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Calif. sues Texas insurer over escheat records

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A Texas insurance company is being sued by California’s controller for allegedly stonewalling requests needed to determine whether the insurance company is complying with California’ unclaimed property laws.

The core of the issue, according to the complaint, is that American National Insurance Company (ANICO), Galveston, Texas, is arguing that currently “in-force policies” are not subject to the controller’s audit and that such data would not be produced “because it has made its own determination that such data will not lead to reportable property.”

California Controller, John Chiang, alleges in the lawsuit that, “ANICO’s dilatory and obstructive actions have significantly impeded the Controller’s audit.”

Chiang’s comments in a statement announcing that he has filed the lawsuit against ANICO prompted a strong response from the insurance industry.

In the statement, Change said he is challenging a “pervasive industry practice” in which “many insurers are fleecing policyholders by warmly welcoming premiums, while turning a cold shoulder when the time comes to pay.”

In response, the American Council of Life Insurers (ACLI) and the Association of California Life and Health Insurance Companies responded by noting, “The fact is, 99 percent of claims made for benefits are paid promptly – in the normal course of business.

The industry statement added that, “Unclaimed life insurance benefits represent a very small percentage of total claims paid. But life insurers operating in California and throughout the nation know the percentages represent real people and historically, if those consumers did not come forward, unpaid claims were and continue to be paid to the states as unclaimed property per the current state laws.”

The statement noted that, “Many companies are using new technology to take proactive measures to locate missing policyholders and the industry is working with regulators and lawmakers on new ways to help ensure all beneficiaries get the benefits they are due.”

The statement added that the ACLI also supports state lost policy locator programs, such as those in Missouri, Louisiana, New York and Ohio. These programs help consumers search for deceased family members’ life insurance policies.

The California/ANICO conflict — which obviously has attracted the attention of the entire industry – is the latest twist in a saga that became public in 2011 when John Hancock Insurance Company settled with Chiang.

Chiang alleged that Hancock had “asymmetrical” policies regarding use of the Social Security Death Master File when dealing with annuities with riders that required monthly or quarterly payments by insurers, or with life insurance policies, where the beneficiaries must file with the insurer for payment.

It has since expanded to nationwide settlements with Hancock and six other large insurers involving up to 40 states.

Related story: John Hancock Companies settle with 6 states

And, the states are now turning their attention to smaller insurers, according to industry lawyers.

Recently, the John Hancock Companies were hit with a class action lawsuit regarding their life insurance death benefit payments policy.

The latest California action is a lawsuit demanding injunctive relief against ANICO. It was filed on behalf of Chiang Tuesday in state court in Sacramento.

The suit alleges ANICO failed to turn over data needed for the controller to conduct audits, which will determine whether the company failed to pay deceased policyholders’ beneficiaries or turn the proceeds over to be safeguarded in perpetuity by the State Controller’s Unclaimed Property program.

According to the suit, states have been conducting audits of ANICO through an outside firm, Xerox Unclaimed Property Clearinghouse, since 2009.

California joined the states conducting the audits in August 2012, but, according to the lawsuit, ANICO has been refusing to provide data regarding “in-force” policies since January.

“While seven insurers, to date, have responsibly come forward to work out settlements with my office ensuring that families are made whole, ANICO continues to stonewall the basic legal requirement to open up their books,” Chiang said.

He added that, “ANICO’s obstructive tactics significantly impede my office’s ability to identify amounts that are required to be turned over to California for distribution to the rightful owners.”

Chiang said that, “If insurers are unwilling to fulfill their duty to clients and comply with the rule of law, I have no reservation in pursuing every legal option to compel them.”  

ANICO referred all questions to its lawyers in Galveston, who did not return a phone call seeking comment.

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