Insurers’ death benefit payout practices targeted

State regulators continue to investigate claims that life insurance carriers may be failing to pay out death benefits or submit the money to the state in a timely fashion. Not surprisingly, this has attracted the attention of tort lawyers.

Plaintiff’s attorneys have set their sights on life insurers as state regulators investigate the carriers for their failure to pay out death benefits or submit the money to the state in a timely fashion, allegedly while still collecting fees in some cases.
Leading the way is California’s controller and insurance regulator, which yesterday announced jointly a subpoena and investigative hearing of MetLife Inc.’s practices on paying death benefits.
Preliminary findings from a three-year audit by the state revealed that for 20 years, the carrier failed to pay benefits to named beneficiaries or the state after learning that a customer had died. MetLife’s hearing has been set for May 23.
That same audit, which covered 21 life insurers, led to a settlement between John Hancock Financial Services Inc. and California on Friday. That day, Florida’s Office of Insurance Regulation announced a May 19 hearing on the same topic. That office also had subpoenaed MetLife and Nationwide Life Insurance Co., asking that the companies bring representatives to discuss the carriers’ practices.
The regulatory activity has garnered the attention of plaintiff’s attorneys, who are watching the drama unfold and expect some litigation fallout as a result.
“It sounds like a class action to me, and a very good one,” Vincent DiTommaso, a partner at DiTommaso Lubin PC, said of the allegation of fees’ being deducted from the accounts of the deceased. “You have what appears to be a large number of people — obviously the heirs and beneficiaries — who have been wronged.”
Attorney Steven B. Caruso of Maddox Hargett & Caruso PC noted that he had received a call from a potential client late last Friday.
“It was someone who was involved with John Hancock and who appears to have an issue,” he said. “I think companies such as John Hancock, which retained benefits that should have been paid, will have a hard time justifying their lack of due diligence in getting those fund to the insureds.”
The key legal question is what exactly were the insurer’s responsibilities in performing the due diligence to sniff out the beneficiaries, attorneys said. Carriers use the Social Security Administration’s death master list database for reference.
Beneficiaries are supposed to submit a claim for the death benefits, but if a carrier doesn’t hear from a beneficiary and has information on hand to show that an insured person has died, then at what point does the company escheat the money to the state?
“The industry disagrees with the state’s conclusions that we have unlimited obligation to ferret out these claimants,” said one attorney who has litigated on the behalf of the life insurance industry. “The facts are what they are, but companies continue to insist that they met all legal requirements imposed upon them.”
Indeed, MetLife’s spokesman John Calagna wrote in an e-mail: “As we do with all regulatory inquiries, we will fully cooperate with the California investigation. MetLife’s first priority is to keep its promises to its policyholders.”
He noted that aside from following regulatory and statutory requirements, the insurer used its electronic death master file in 2006 and 2007 to identify individual life insurance policies for which a death benefit was due but no claim had been filed to date. The carrier will expand its use of the electronic death master file to identify potentially payable policies this year, Mr. Calagna wrote.
Depending on applicable state law, when beneficaries can’t be located within 3 to 5 years after the company receives notice of a death, the policy proceeds are considered unclaimed and go to the appropriate state. MetLife escheated $51 million to the states in 2010.
“The thing that is clear is that once the companies know they’re holding money for people who passed away — even if they can’t locate them — because of unclaimed property laws, they should know that keeping the money isn’t the answer,” said Michael Rato, who is of counsel at McElroy Deutsch Mulvaney & Carpenter LLP. He specializes in unclaimed-property law.
“Holding on to the money isn’t really going to fly,” Mr. Rato added. “It’s really one or the other: You locate the beneficiary and pay them or you turn to the state.”