Category: life insurance

West Virginia Insurance Battle Moves From Courts to Legislature

Last summer, the West Virginia Supreme Court of Appeals issued an opinion in Purdue v. Nationwide Life Insurance Company, a case presenting the issue of whether a life insurer is required to undertake periodic investigations to determine whether any of its policyholders are deceased (and, thus, that a death benefit is payable).  While the Court did not rule that insurers had a specific obligation to review the Social Security Death Master File (DMF) or similar databases, it nonetheless held that the dormancy period for a life insurance policy begins at the date of death and placed the burden on insurers to figure out how to ascertain that information.  Of course, an insurer could search the DMF, the Court explained, but they could also “contact its insureds directly” (e.g., call them every year), farm the task out to agents, or do whatever else the found “the most economical” so long as they obtained the required information.

While the West Virginia Supreme Court’s ruling seemed to be the end of the matter, some lawmakers are opening up a new front in the state legislature.  A few weeks ago, two West Virginia lawmakers introduced House Bill 4473, which would amend the state unclaimed property act to provide that: 

in the case of a life or endowment insurance policy or an annuity payable upon proof of death, the obligation to pay does not arise until after a claim is made with the insurer and due proof of death is received by the insurer.

The bill provides that it is being introduce to “clarify an unintended result” of the Supreme Court’s decision in Nationwide.  Not everyone agrees, however, that the obligation to contact holders was “unintended” by the Court.  According to a story in the Charleston Gazette-Mail, one of those who disagrees with this characterization, and the new legislation, is West Virginia State Treasurer John Purdue, the official who began the case against the insurers in 2012 which led to the Supreme Court’s decision.  According to the Gazette-Mail, the Treasurer noted that the Supreme Court’s decision was “bipartisan” and unanimous, and urged the legislature to reject the bill.

The bill is currently pending before the West Virginia House Judiciary Committee.

West Virginia Supreme Court Rules That Insurers Must Track Policyholder Death Information

The West Virginia Supreme Court of Appeals recently issued an opinion in Purdue v. Nationwide Life Insurance Company, a case presenting the issue of whether life insurers are required to affirmatively undertake periodic investigations to determine whether any policyholders are deceased.

The case began in 2012, when West Virginia State Treasurer John D. Purdue sued ten life insurers, claiming that they failed to report and deliver unclaimed insurance policies in accordance with the West Virginia Unclaimed Property Act.  Specifically, the Treasurer alleged that because the insurers did not regularly review in-force policies against the Social Security Death Master File (DMF) to determine whether the policyholder was deceased, they failed to report property when due.  The Treasurer’s office sued dozens of additional insurers in 2013, making similar allegations against a total of 69 separate companies.  The insurers contested the Treasurer’s theory, generally arguing that as a contractual matter, the policies at issue were payable upon notice and proof of the insured’s death.  The insurers further noted that they were under no statutory obligation under the West Virginia Unclaimed Property Act or otherwise to undertake searches of the DMF.

In December of 2013, a West Virginia court dismissed the Treasurer’s lawsuits, siding with the insurers and ruling that there was no affirmative legal duty to search the DMF.  The Treasurer appealed the decision to the West Virgina Supreme Court, which ruled in favor of the Treasurer and sent the case back to the lower court for further proceedings.

In the Supreme Court’s view, it was undisputed that unclaimed life insurance policies were escheatable three years after the insurer’s obligation to pay arose; rather, the case boiled down to when the obligation to pay arose.  According to the Treasurer, the obligation to pay arises when the policyholder dies.  According to the insurers (and the lower court) the obligation to pay does not arise until proof of the insured’s death is provided to the insurer.

The Supreme Court began its analysis by reviewing Section 2(e) of the West Virginia Act, which generally provides that property is payable “not withstanding the owner’s failure to make [a] demand” for payment.  That language, the Court explained, undercut the insurers’ argument that an insurance policy cannot be payable until such time as a claim is filed.  In so doing, the Court distinguished cases in other states requiring a claim on the grounds that those cases simply held that an insurer had no obligation to search the DMF, not that the obligation to pay doesn’t arise until a claim is made.

Having made that distinction, however, the Court was left with the following question:  How is an insurer to obtain information regarding policyholder deaths if there is no affirmative duty to search the DMF?  Indeed, the Court explicitly held that the West Virginia Unclaimed Property Act “imposes no specific duty on insurers to search the [DMF] or any comparable data source.”  The Court largely punted back to the insurers on this issue – holding that the dormancy period commences with the death of the insured and that the insurers could do whatever they want to determine when a policyholder death takes place.  Of course, the insurers could search the DMF, the Court explained, but they could also “contact its insureds directly” (e.g., call them every year), farm the task out to agents, or do whatever else the found “the most economical” so long as they obtained the required information.

The Supreme Court sent the case back to the lower court to allow the Treasurer’s office to continue its examination of the insurers’ records.

More Insurance Settlements Suggest Regulators Moving to Smaller Targets

Frequent readers of this blog are no doubt well aware of the multi-state unclaimed property investigation of life insurers’ claim settlement practices.  Generally, the investigation focused on regulators’ complaints that many insurers review the Social Security Administration’s death records to determine whether an annuity policyholder had died, so they could stop paying annuities (which are paid by the insurer until the policyholder dies), but were not using that same information to notify life insurance beneficiaries that the policyholder had died (and thus, that the beneficiaries were entitled to collect on the policy).  For their part, the insurers generally denied any wrongdoing, but some agreed to revise their policies.  In the interim, a number of states have passed legislation to require life insurers to do periodic checks of their records.  More recently, the National Association of Insurance Commissioners is considering guidelines to provide more consistency in the claims handling process.

More recently, the life insurance industry website LifeHealthPro reported on two new settlements with two small or mid-size insurance companies relating to unclaimed property and claims settlement practices.  See the LifeHealthPro article for details.  As the article notes, the import of these new settlements is the states’ changing focus from the largest insurers to smaller companies.  For those small and medium insurers that have been following the state investigations, but hoping it would be limited to the largest players, it may be time to reassess.  

 

Lost + Found: California Lawsuit, Buckeye Bucks, North Carolina Changes

California Files Unclaimed Property Lawsuit — According to an article in LifeHealthPro, the California State Controller’s office has filed a lawsuit against Kemper Corporation – a company operating life insurance subsidiaries – for failing to turn over records and data requested in connection with California’s unclaimed property laws.  The article notes that this is the second such lawsuit filed by California seeking access to unclaimed property compliance information.

Buckeye State Gambler Pennies Add Up — State Hits Jackpot — An article in The Columbus Dispatch demonstrates how the delivery of an aggregate of incredibly small dollar items to the state pursuant to unclaimed property laws results in real money.  The article recounts how slot players and others often fail to redeem credit vouchers worth only a few cents.  After time, those unclaimed credit vouchers get reported and delivered to the state pursuant to the Ohio Unclaimed Property Act — to the tune of over $800,000 thus far.

North Carolina Makes Technical Changes to Unclaimed Property Act — The CCHGroup blog posted a recent article concerning some technical changes to North Carolina’s unclaimed property act that went into effect on July 18.  As the article recounts, among other things the Act has been amended to remove some fees and paperwork burdens placed on holders.

More Life Insurers Settle Unclaimed Property Complaints With California

If you have been following the multi-state unclaimed property investigations into life insurers, its time to update your scorecard.  When we left the story, about 10 companies had settled claims or lawsuits relating to their death benefit payment practices.  Generally, the investigation focused on regulators’ complaints that many insurers review the Social Security Administration’s death records to determine whether an annuity policyholder had died, so they could stop paying annuities (which are paid by the insurer until the policyholder dies), but were not using that same information to notify life insurance beneficiaries that the policyholder had died (and thus, that the beneficiaries were entitled to collect on the policy).  For their part, the insurers generally denied any wrongdoing, but some agreed to revise their policies.  In the interim, a number of states have passed legislation to require life insurers to do periodic checks of their records.

In more recent news, LifeHealthPro reported that 11 more insurers have reached a settlement with the California State Controller’s Office to resolve claims over their benefit payment practices.  Details of the settlement, and the companies involved, appear in Arthur Postal’s article at LifeHealthPro, but even the general numbers are staggering — the Controller’s office estimates that the value of the recent settlements is worth more than $750 million.

Life Insurance Updates: Mountain Time Zone Edition

The past few years have seen substantial developments relating to life insurers, and this year is no exception thus far.  While past years have seen audits, investigations, lawsuits and settlements regarding insurers’ purported failures to look for deceased policyholders, legislative developments this year are focusing on requiring such searches to be done going forward.   In particular, in the first third of this year, a variety of states have passed laws requiring life insurers to check their policies against the Social Security Death Master File in order to determine whether policyholders are deceased (and thus, whether benefits are payable).
For example, on March 29, 2013 Montana enacted the “Unclaimed Life Insurance Benefits Act” (Montana Senate Bill 34) which will require insurers and related entities, starting next year, to compare their policies against the Social Security Administration’s death master file (or a similar database) on a semiannual basis.  Similar searches are also going to be required in New Mexico beginning on July 1 of this year, and in North Dakota before next November, as a result of legislation that passed in those states (New Mexico Senate Bill 312, enacted April 1; North Dakota House Bill 1171, enacted Apil 30).   
Back here on the East Coast, New York is also requiring such searches, albeit on a quarterly basis, as a result of NY AssemblyBill 1831, enacted on March 15.

Unclaimed Life Insurance Updates

A few items of note concerning the long running regulatory investigation into the unclaimed property practices of life insurers, and their use of the Death Master File to determine whether policies are eligible to be paid.  Earlier this week, NBC’s The Today Show posted an article estimating the value of unclaimed insurance policies at over $1 billion.  The story provides a good summary of the issues, and the history of the investigations to date.

Of course, wherever there is a giant pot of money reported, people seeking a share of it will not be far behind.  According to a report by Arthur Postal on LifeHealthPro, at least one plaintiffs’ lawyer has commenced a class action against insurer John Hancock seeking damages for delayed notification of life insurance benefits.  For its part, John Hancock has already been investigated — and reached a settlement — with a variety of states concerning this particular issue.  Thus, it appears that the insurers’ fears of having the state investigations being used to fuel private class action lawsuits is coming to pass.  It is doubtful that this will be the last such case.

New York Amends Insurance Law to Require Quarterly Searches of Death Master File

Another in the long running sage of unclaimed insurance benefits and the Social Security Administration’s “Death Master File” (“DMF”).  For those of you who haven’t followed this story earlier, here’s a brief recap:

Generally, when a person with life insurance dies, the estate or a beneficiary of the policy notifies the insurance company to begin the benefit payment process.  For a variety of reasons, however, this notification may never take place.  Either the policyholder died without a beneficiary, or the beneficiaries did not even know that a policy existed. 

Th current controversy revolves around the insurers’ use (or, more to the point, alleged non-use) of the macabre sounding “Social Security Death Master File” to determine whether or not life insurance benefits have become payable.  Though state laws generally do not explicitly require the use of the SSN index, some regulators have complained that insurers search the SSN Index to identified individuals who have dies so they can stop paying annuities (i.e., products that pay out until death), but then don’t use that same information with regard to the payment of life insurance benefits (i.e., those products that pay out upon death).

In November of 2011, the New York State Insurance Department issued a directive requiring all 172 life insurers authorized to do business in New York to use the Social Security Administration’s Master File to identify death benefit payments that were due as of that date.  The New York state legislature has now joined the fray, and has promulgated a law requiring quarterly searches of the DMF.

Pursuant to Assembly Bill 9845, signed into law by Governor Cuomo on December 17, 2012, each insurer subject to the act is required to cross-check all policies and accounts against the DMF “no less frequently than quarterly” in an effort to determine whether death benefits are payable.  The new law also has an infrastructure or IT component as well, requiring insurers to “implement reasonable procedures to account for common variations in data” that might preclude an exact match (presumably misspellings, transcribed numbers, etc). 

The Act will take effect on June 15, 2013.



 

Another Insurance Settlement Announced: $300 Million from AIG

The now long running audits of the life insurance industry continue to bear fruit for state governments.  According to CBS News, (which cites statements from the California State Controller’s Office) AIG will pay approximately $300 million to state governments to settle claims that the company failed to pay death benefits in a timely manner.  According to the article, the $300 million will be divided among 30 states and the District of Columbia.

West Virginia Treasurer Sues 10 Insurance Companies Over Unclaimed Property Compliance

When we last left the “Death Master File” controversy intersecting life insurance policies and the unclaimed property laws, it looked like things were winding down.  A variety of companies announced settlements, Congress got involved, and state insurance regulators were issuing revised standards for compliance.

Despite those settlements, West Virginia Treasurer John Purdue has now filed suit against many of the same insurance companies alleging that they failed to deliver unclaimed insurance policies to that state in accordance with the West Virginia Unclaimed Property Act.  

In most situations, either an heir or the administrator of the deceased’s estate will notify the insurer that the policy has become triggered, and often there is no issue.  These lawsuits center upon what, if anything, the insurance companies are required to do to determine whether or not an insured has died in the absence of such notification.  According to the Charleston Gazette, the lawsuits allege that “a reasonable exercise in good faith and fair dealing statutorily imposed upon defendant includes an annual examination of life insurance policy holders to determine if they are deceased or three years past the applicable limiting age.”  Again, because this topic may come up in our professional capacity, we are not going to analyze this question in any great detail except to say that the unclaimed property laws are generally silent as to how (or whether) the insurer has such an obligation. 

In any event, it seems the story isn’t quite over.