It Matters
The decision said that all but 42 of the policies that were subject to the case were sold door-to-door to people in lower socio-economic classes.