On Thursday, May 19, 2011, attorneys from Foley & Lardner LLP attended and monitored a public evidentiary hearing in Tallahassee, Florida concerning life insurance industry practices involving claims settlement practices, use of the U.S. Social Security Administration's Death Master File (DMF), and compliance with state unclaimed property laws. Investigative subpoenas were issued by the Florida Office of Insurance Regulation (Office) to Metropolitan Life Insurance Company (MetLife) and Nationwide Life Insurance Company (Nationwide). Florida Insurance Commissioner Kevin McCarty conducted the multi-state hearing, with participation from an insurance commissioner panel, including: Jeff Atwater, Chief Financial Officer of Florida, Commissioner Stephen Robertson (Indiana), Commissioner Adam Hamm (North Dakota), Lt. Governor and Director of Insurance Mary Taylor (Ohio), Commissioner Michael Consedine (Pennsylvania), Commissioner Julie McPeak (Tennessee), Robert Wagner, General Counsel of the Illinois Department of Insurance, Doug Wheeler, Director of the Division of Insurance at the New Jersey Department of Banking and Insurance, and certain other representatives from the Florida Department of Financial Services (DFS) and the Florida Attorney General's Office. Dr. Terri Vaughan, CEO of the National Association of Insurance Commissioners (NAIC), and regulatory staff from numerous other state departments also participated in the hearing.

The Office sought evidence regarding the alleged industry practice of using the U.S. Social Security Administration's DMF, which can provide insurers with specific knowledge about a deceased insured, to cease payments on annuities while not using the same information as notice to the company to pay out death benefits under term or whole life insurance policies. The DMF can provide an insurer information regarding its insureds, including (but not limited to): Social Security Numbers, birth dates, and last known address for a deceased. The Office stated in the hearing's opening remarks that the DMF is 99.5 percent accurate.

State departments of insurance and the NAIC are attempting to perfect a claim against life insurers that insurer use of knowledge of death provided to the insurance company by the DMF to discontinue annuities but not to pay life insurance policy death benefits to beneficiaries, or escheat death benefits to a state's unclaimed property division, is an unfair claims settlement practice and is a violation of state insurance codes. Toward that goal, the Office, DFS, and the Florida Attorney General's Office asked questions at the hearing regarding whether life insurers:

  • Fail to initiate claims processes or report and remit unclaimed death benefits in situations where individuals have died with in-force policies or accounts, but beneficiaries have not filed claims because they are unaware of the policy
  • Have information on their books and in their records identifying when "lost" customers are deceased with active police or accounts, but fail to act upon this information, except when it is in the best interests of the insurer to do so (i.e., cancel payout annuities, COLI monitoring, anti-fraud purposes, and so forth)
  • Have adequate controls to monitor when retained asset accounts have been dormant for years, so the insurer can locate the account owner or report and remit the proceeds to unclaimed property divisions of the state if the owner cannot be located
  • Routinely fail to payout annuity contracts after the maturity date or report and remit to the unclaimed property divisions of the state if the owner cannot be located

Upcoming multi-state examinations are expected to focus on the same.

Recently, Manulife's John Hancock life insurance unit agreed to settlements regarding claims practices associated with the DMF in Florida and California. Under the terms of the settlement agreement with Florida, John Hancock denied any wrongdoing, and asserted its intention of entering into the agreement was an effort to modify its future business practices. John Hancock agreed to the following:

  • Pay $3 million to three Florida state agencies for settlement — $600,000 of which was waived due to the company's ongoing cooperation with Florida regulators
  • Return monies to beneficiaries, which includes statutory interest payments accumulated since the date of death
  • If a beneficiary cannot be identified, the amount due a beneficiary will be reported to the Unclaimed Property Division of the Florida DFS
  • Establish a $10-million fund to facilitate payment to beneficiaries that cannot be contacted
  • Provide quarterly reports to the Office, to the DFS, and to the Florida Attorney General for the next three years, updating information specific to Hancock's implementation of the agreement

Under the agreement, the Office will conduct a follow-up market conduct review three years after execution of the settlement agreement. Similarly, Hancock agreed to pay $20 million to settle claims in California concerning use of the DMF for claims settlement practices. For more information regarding the Florida settlement, visit http://tinyurl.com/3hrh9ve.

California conducted a similar hearing on May 23, 2011. Furthermore, as of the publication date of this alert, the NAIC has issued a press release stating an intent to coordinate multi-state examinations to utilize state resources in achieving resolution of the issues discussed above. (See http://tinyurl.com/3kkc62n). Also, Commissioner McCarty has stated that multi-state examinations into these practices would be ongoing, and will focus on the top 40 life insurance underwriters, comprising 92 percent of the U.S. life insurance market.