The Uniform Law Commission (ULC) Life Insurance Working Group (Working Group) has released its recommendations  to revise the life insurance provisions of the Uniform Unclaimed Property Act of 1995 (1995 Uniform Act or Uniform Act).  The Working Group’s recommendations include triggering the dormancy period upon notice of death, retaining a three-year dormancy period, and implementing Social Security Administration Death Master File (DMF) search requirements consistent with the National Conference of Insurance Legislators (NCOIL) Model Act. The Working Group on life insurance is one element of the ULC’s broader effort to prepare a new Uniform Act for unclaimed property.

The Working Group’s recommendations come a week after a ULC drafting committee released a draft of proposed revisions to the Uniform Act that did not address the life insurance provisions, instead deferring to recommendations to be provided by the Working Group. The Working Group did not propose specific text for revisions to the Uniform Act, but instead made conceptual recommendations, some of which are inconsistent and in conflict. These recommendations will likely be discussed when the ULC meets February 27-28.

On each issue it addressed, the Working Group first discussed the suggestions made by the National Association of Unclaimed Property Administrators (NAUPA), a group representing state unclaimed property officials, and the suggestions made by the American Council of Life Insurers (ACLI). 

Following are some of the key recommendations by the Working Group:

  1. The Working Group rejected NAUPA’s proposal that the dormancy period should begin on date of death of the insured, and instead recommended that it typically should begin to run upon notice of death of the insured, an approach that is generally consistent with the Uniform Unclaimed Property Act of 1981 (1981 Uniform Act). However, the dormancy period would not run if the insurer is unable to confirm the death of the insured despite a good faith effort to do so. When determining what constitutes notice of death, insurers should be permitted to rely upon standards developed by state insurance regulators in consultation with unclaimed property administrators.
  2. The dormancy period should be triggered by the limiting age upon which insurance reserves are based only in circumstances when the insurer does not have notice of death of the insured, or has notice, but cannot after a good faith effort verify that the insured has died.
  3. The three-year dormancy period, as provided in the 1995 Uniform Act, should be retained. The Working Group rejected the NAUPA proposal to reduce the period to two years and to reduce it further to one year in the case of dormancy periods triggered by limiting age.
  4. The Uniform Act should be clarified to provide that a beneficiary should not be required to present proof of death to an insurer to trigger the dormancy period when the insurer has notice of death of the insured, but “the dormancy period should be tolled if the insurer after a good faith effort cannot obtain proof of death.”
  5. Insurers should be exempt from paying interest for failing to escheat unclaimed death benefits within the time period required if the failure is due to lack of notice of death of the insured. (This was a NAUPA proposal, apparently intended to accompany its proposal for a date-of-death dormancy trigger. It is unclear why this provision would be needed with a notice-of-death dormancy trigger.)
  6. The presumption from the 1981 Uniform Act that a beneficiary for whom the insurer lacks an address has the same address as the insured should be reinstated, “unless there is some precedent holding § 7(b) of the 1981 Uniform Act inconsistent with the principles articulated in Texas v. New Jersey.”
  7. A requirement that insurers search the DMF should be incorporated into the Uniform Act. The requirement should be consistent with the NCOIL Model Act and impose an obligation on insurers to conduct reviews of the DMF semi-annually.
  8. States should either (1) incorporate DMF search requirements into the Uniform Act  or (2) expressly cross-reference DMF search requirements contained in the insurance laws. In either case, the DMF search requirements should be consistent with the NCOIL Model Act.
  9. The DMF search requirements should apply to any insurer that is a holder of property subject to custody of the state. Search requirements should apply to all in-force policies, including those issued before the effective date of legislation requiring such searches. In an audit context, the Working Group states that “it may be appropriate” to conduct DMF searches on lapsed or terminated policies. Search requirements should apply to policies “in-force at the time the searches are required to be conducted or lapsed or terminated during a period for which search requirements are applicable.” Hardship exemptions from the search requirements should be available, but only with state insurance commissioner and state unclaimed property administrator approval.