WASHINGTON - A National Association of Insurance Commissioners task force will meet May 29 as the first step in crafting a uniform system for states and insurers to deal with the festering issues of handling the proceeds of unclaimed insurance policies.
Developing a uniform system for states to deal with the issue within a year has been deemed “essential” by the new committee, the Unclaimed Benefits Model Drafting (A) Subgroup.
Adam Cole, general counsel and deputy commissioner of the California Department of Insurance, is chairing the new group.
He hopes to have a first draft of a new model law ready for consideration in time for NAIC’s summer meeting Aug. 17 in Chicago, according to Ben Seessel, a partner in Carlton Fields Jorden Burt’s Hartford, Conn. office.
The May 29 task force will be a “brainstorming session,” Seessel said.
On the table will be a model law crafted by the National Council of Insurance Legislators, which is supported by the American Council of Life Insurance; a different proposal drafted by six states, and a proposal that the New York Department of Financial Services is suggesting, Seessel said.
Seessel said the chair of the new group plans an “aggressive” approach to putting together a draft model acceptable to the interested parties. The subgroup will meet every two weeks in order to be able to put something on the table for discussion on Aug. 17.
The issue has been on the front burner since 2008, when the California controller’s office settled with John Hancock based on an audit of the company’s books conducted by an outside vendor using the state’s police powers.
Since then, a multi-state insurance regulatory task force has conducted investigations of larger insurers which constitute 61 percent of the U.S. life insurance market, according to the California controller’s office.
These companies have remitted the proceeds of unclaimed life insurance policies to the states. The companies also have agreed to use the Social Security Death Master File (DMF) or similar programs to conduct quarterly audits of their books to ensure that unclaimed property has been remitted to the states. Controllers or unclaimed property offices in some other states also have conducted parallel investigations.
Now the states are turning their eyes to smaller insurers who were not targets of the multi-state investigation. These smaller insurers did not settle with the California controller and 35 other states on the multi-state agreements whereby they paid fines to the states, remitted the proceeds of unclaimed policies and agreed to run the DMF on their records quarterly.
Some of these insurers are challenging the states’ authority to require use of the DMF. In some cases, courts have found that the states do not have the authority to mandate the searches or to have the unclaimed property turned over to the state.
A key question is what triggers a claim, whether the claim is triggered by a death, or whether it is triggered by the beneficiaries filing for the proceeds.
For example, a West Virginia Circuit Court judge in December 2013 rejected the claim of West Virginia Treasurer John Perdue that insurers have a duty to search the DMF under the 1995 Uniform Unclaimed Property Act as adopted in West Virginia. That decision has been appealed to the West Virginia Court of Appeals, and a decision is expected shortly.
InsuranceNewsNet Washington Bureau Chief Arthur D. Postal has covered regulatory and legislative issues for more than 30 years. He can be reached at [email protected].
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