Unclaimed Property Reform in the Insurance Industry

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1 Unclaimed Property Reform in the Insurance Industry John Coalson Alston & Bird LLP Michael Lovendusky ACLI James Donelon-LA Insurance Commissioner/NAIC David Westmark Thrivent Financial for Lutherans 1

2 UPPO Presentation Disclaimer Use of the Unclaimed Property Professionals Organization, Inc., (UPPO) name or copyrighted materials in this presentation does not constitute an endorsement by UPPO of a member, vendor, product or service. The content represents the opinions of the author and not necessarily those of UPPO. This information is not intended as legal advice and should not be used to replace the advice of legal counsel. 2

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5 Agenda/Overview Past/Current Compliance: What is the applicable dormancy trigger for reporting unclaimed life ins proceeds as unclaimed property? Future Compliance: What should be the applicable dormancy trigger, and what statutory changes are needed to achieve the right result as a matter of policy? Is the NAUPA proposal to the ULC the right answer? 5

6 Agenda/Overview (Cont d) Dormancy triggers Statutory (1981 Uniform Act, 1995 Uniform Act) Audit settlement agreements Litigation NCOIL Model Statute and its adoption in the states NAUPA proposal to Uniform Laws Commission 6

7 Dormancy Triggers 1981 Uniform Act - Section 7 Funds held or owing under any life or endowment insurance policy or annuity contract that has matured or terminated are presumed abandoned if unclaimed for more than 5 years after the funds became due and payable as established from the records of the insurance company holding or owing the funds. Section 7(a). 7

8 Dormancy Triggers (Cont d) 1981 Uniform Act Life insurance or annuity contract not matured by actual proof of death of the insured or annuitant according to the records of the company is matured and the proceeds due and payable if: the company knows that the insured or annuitant has died; or (i) the insured has attained, or would have attained if he were living, the limiting age under the mortality table on which the reserve is based; (ii) the policy was in force at the time the insured attained, or would have attained, the limiting age specified in subparagraph (i); and (iii) neither the insured nor any other person appearing to have an interest in the policy within the preceding 2 years has assigned, readjusted, or paid premiums on the policy corresponded in writing with the company concerning the policy, or otherwise indicated an interest... Section 7(c) 8

9 Dormancy Triggers (Cont d) 1995 Uniform Act Section 2 An amount owed by an insurer on a life or endowment insurance policy or an annuity that has matured or terminated is presumed abandoned three years after the obligation to pay arose or, in the case of a policy or annuity payable upon proof of death, three years after the insured has attained, or would have attained if living, the limiting age under the mortality table on which the reserve is based. Section 2(a)(8). 9

10 Dormancy Triggers (Cont d) Typical Language from Insurance Contract: When we receive proof satisfactory to us of your death while this policy is in force, we will pay the Proceeds then in force to the Beneficiary, subject to the provisions of this policy. This language is statutorily required under the insurance statutes of 37 states Approved by the Insurance Comm r of every state 10

11 Dormancy Triggers (Cont d) Global settlements reached in combined insurance market conduct and unclaimed property compliance audits (Nationwide, John Hancock, Met Life, Prudential, AIG, others) Insurance settlement agreement standard Due and payable based on actual date of death of insured determined by SSDMF searches Influenced by market conduct examinations Role of asymmetrical use of SSDMF by settling companies Spawned litigation and legislation throughout the U.S. 11

12 NCOIL Model Statute - Summary Statute essentially adopts a similar standard as outlined in the settlement agreements. Model statute initially drafted in 2011; amended in July 2012 and in July Requires an insurer to perform a comparison of its in-force life policies and retained asset accounts against the SSDMF, on at least a semi-annual basis, to identify potential [SSDMF] matches. If an insurer learns of a possible death through such a search, the insurer shall within 90 days: complete a good faith effort to confirm the death using other available records and information; Determine whether benefits may be due in accordance with any inforce policies or contracts; and Use good-faith efforts to locate and contact the beneficiary or beneficiaries or other authorized representative and provide the appropriate paperwork necessary to make a claim. 12

13 States that have adopted or have introduced NCOIL model statute, or substantially similar statute. NCOIL Model Statute State Name Date Passed Kentucky 4/13/2012* Maryland 5/2/2012 Alabama 5/15/2012 New York 12/17/2012 Montana 3/29/2013 Massachusetts Pending North Dakota 4/26/2013 Vermont 5/21/2013 New Mexico 4/1/2013 Rhode Island Pending Nevada 6/10/2013 Pennsylvania Indiana Oklahoma Mississippi Georgia Tennessee Iowa Louisiana Pending Pending Pending Pending Pending Pending Pending Pending 13

14 Litigation Andrews v. Nationwide Mutual Ins. Co., (Ohio Ct. App. Oct. 25, 2012) Upholding a lower court dismissal of a class action complaint alleging that insurance companies are obligated to search the SSDMF. United Insurance Co. of America v. Commonwealth of Kentucky, (Ky. Cir. Ct. Apr. 4, 2013) Franklin County circuit court upheld the Kentucky statute that created an affirmative requirement for insurance companies to check the SSDMF. Even if the statute impaired a contractual right, it was justified by a significant and legitimate public purpose. Richard Feingold v. John Hancock Life Insurance Co., (D. Mass Aug. 2013) No duty to search the SSDMF. Under established principles of insurance law, Hancock s practice of requiring proof of death comported with both Illinois and Mass. law. 14

15 Litigation (Cont d) Total Asset Recovery Services, LLC v. Metlife, Inc., et., al., (Fla. 2d Cir. Ct. Aug. 20, 2013) Florida has not adopted a law requiring [the insurer] to consult [the SSDMF]... in connection with payment or escheatment of life insurance benefits. State ex rel. Perdue v. Nationwide Life Ins. Co. et al., (W.V. Cir. Ct. Putnam County, Dec. 27, 2013). Circuit court rejected the argument that life insurance companies were required to research the SSDMF for purposes of complying with the state s unclaimed property laws. The only two statutory triggers for the unclaimed property dormancy period are receipt of due proof of death and the limiting age. 15

16 Litigation (Cont d) Other Pending Cases Thrivent Financial for Lutherans v. State of Florida, Dep t. of Fin. Services (pending) Appeal from a Declaratory Statement issued by the Florida Dep t. of Fin. Services Under Florida s unclaimed property laws, when do life insurance policy proceeds become due and payable as established from the records of the insurance company holding or owing the funds? Chiang, Controller State of California v. Kemper Corporation (pending) Seeking preliminary and permanent injunctive relief to force Kemper to comply with audit. See also Chiang v. American National Insurance Company. 16

17 Takeaways and Pending Issues No court has upheld an obligation for insurance co s to search the SSDMF absent affirmative statutory or regulatory requirement such as NCOIL Model legislation NCOIL Model legislation has been upheld, including application to previously issued policies, in KY NAUPA position paper to Uniform Laws Commission: Re-enact 1981 UUPA provision ( knows of the death of the insured trigger) Enact NCOIL legislation (in UP statute, rather than in the insurance statute?) Define proof of death to include match on SSDMF or similar database 17

18 Panel Discussion What is the right trigger under current law, from a purely legal viewpoint? When the obligation to pay arose (1995 UUPA), or the Co knows of the death of the insured (1981 UUPA)? or Actual date of death of insured, irrespective of notice to or actual knowledge by insurance co (Global Settlements, FLA Declaratory Statement)? Is the DOD standard Justified by Connecticut Mutual Life Insurance Co. v. Moore and/or UUPA Section 2(e)? Obligation to report and remit without notice? When? Due process concerns? 18

19 Panel Discussion Under the 1995 UUPA, does a SSDMF match, standing alone, render the policy proceeds due and payable? Does Connecticut Mutual Life Ins v. Moore and/or UUPA section 2(e)(property is due and payable notwithstanding failure of owner to make demand) make it so? Under the 1981 UUPA knows of death of the insured trigger, does a SSDMF match, standing alone, equal knowledge of death of the insured? 19

20 Panel Discussion What is the right trigger as a matter of policy? Insurance law? Unclaimed property law? Should requirements to search for insureds be in unclaimed property statutes, or in state insurance law? Why shouldn t the UP period of presumed abandonment simply run from the date the policy proceeds become due and payable under applicable insurance law? (I.e., current 1995 UUPA trigger) 20

21 Panel Discussion What is the effect of a SSDMF match under the NCOIL Model Legislation? If the insurance company cannot confirm the death of the insured and obtain proof of death, do the policy proceeds become due and payable? Would the proceeds be escheatable? If so, when? Is the NAUPA proposal to the ULC acceptable? 1981 UUPA knows of death trigger NCOIL Model legis incorporated in UUPA SSDMF Match = Proof of death 21

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