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Presentation on theme: "U NCLAIMED L IFE I NSURANCE A UDITS, S ETTLEMENTS & L ITIGATION."— Presentation transcript:


2 2 John Chiang California State Controller 2

3 3 Marc S. Cohen Chair, Bankruptcy & Restructuring, Los Angeles Steven S. Rosenthal Chair, Litigation, Washington, D.C. James Hartley CEO 3

4 4 California State Controllers Office California has taken a strong and leading stance with respect to unpaid life insurance proceeds, something the Controller regards as a wrongful, pervasive practice throughout the industry FY vs. FY : ~200% increase in properties returned annually to California owners Global Resolution Agreements with 18 life insurance companies –John Hancock, Prudential, MetLife, AIG, New York Life, Transamerica, Northwestern Mutual, Lincoln National, and 10 others 4

5 5 Too many Californians have been victimized by a company they entrusted with their retirement security and the care of their families... I am prepared to pursue all actions necessary – including litigation – to bring the rest of the industry into compliance. – John Chiang California State Controllers Office 5

6 6 Key Events in Audits, Settlements & Litigation 6

7 7 Global Resolution Agreements (GRAs) –Controllers / Treasurers Regulatory Settlement Agreements –Insurance Commissioners Death Master File (DMF) Legislation June 2013 multi-state, multi-company GRA –Consortium of 11 major insurance companies 7

8 8 Key Events in Audits, Settlements & Litigation Two lawsuits filed by the California Controller –American National Insurance Company (ANICO) Filed 5/3/2013 –Kemper Companies Filed 7/17/2013 8

9 9 Fundamental Principles Consumers buy life insurance expecting their beneficiaries will be paid when they pass away Consumers do not expect that it will be the insurance companies, and not their beneficiaries, who benefit from the use of the funds after their death Unclaimed property laws are designed to allow the state to take custody of these funds so that it may locate the owner and ensure timely payment 9

10 10 Global Resolution Agreements 10

11 11 GRAs with Consortium of 11 Insurers Unprecedented multi-state, multi-company effort Executed June 6, months of negotiations $763 million projected nationally $86.7 million projected value to California beneficiaries Consortium companies: New York Life, Transamerica, Northwestern Mutual, Western & Southern, Pacific Life, Genworth, Hartford, ING, Symetra, Sammons (Midland and North American), and TIAA-CREF 11

12 12 GRAs: Key Statistics 18 companies have signed GRAs to-date >50% of issued & active life insurance policies nationwide $2.4 billion projected nationally $267 million projected value to California beneficiaries 12

13 13 GRAs: Key Provisions Scope of the Audit –To 1992 vs. potentially indefinite scope Interest –3% compounded interest calculated from date of death Dormancy Trigger –Date of death, not date of notice of death Use of DMF –Provides procedure for DMF matching 13

14 14 GRAs: Key Provisions Releases –Broad and comprehensive Due Diligence Procedures –After a due diligence period, if no beneficiary can be located, proceeds escheat to the appropriate state for safekeeping 14

15 15 GRAs: Key Provisions Procedures for Industrial Policies –Special procedures where the company is missing information –Most common with older, industrial policies Procedures for Resolution of Disputes ERISA Preemption 15

16 16 GRA Match Rules Importance of Match Rules: One of the most significant aspects of the GRA is the match rules (Schedule B), which require escheatment of property even when the insurers records do not match perfectly against the DMF. This significantly increases the amount of property that otherwise would be escheated if a 100% match against the DMF were to be required. 16

17 17 GRA Match Rules Examples of variances that can exist and a match will nevertheless be considered to have been made: First name does not match (e.g., John and Jack or J. and John) Last name misspelled (e.g., MacDonald and McDonald) Last name of female does not (e.g., Mary Williams with same DOB and SSN match but other data does as Mary Cooper) DOB off by up to one digit (e.g., 4/27/46 and 3/27/46) DOB off by up to two years (e.g., 4/27/49 and 4/27/51) SSN off by up to two digits (e.g., and ) Part of SSN transposed (e.g., and ) SSN missing, but Verus matches name and DOB to one or more individuals listed on the DMF 17


19 19 Dormancy Trigger Uniform Unclaimed Property Acts provide: Property is payable or distributable for the purpose of this Act notwithstanding the owners failure to make demand or to present an instrument or document otherwise required to obtain payment. Comments to Acts explain that, based upon Connecticut v. Moore, these provisions are intended to make clear that property is reportable notwithstanding that the owner, who has lost or otherwise forgotten his entitlement to the property, fails to present to the holder evidence of his ownership or to make a demand for payment. 19

20 20 GRAs and California Families 20

21 21 GRAs and California Families California residents are direct beneficiaries of the GRAs $375,000 returned to one LA County family as a result of settlements with life insurers 21

22 22 GRAs and California Families Desiree Tibbets –39-year-old resident of Ontario, California –Mother died in 1995 –Father passed away four years later –Had policy documents and inquired with the insurer, to no avail –Recovered $11,000 as a result of settlement with Prudential 22

23 23 GRAs and California Families $65,270 returned to Aptos, CA beneficiary –2006: Husband passed away –8/2012: Unclaimed insurance proceeds reported pursuant to a GRA –12/2012:Check sent from California This was one bit of unfinished business that made me feel like a failure, and now its done. It was a huge source of frustration, and Im glad that its resolved. Its over. I dont have to fight with these people anymore! 23

24 24 GRAs and California Families 90-year-old widow of WWII veteran in West Sacramento, CA –2004: Husband passed away –8/2012: Unclaimed insurance proceeds reported pursuant to a GRA –12/2012:$18,305 check sent from California I knew he had left some money for me, but I didnt know any of the details. It frustrated me to think that nobody made an effort to let me know... 24

25 25 GRAs and California Families $31,500 returned to brothers in Ventura & San Francisco, CA –One brother suffers from chronic illness; spent years in low-income housing –Both concerned that ill brother would pass away before receiving proceeds from their mothers life insurance –2007: Mother passed away –8/2012: Unclaimed insurance proceeds reported pursuant to a GRA –1/2013:Check sent from California Getting the money sooner would have helped him a ton. 25

26 26 Life Insurance Litigation 26

27 27 Life Insurance Litigation Controllers Audit Authority: The Controller may at reasonable times and upon reasonable notice examine the records of any person if the Controller has reason to believe that the person is a holder who has failed to report property that should have been reported pursuant to this chapter. Cal. Code Civ. Proc. § 1571(a). 27

28 28 Life Insurance Litigation Certain companies have refused to comply with audits that the Controller has initiated Refused to give the Controllers auditors full access to their books and records for the purpose of running their policies against the DMF The Controller recently commenced two lawsuits ANICO and Kemper 28

29 29 Life Insurance Litigation: ANICO Chiang v. American National Insurance Company Filed in Sacramento Superior Court on May 3, 2013 Complaint seeks injunctive relief to prohibit continued violation of Californias unclaimed property law ANICOs position: in-force policies cannot ever lead to escheatable property Fundamental flaw in ANICOs position: requires the Controller to take ANICOs word on whether policies are in force and whether policyholders are still alive 29

30 30 Life Insurance Litigation: ANICO July 26, 2013: ANICO filed (1) Opposition to Controllers Motion for Preliminary Injunction, (2) Answer to the Controllers Complaint, and (3) Cross-Complaint for Declaratory Relief Cross-Complaint seeks the following findings: –Controller not entitled to ANICOs in-force policies –Controller not authorized to enforce searches using DMF to find deceased –Controller not authorized to challenge and change ANICO records and contracts through DMF –Controller may not use date of death as triggering event for dormancy August 2, 2013: Controller filed Motion to Dismiss Cross-Complaint on grounds that relief it seeks is not ripe for adjudication Motion to Dismiss hearing: August 26, 2013 Preliminary Injunction hearing: September 19,

31 31 Life Insurance Litigation: Kemper Chiang v. Kemper Corporation, et al. Filed in Sacramento Superior Court on July 17, 2013 Also seeking injunctive relief Kempers position is similar to ANICOs i.e., no obligation to turn over complete data in the form of a policy data download Kemper cites Ohio Court of Appeals Andrews v. Nationwide Mutual Insurance Company Andrews does not support Kempers position 31

32 32 Andrews v. Nationwide Life insurance industry has overstated this unpublished opinion Lawsuit brought by two insureds, not by representatives of a state Insureds alleged that Nationwide had breached its duty of good faith and fair dealing by failing to make reasonable attempts to determine when beneficiaries are entitled to death benefit proceeds Courts holding: Failure to search DMF did not constitute breach of Nationwides duty of good faith and fair dealing in connection with contract between company and its insureds 32

33 33 Andrews v. Nationwide Court said nothing about companys obligations to escheat unclaimed life insurance proceeds to the states, only that failure to use the DMF did not violate the companys contractual obligations as to its insureds Distinction between private contract rights vs. states rights under unclaimed property laws was articulated by the U.S. Supreme Court in Connecticut v. Moore, 333 U.S. 541 (1948) 33

34 34 Connecticut v. Moore Affirmed constitutionality of abandoned property statutes Life insurance proceeds escheatable based on death of the insured alone, notwithstanding the fact that beneficiaries had not provided proof of death or met other contingencies of policies 34

35 35 Unless the state is allowed to take possession of sums in the hands of the companies classified by [the unclaimed property law] as abandoned, the insurance companies would retain moneys contracted to be paid on condition and which normally they would have been required to pay.... Connecticut v. Moore 35

36 36 The fact that claimants against the companies would under the policies be required to comply with certain policy conditions does not affect our conclusion. The state may more properly be custodian and beneficiary of abandoned property than any person.... Connecticut v. Moore 36

37 37 When the state undertakes the protection of abandoned claims, it would be beyond a reasonable requirement to compel the state to comply with conditions that may be quite proper as between the contracting parties. The state is acting as a conservator, not as a party to a contract. Connecticut v. Moore 37

38 38 United Insurance Co. of America v. Kentucky Lawsuit in Kentucky brought by Kemper in November 2012 Seeking declaratory relief regarding obligations imposed by Kentucky DMF statute, which took effect on January 1, 2013 Kempers position: the DMF law interferes with Kempers vested contractual rights 38

39 39 April 1, 2013 ruling by Kentucky state court: –DMF statute does not violate the rule against retroactive application –DMF statute does not impair any vested contractual right –Even if the statute impairs a contractual right, it is justified by a significant public purpose –Vested contract rights Statute only requires insurance companies to take reasonable steps to provide notice to potential beneficiaries Does not require contractual rights regarding proof of death to be disturbed United Insurance Co. of America v. Kentucky 39

40 40 United Insurance Co. of America v. Kentucky Many Kentucky citizens pay for insurance to help them plan for end of life costs. For insurance companies to attempt to keep the money through willful ignorance of the death of the insured amounts to unjust enrichment at the expense of some of the least privileged citizens in this state. 40

41 41 Paradigm Shift An industry-wide change has occurred in the way the insurance industry handles life insurance claims CLAIMS MADE OUTREACH 41

42 42 Legislation 42

43 43 NCOIL Model Act Many states have modeled their DMF statutes on the draft language of the NCOIL Model Act NCOIL Model Unclaimed Life Insurance Benefits Act (1)Compels routine identification of deceased policyholders by use of the DMF or no less comprehensive database (2)Establishes steps for beneficiary notification (3) Promotes timely payment of claims to beneficiaries (4)In the event that benefits go unclaimed, provides clear procedures for life insurers to escheat the funds, per unclaimed property laws 43

44 44 DMF Statutes Nine states have enacted statutes that require companies to check their policies against the DMF to identify deceased policyholders Alabama Kentucky Maryland Montana Nevada New Mexico New York North Dakota Vermont 44

45 45 DMF Statutes FrequencyEnactedEffective AlabamaEvery 3 years5/8/20138/1/2013 KentuckyQuarterly4/11/20121/1/2013 MarylandSemi-annually5/2/201210/1/2013 MontanaSemi-annually3/29/20131/1/2014 NevadaSemi-annually6/10/20137/1/2014 New MexicoSemi-annually4/1/20137/1/2013 New YorkQuarterly12/26/20126/16/2013 North DakotaSemi-annually4/26/20138/1/2013 VermontSemi-annually5/21/

46 46 DMF Statutes Nearly all DMF statutes apply to all policies in-force as of the effective date of the legislation Alabama is an outlier – only applies to policies issued or entered into on or after January 1, 2016 Kemper litigation in Kentucky challenges retroactive application of Kentuckys statute Retrospective vs. Prospective Application 46

47 47 Thank You In addition to Controller Chiang, the speakers wish to acknowledge the Comptroller for New York and the Insurance Commissioner for Florida, who deserve the publics thanks for their vigilant oversight of a life insurance industry that was shortchanging consumers. 47


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