The California Controller’s (Controller) latest squeeze on the life insurance industry involves: sending life insurers notices of assessment of interest on unclaimed property reported and voluntarily remitted in December 2014. The Controller's recent spate of interest assessments comes after several insurers cooperated with the Controller’s demands–which are inconsistent with statutory standards under California law–to voluntarily search the Death Master File (DMF) or other public databases for potential claims and remit “unclaimed” death benefits, regardless of whether such funds are due and payable.
The assessments appear to have calculated the three-year dormancy period for life insurance proceeds as beginning to run on the date of the insured's death. Most insurers report unclaimed monies to California based on a dormancy period that begins to run three years from when the insurer received a claim and/or notice of death. The Controller appears to be taking the position that such monies reported under this interpretation are late and are therefore subject to a 12% per annum interest charge "in addition to any damages, penalties, or fines for which" the company may be liable under any other provision of law. In addition, the interest charges will be compounded annually. CAL. CIV. P. § 1577. Under the Controller’s interpretation, some interest assessments exceed the policy proceeds.
California's Unclaimed Property Holder Handbook states that "[a] policy will be deemed matured upon proof of death that may be identified through a declaration of death, death certificate, comparison of the holder's records against the Social Security Death Master File or other equivalent resources available to the company." Holder Handbook at 12. Some insurers take the position that there is no legal obligation to search the DMF, and that DMF matches do not trigger California’s unclaimed property statute. Other insurers chose to cooperate with the Controller’s position and voluntarily search the DMF and remit unclaimed life insurance proceeds.
The interest assessments are an aggressive interpretation of California unclaimed property law. There is a solid argument that the assessments do not comport with the clear language of California law and punish companies that have cooperated by voluntarily searching the DMF.