Courts, legislators, and regulators are all examining life insurers’ use of Retained Asset Accounts (RAAs) as a payout mechanism for life insurance proceeds.

Courts: Various class action lawsuits pending in state and federal courts challenge the use of RAAs based on several legal theories. Thus far, actions under state common law have been resolved on dispositive motions in favor of the insurer. In one recently decided case, Clark v. Metropolitan Life Insurance Company, the Nevada federal district court granted summary judgment for the insurer finding that there was no “special or confidential” relationship between the insurer and the beneficiary, and that the plaintiff suffered no damages because the RAA credited interest above the prevailing money market rate.

Legislators: The U.S. House of Representatives passed legislation (H.R. 5993) requiring life insurers to provide disclosure regarding the use of RAAs to pay veterans’ group life insurance benefits. A companion bill (S. 3718) is pending in the U.S. Senate. A Committee of the National Conference of Insurance Legislators is finalizing a draft Beneficiaries’ Bill of Rights, which permits the use of RAAs as a default option contingent on prior disclosure to beneficiaries. California, New York and Pennsylvania legislators also have introduced bills regulating RAAs.

Regulators: State regulators in New Jersey, New York, Georgia, Nevada, and Kentucky are among those scrutinizing RAAs. The New Jersey Department of Banking and Insurance ordered authorized or admitted insurers to make certain disclosures about RAAs and submit RAA materials for Departmental review. It plans to propose rules requiring life insurers to file for approval RAA disclosure statements. New York’s Attorney General subpoenaed selected life insurers offering RAAs, and Georgia’s Insurance Commissioner ordered market conduct examinations of two insurers’ RAA programs. Nevada’s Insurance Commissioner issued a Consumer Alert regarding RAAs, and the Kentucky Department of Insurance published an “Advisory Opinion” stating that RAAs are permissible on an “opt-in” basis only.

Additionally, the National Association of Insurance Commissioners’ RAA Working Group has been examining RAA disclosure practices, and planned to make recommendations to its parent committees at the Fall National Meeting (see NAIC Fall National Meeting Update, p.4). More information on the work of the NAIC RAA Working Group and NCOIL Committee can be accessed through Jorden Burt’s client alerts.