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UNCLAIMED PROPERTY FOCUS is a blog written by and for UPPO members, featuring diverse perspectives and insights from unclaimed property practitioners across the U.S. and Canada. We welcome your submissions to Unclaimed Property Focus. Please contact Tim Dressen via tim@uppo.org with any questions about submitting a blog post for consideration and refer to our editorial guidelines when writing your blog post. Disclaimer: Information and/or comments to this blog is not intended as a substitute for legal advice on compliance or reporting requirements.

 

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Litigation Update: Court Dismisses $14.5 Billion Case Against Life Insurers

Posted By Administration, Thursday, May 30, 2019

On April 3, 2019, New York Supreme Court Justice Andrea Masley granted a motion to dismiss by defendant life insurers in Total Asset Recovery Services LLC v. Met Life Inc., a whistleblower (qui tam) case brought by audit firm Total Asset Recovery Services on behalf of the state of New York. 

 

Filed in 2010 and amended by TARS in 2011 and 2017 under the New York False Claims Act, the case alleged that nearly a dozen life insurance companies failed to escheat to the state unclaimed funds held under mature life insurance policies. The plaintiff alleged more than $14.5 billion in damages.

 

TARS based its claim, in part, on the defendant life insurers’ alleged failure to use the Social Security Administration’s Death Master File to locate beneficiaries of deceased insureds and to report and escheat to the state funds that had not been claimed by the beneficiaries. However, the court pointed out in its ruling that insurance companies had no obligation to search the DMF when the case brought in 2010. New York did not require such searches until April 2012. 

 

“TARS’ assertion that death alone, not proof of death triggers the three-year dormancy period of escheatment requirement… lacks merit. The pleadings do not allege that any of the defendants received notice and proof of death of any insureds,” the court wrote. 

 

The court also denied a request to amend its pleading, saying it had already done so twice and “any further amendment would be futile.” 

 

Created and maintained by the Social Security Administration, the Death Master File has been a controversial tool. Government agencies and private businesses rely on the DMF to verify the death of U.S. citizens, but questions about its accuracy and, thus, reliability continue to make it a contentious issue among insurers, consumers, government agencies and politicians. Life insurers’ use of the DMF has been a source of debate, scrutiny, litigation and regulation in recent years.

Tags:  Death Master File  DMF  qui tam  whistleblower 

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State Legislatures Reconvene, Immediately Take up Unclaimed Property Issues

Posted By Administration, Monday, January 30, 2017

Reconvening earlier this month, state legislatures are wasting no time considering new unclaimed property legislation, including language from the Revised Uniform Unclaimed Property Act. Following are summaries of several of the most noteworthy bills UPPO is tracking.

 

Arkansas

H.B. 1142 extends the presumed date of abandonment for securities from five to seven years from any of the following:

  • The date of most the recent dividend, stock split or other distribution unclaimed by the apparent owner;
  • The date of second mailing of a statement of account or other notification or communication that was returned as undeliverable, or after the holder discontinued mailings, notifications or communications to the apparent owner;
  • The date that the security holder or payee is presumed lost or unresponsive as it existed on Jan. 23, 2013.

The bill also includes new provisions requiring the security holder to liquidate the security before remitting it to the administrator. The bill was referred to a Senate Committee on Jan. 23.  

 

Delaware

Highly anticipated legislation since last summer’s Temple-Inland summary judgment and settlement, S.B. 13 adopts provisions from the 2016 Revised Uniform Unclaimed Property Act. It also adopts certain recommendations from the Delaware Unclaimed Property Task Force and makes significant changes to the state's unclaimed property reporting process and compliance initiatives.

 

These changes include reducing the look-back period for all voluntary disclosure agreements and audits to 10 report years, and creating a 10-year statute of limitations for the state to seek payment of unclaimed property due to the state. In addition, this legislation aligns the state’s record retention requirement for companies with the statute of limitations and look-back period, which mirrors laws in a majority of other states.

 

S.B. 13 also offers any company currently under audit the opportunity to convert their audit into a voluntary disclosure agreement. Since July 22, 2015, Delaware law has allowed companies to enter into a VDA before going through an audit. This change provides the VDA option for companies whose audits began before July 22, 2015, and are still in process. It also gives all companies that received a notice of examination who are currently under audit on the bill’s effective date the opportunity to engage in an expedited audit review process.

 

The bill addresses the state’s estimation practices for audits and VDAs, requiring the secretaries of finance and state to develop by July 1, 2017, regulations for estimation base periods, excluded items, aging criteria for outstanding and voided checks, and the definition of “complete and researchable records.”

 

Finally, the bill mandates that interest be assessed on any late-filed unclaimed property, as a means to incentivize voluntary compliance. The bill quickly made its way through the legislature, and was sent to the governor on Thursday, Jan. 26 for signing.

 

Nebraska

The unicameral legislature in Nebraska is considering a pair of unclaimed property bills. L.B. 137 adopts the Unclaimed Life Insurance Benefits Act. It requires an insurer to compare its policies and retained asset accounts against a death master file to identify possible matches of its insured at least a semi-annually. The bill outlines requirements in the case of a match or potential match, as well as procedures for group life insurance. A hearing is scheduled for Jan. 30.  

 

L.B. 141 adopts the Revised Uniform Unclaimed Property Act. Among relevant provisions, the bill establishes various dormancy periods and due diligence requirements. It exempts gift cards without expiration dates and fees and establishes a three-year dormancy period for returned merchandise credits and gift cards with fees. The bill also outlines the state treasurer’s responsibilities regarding unclaimed property and provides for holder reimbursement where appropriate. It provides in certain circumstances for the right of another state to take custody of unclaimed property. The bill is still awaiting to be scheduled for a committee hearing.

 

New York

S.B. 1689 prohibits gift card expiration dates and dormancy service fees unless it meets four conditions:

1.       The remaining value of the gift card is $5 or less each time the fee is assessed;

2.       The fee does not exceed $1 per month;

3.       There has been no activity on the gift card for 24 consecutive months; and

4.       The holder has the ability to reload or add value to the gift card.

 

The bill also requires retailers to redeem gift certificates of $10 or less for cash at the consumer's request. The bill was referred to the consumer protection committee.

 

Oregon

S.B. 113 requires the provider of goods and services identified on a gift card to transfer to the Department of State Lands the remaining balance of any gift card after five years of inactivity from the date of the last purchase using that gift card. The bill is currently in committee.

 

South Dakota

S.B. 34 revises provisions related to securities held as unclaimed property. The bill requires the state treasurer to sell all stocks, bonds and other negotiable instruments within 90 days of confirmed receipt, unless the property is on an open claim. The bill was referred to a House Committee on Jan. 20.

 

Utah

H.B. 42 makes comprehensive revisions to the state’s insurance law. Among other changes, the bill amends definitions under the Unclaimed Life Insurance and Annuity Benefits Act by removing the definition of “knowledge of death.” The bill saw its third hearing in the House on Jan. 25.

 

UPPO continues to monitor all of the pertinent bills affecting members. For the latest information about these and other noteworthy unclaimed property bills, visit UPPO’s govWATCH website.

 

Tags:  audits  death master file  insurance  RUUPA  securities  unclaimed property 

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Death Master File Headline Watch

Posted By Administration, Thursday, February 25, 2016

Created and maintained by the Social Security Administration, the Death Master File (DMF) has become a controversial tool. Government agencies and private businesses rely on the DMF to verify the death of U.S. citizens, but questions about its accuracy and, thus, reliability continue to make it a contentious issue among insurers, consumers, government agencies and politicians. In the unclaimed property world, life insurers’ use of the DMF has been a source of debate, scrutiny, litigation and regulation over the past several years.

 

Recent DMF developments suggest the topic will continue to make headlines for the foreseeable future. Following are several stories to keep an eye on in the coming months.

 

Litigation

Life insurers continue to spar with states and their third-party auditors over required use of the DMF. In October 2015, three insurance companies filed suit in Illinois against the state treasurer and its contract auditor over whether applying a “DMF standard” for paying life insurance beneficiaries exceeds the treasurer’s authority.

 

In Kentucky, the governor and attorney general are butting heads over the governor’s decision earlier this month to drop a DMF-related lawsuit headed for the state Supreme Court. The case questions whether a 2012 law requiring life insurers to compare their records against the DMF applies to policies written before passage of the law. In dropping his defense of the suit, the governor agreed that the state shouldn’t apply the law retroactively. The attorney general disagrees and is seeking to continue to lawsuit.

 

Legislation

Several state legislatures are considering bills related to the DMF. Florida H.B. 1041 and S.B. 966, Illinois H.B. 4633 and S.B. 2396, Missouri H.B. 2150 and S.B. 863, New Jersey A.B. 2511 and South Carolina S.B. 972 are among the most recent bills that would require insurers to implement procedures for comparing its policies, annuity contracts and retained asset accounts against the DMF.

 

Examinations

States continue to conduct examinations of life insurers spanning several decades, identifying unpaid benefit payments owed in part because the companies did not regularly compare their records to the DMF. Most recently, Minnesota’s Department of Commerce announced on Feb. 2, 2016, a settlement with three insurance companies, bringing its total number of settlements to nine. In total, the settlements have resulted in $143 million in payments to beneficiaries and $31 million to Minnesota and other states as unclaimed property.

 

Model acts

Both the Uniform Law Commission (ULC) and National Association of Insurance Commissioners (NAIC) are working on model legislation that is likely to address the DMF. The ULC’s Revised Uniform Unclaimed Property Act is scheduled for completion in July. The commission released its most recent draft earlier this month. The NAIC issued its latest draft of the Unclaimed Life Insurance and Annuities Model Act in November 2015.

 

Campaign fodder

During the Feb. 15 Republican presidential candidate debate, Donald Trump said he would fix Social Security by identifying the “thousands and thousands of people that are over 106 years old” who are receiving Social Security even though the majority are presumably deceased. Fact-checking the candidates, CNN cites a March 2015 report confirming that although there are 6.5 million people over the age of 112 with Social Security numbers but no listings in the DMF, few of them are receiving benefits. The report did, however, caution that relying on the DMF could be problematic for private businesses and government agencies at all levels.

 

60 Minutes

In March 2015, 60 Minutes aired a story about the DMF, focusing on consumers whose financial accounts were frozen because they inadvertently appeared on the DMF. Multiple sources tell UPPO that the CBS television program is working on a follow-up story focusing on the life insurance industry. No air date has been announced.

 

For additional information about noteworthy unclaimed property cases and legislation, visit UPPO’s govWATCH website. If you’re planning to attend the 2016 Annual Conference, March 20 – 23 in Palm Springs, Calif., don’t miss the “Industry Focus: Life Insurance” session, for additional discussion about the Death Master File.

 

Tags:  compliance  Death Master File  life insurance  unclaimed property 

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Monthly litigation update: life insurance companies raise alarms about DMF matching requirement

Posted By Contribution from Sam Schaunaman, J.D. and GRAC member , Thursday, December 3, 2015

Another life insurance lawsuit has been filed -- this time three insurance companies (the plaintiffs), all parts of the Kemper Corporation family of companies, filed suit in Illinois state court on Oct. 26, 2015.  Plaintiffs allege in their complaint that defendant Michael Frerichs, the Illinois State Treasurer, as well as defendant Verus Financial LLC (Verus), a contract auditor for Illinois, sought to follow a rule that contradicts the Illinois Uniform Disposition of Unclaimed Property Act, as well as the Illinois Insurance Code.

 

Complaint overview

An emerging issue in the life insurance industry is the question of when the obligation of the life insurance company to pay life insurance benefits arises, and when the applicable state dormancy period begins. The longstanding rule in Illinois, which is also consistent with Illinois unclaimed property law, is that the obligation of the life insurers to pay life insurance beneficiaries occurs when proof of death is provided. In part because of agreements entered into between some insurance companies and states to resolve multi-state audits, and also because of some states adopting a version of the Unclaimed Life Insurance Benefits Act, there’s a trend in the life insurance arena where the obligation to pay life insurance benefits can arise once an insured’s name appears in the Social Security Administration’s Death Master File (DMF).

 

The plaintiffs allege in the complaint that this new “DMF standard” was applied in their audit. In the complaint, the plaintiffs state that the new standard “exceeds the constitutional limits on the Treasurer’s authority as a state regulator, while it usurps the Illinois Department of Insurance’s exclusive authority to administer the insurance laws of Illinois”.  Furthermore, it is contended that the “DMF standard” is being operated as a rule, and that such rule is invalid, because it didn’t follow the rule making procedures set forth in the Illinois Administrative Procedures Act.  

 

Background

In May 2012, Verus sent an information request to the plaintiffs, apparently one out of a number of such requests, asking that they produce detailed electronic information about each insured covered by an in-force policy since 1996, which was to include the name, last known address, date of birth and social security number of the insured. After objecting to hand over the records for a number of reasons, the plaintiffs were led to believe that Verus, per letter dated July 17, 2012, would not require them to produce all in-force policy data at that time.  However, on Oct. 6, 2015 the Illinois State Treasurer sent the plaintiffs a “Final Demand Letter” requiring the plaintiffs to produce the information Verus requested back in May 2012, and stating that if they did not produce such information by Oct. 16, 2015, the Treasurer would take necessary legal steps to compel production.  

 

Given the eminent threat of legal action, the plaintiffs have requested the court to award declaratory and injunctive relief from being required to produce in-force policy records to enable a DMF comparison, and to prevent their obligation of paying or escheating policy proceeds based on a DMF comparison.

 

Next steps

As a complaint merely commences the events involved with complex lawsuits, the defendants will likely respond in an answer filed with the court.   

 

To read more, here’s the complaint filed by the plaintiffs.

 

About the contributor

Sam Schaunaman, senior manager at Ryan AUP and member of the UPPO Government Relations and Advocacy Committee, contributes to UPPO’s monthly litigation update blog posts. Schaunaman has over 26 years of unclaimed property experience in all aspects of unclaimed property and is a frequent author of unclaimed property articles and whitepapers. Schaunaman is a member of the Oklahoma Bar Association and American Bar Association.     

 

Disclaimer: This case summary contains a general description of the case, and neither UPPO nor Ryan, or any of their affiliated or related entities, by means of this summary, is rendering business, financial, legal, tax, reporting or compliance or other professional advice or services.  This summary blog is not a substitute for such professional advice.

 

Tags:  Death Master File  legal  State of Illinois Treasurer  unclaimed property  United Insurance Company of America 

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