Illinois Lawsuit Alleges MetLife, Prudential Failed to Turn Over $524.3M in Unclaimed Property

A whistleblower lawsuit filed in Illinois accuses MetLife and Prudential Financial of failing to turn over to the state approximately $524.3 million in unclaimed property, despite having readily accessible information about the deaths of almost 5,000 policyholders.

The plaintiff in the case argues the two companies should be held liable for approximately $1.6 billion under Illinois law.

The suit was filed in the Cook County, Ill., state court by Total Asset Recovery Services, an investigation firm specializing in locating lost or unrecovered assets. The suit was originally filed under seal in January 2011, but last week a judge lifted the sealing order.

MetLife and Prudential demutualized in 1999 and 2000, respectively. In the process, both companies mailed policyholders cash, stock and policy credits they were owed under laws governing demutualization. But in many cases, those amounts were undeliverable and were returned to the defendant, according to the complaint.

TARS was working on a national investigation into unclaimed funds held by state treasurers across the country and allegedly uncovered "a pattern of questionable activity with regards to proper escheatment of life insurance proceeds for deceased individuals," the complaint said.

The firm determined MetLife and Prudential together allegedly failed to report approximately 4,766 unclaimed policies to Illinois state officials. The average life insurance policy in Illinois is valued at $110,000, which the complaint claims puts the total of policies at $524.3 million, according to the American Council of Life Insurers.

Under Illinois law, the two companies could face civil penalties of $26.2 million and could be required to pay back up to triple the amount of damages, which could bring the total amount owed to $1.6 billion, according to the complaint.

As the whistleblower in the case, TARS says it is entitled to between 15% and 25% of the proceeds of a judgment or settlement.

A spokesman for Prudential declined to comment on the lawsuit, saying it is the company's policy not to comment on ongoing litigation.

The TARS complaint is based upon "unreliable assumptions and wildly overstated insurance amounts," MetLife said in a statement.

"The ACLI $110,000 figure cited is irrelevant to the demutualization policies that are the subject of the complaint because more than 75% of the policy owners whom MetLife could not locate at the time of the company's demutualization owned industrial life policies," MetLife said. "The maximum face amount of industrial policies at the time of issue was $1,000."

Tom Prescott, one of TARS owners, told Best's News Service his firm has filed similar suits in other states and is working with state officials on reaching settlements. Under whistleblower law, the state can intervene in any case and argue on behalf of state interests. Prescott declined to provide details on the other suits because they are still under seal.

"The state attorneys general have a lot of latitude in these cases," Prescott said. "We are waiting to see how they are going to proceed."

The TARS lawsuit comes at a time when insurance regulators in 35 states have been investigating life insurers' use of the Social Security Death Master File. Insurers have been accused of using the Death Master File to cut off annuity payments once a contract holder dies but not using it to determine if any death benefit payments are due under life insurance policies, annuity contracts, or retained asset accounts. Regulators have estimated that as a result of those allegedly improper payment practices, the combined damages across the affected states may exceed $1 billion (Best's News Service, May 24, 2011).

Illinois has not signed onto that investigation yet. If it does, that could impact whether the TARS suit is allowed to go forward or whether it would be resolved as part of a multistate settlement.

(By Jeff Jeffrey, Washington Correspondent: jeff.jeffrey@ambest.com)