Who Will Benefit From
Unclaimed Insurance Property
Audits: Beneficiaries? Really?
IN A SERIES OF AGGRESSIVE eviden- tiary hearings in Florida and Califor- nia involving MetLife and Nationwide,
and in settlements with other insurers,
state insurance commissioners, state
CFOs and attorneys general are pressing
new theories of unclaimed property liability on life insurers that, in the words
of Florida’s Insurance Commissioner Mc-Carty, could bring in “north of $1 billion”
to state coffers and to beneficiaries. But
just how much of that $1 billion will ever
land in the hands of beneficiaries is an
State regulators are claiming that life
insurers are not doing enough to find
out whether the insureds named on life
insurance policies have died or to locate beneficiaries and settle claims when
the insurance company learns, through
matches with the Social Security Master
Death File database or otherwise, that
insureds have died. Using aggressive timeframes and untested legal theories, states
are threatening life insurers to quickly
turn over unclaimed property to state unclaimed property funds. But states are
ill-equipped to assume the insurer’s responsibilities to pay the death claims.
In certain recent settlements, for instance, the insurer will receive a list of
between 11,000 and 15,000 accounts per
month over five or more months from
the states’ auditor that are accounts the
auditor has identified as escheatable. The
company will have 30 days to review and
object before it must begin the due diligence processes associated with the remittance of the life insurance policies and
annuity contract proceeds to the states.
In some cases, the states are not requiring the insurer to send a notification letter to the beneficiary, but are requiring
the insurer to escheat the property to the
states within sixty days of the end of the
condensed due diligence period.
For over 100 years, insurers have fol-
lowed careful procedures when paying
death claims and have designed their sys-
tems to ensure that claims are paid cor-
rectly and in a timely fashion. As stated in
the typical life insurance policy, an insurer
will pay the proceeds of a life insurance
policy to the designated beneficiary when
the beneficiary presents a claim and proof
of loss, usually in the form of a certified
death certificate. In some states, insurers
must pay statutory interest that begins to
run from the date the insurer receives the
completed claims; in other states, statu-
tory interest runs from the date of death.
In all states, the claims process is governed
by various state insurance laws and unfair
claims acts and states have conducted
market conduct exams that have exam-
ined every facet of the claims process.
states within aggressive timeframes negotiated in settlements – or at most within
three to five years after death.
However, there is nothing in policy
forms, on state insurance department
websites or in popular literature that
warns beneficiaries about these new time
limitations for filing claims. Why, you may
ask? Clearly the reason is that, until recently, states regulators and auditors have
followed the general understanding, as
embodied in section 7(f) of the Uniform
Unclaimed Property Act of 1981, that the
insurer has the duty to process claims and
to pay the life insurance proceeds to the
beneficiary, not the state.
And what duties do states have to find
beneficiaries once the proceeds are escheated to them by the insurers? Very few.
They may be required to publish notice and
post information on a website. But good
luck to the unsuspecting beneficiary who
lives in a different state from the insured
and who may have no clue where to look.
The concern of many is that this latest
series of exams and audits will result in
windfalls to the revenue-strapped states at
the expense of beneficiaries. If the goal of
the states is to find missing beneficiaries,
then regulators should give insurers adequate time and tools to locate them. On a
subject as emotion-laden as life insurance
benefits, regulators would do better to
spend their time developing best practices
and engaging in thoughtful dialogue on
how to locate beneficiaries, rather than
rush to judgment.
Mary Jane Wilson-Bilik is an insurance and securities law partner in Sutherland Asbill & Brennan
LLP with more than 20 years of experience advising
financial service organizations on regulatory compliance. Marlys Bergstrom has more than 14 years
of experience advising on unclaimed property law,
compliance planning and audit defense. Both authors have clients in the unclaimed property sphere.
This article is for informational purposes and
is not intended to constitute legal advice. The views
expressed by the author(s) are the author(s)’(s)
alone, and do not necessarily represent the views
of Sutherland Asbill & Brennan LLP or;its clients.