Unpaid Life Insurance Benefits Subject of New York Joint Investigation

Life insurance companies are under scrutiny in New York for the way they handle <"https://www.yourlawyer.com/topics/overview/Unclaimed-Life-Insurance-Death-Benefits-Lawsuit">unpaid life insurance death benefits. Attorney General Eric T. Schneiderman and State Comptroller Thomas P. DiNapoli announced late last week that they would be collaborating on the life insurance investigation, after their offices uncovered data that indicated that millions in insurance death benefit funds may have been improperly withheld from beneficiaries.

Over the summer, Schneiderman’s office subpoenaed nine large insurance companies, including AXA SA, Genworth Financial Inc, Guardian Life Insurance Co of America, Manulife Financial Corp, Massachusetts Mutual Life Insurance Co, MetLife Inc, New York Life Insurance Co, Prudential Financial Inc, and TIAA-CREF. The subpoenas were part of an investigation into the life insurance industry’s failure to pay death benefits and to turn over unclaimed policy proceeds to the Comptroller’s Office as required by the state’s Abandoned Property Law.

As we’ve reported previously, life insurers are generally required to pay claims after being notified of a policyholder’s death and receiving a valid death certificate. If a beneficiary doesn’t claim a death benefit on their own, insurance companies can use a database prepared by the Social Security Administration called “Death Master,” which lists all Americans who die in order to make sure death benefits are paid to rightful beneficiaries. It is known that insurance companies use the database for other parts of their business – for example, to cut off annuity payments when a recipient die – but they often ignore it when it comes to paying out claims. Not surprising, as paying out benefits costs the companies money.

While the New York Attorney General’s office was issuing its subpoenas, the Comptroller’s Office began an independent review of life insurance companies using new data-matching methods. In last week’s announcement, the offices said the goal of the joint probe was to make sure that life insurance companies keep promises to beneficiaries and to the state.

“Together, our offices will undertake the largest and most comprehensive investigation of life insurance practices in the country,” Schneiderman said in a statement announcing the investigation.

As we’ve reported previously, the New York Insurance Department has also been looking into the issue of unclaimed death benefits, and over the summer ordered 172 companies to start using Social Security Administration data to determine when death payments are due. The department also announced it was taking steps to amend New York’s unfair claims practices regulations to require life insurers to perform regular “Death Master” cross-checks and to require that they request more detailed policyholder and beneficiary information to facilitate identifying deceased policyholders.

New York is not the only state looking into this issue. In May, the John Hancock Life Insurance Company agreed to pay $3 million to the Florida Office of Insurance Regulation and other state agencies to cover investigative costs and attorney fees stemming from one such investigation, and to establish a $10 million fund for paying beneficiaries who can’t be contacted. California and Connecticut have launched similar probes.

New York’s investigation could have extra teeth, however, as it was launched under the state’s Martin Act. Under this state law, prosecutors don’t have to show intent to defraud, reliance and damages to prove fraud. Instead, they merely need to establish misrepresentation or omission of material fact in connection with the promotion, issuance, distribution, exchange, negotiation or purchase of securities.