Minnesota Whistleblower Lawsuit Targets MetLife, Prudential Unclaimed Life Insurance Benefits

A state whistleblower lawsuit filed in Minnesota is seeking $230 million from MetLife Inc. and Prudential Financial Inc. over the way the companies handled unclaimed life insurance benefits. According to a report from the Minneapolis Star Tribune, the complaint claims MetLife and Prudential failed to pay benefits on life insurance policies of nearly 600 deceased Minnesota policyholders.

The whistleblower lawsuit was filed last year by Total Asset Recovery Services, a company that has sued insurers over similar claims in several states. The Minnesota lawsuit was brought under the state’s False Claims Act, which requires that the complaint remain under seal while state prosecutors investigate claims and decide whether or not to intervene. The lawsuit was unsealed last week after the state attorney general’s office declined to intervene. However, a spokesperson for the attorney general’s office said the state could intervene at a later date.

Insurers throughout the country are facing increased regulatory scrutiny over the way they handle unclaimed life insurance benefits. Insurers are supposed to pay death benefits once they learn a policy holder has died. If they are unable to find a beneficiary, most states require that benefits be turned over to their unclaimed property funds. Investigators in several states have launched probes under the belief that life companies are aware of the death of policy holders when they check the Social Security Administration’s Death Master database, which lists all Americans who die, but knowingly suppress their awareness. However, they have no problem using Death Master information to their benefit, such when as stopping payments to deceased annuitants.

In Minnesota, insurance companies are required to notify the state Department of Commerce when the benefits from a deceased policyholder’s life insurance policy go unclaimed for three years or more, according to the Star Tribune. The unclaimed benefits should then be forwarded to the Minnesota unclaimed property unit, which is supposed to locate beneficiaries and pay the money. The whistleblower lawsuit alleges that Prudential and MetLife failed to do that between Sept. 31, 1986, and Sept. 31, 2009, resulting in about 584 unclaimed policies when the companies “knew or should have known the policy holders were deceased.” The complaint further alleges that the average value of each policy was around $130,000.

A lawyer for Total Assets Recovery, however, characterized the amounts detailed by the Minnesota lawsuit as “only the tip of the iceberg”

“The magnitude of the life insurance fraud committed on the states is in the billions of dollars,” said Jeffrey Sloman, a lawyer for Total Asset Recovery Services, and a former U.S. attorney. “Nationally, the numbers are mind-boggling.”

According to the Star Tribune, the Minnesota attorney general and the state’s Department of Commerce are already jointly investigating how 40 major life insurance companies operate. Regulators in other states are also conducting similar probes.

Over the summer, New York regulators ordered 172 companies, including Prudential and MetLife, to start using the Social Security Administration data to determine when death payments are due. In December, the New York Department of Financial Services announced that since the issuance of that letter, companies had paid $52.6 million in unpaid death benefits..

As we reported previously, Prudential has already signed two multi-state settlements in which the company agreed to improve its practices for identifying deceased policyholders, locating their beneficiaries, or forwarding the money to the respective state unclaimed property offices when a beneficiary can’t be located.