Have you been denied a death benefit because of a life insurance company’s failure to inform you that an insured had passed away? Many states require insurers to turn over the proceeds of unclaimed death benefits to unclaimed property funds if they know that an insured has passed away, but are unable to locate a beneficiary. However, recent investigations have indicated that some insurance companies have failed to follow these regulations, even when they are well aware that an insured has died.
Our firm is offering free legal consultations to anyone denied a death benefit because of an insurer’s questionable practices. To find out how we can help you, please contact one of our unclaimed life insurance death benefit lawyers today.
Some Life Insurers’ Implementing Captive Reinsurance Claim Schemes to Defraud Policyholders
Some life insurers are engaging in abusive accounting practices, utilizing a strategy by which they significantly increase policyholders’ Universal Life and/or Flexible Premium Adjustable Life policies’ costs, monthly deductions, and/or premium payments. This typically occurs in policies in which the policyholder is older than 50 years of age and the policy covers a large face value. Insurers count on people purchasing these policies when they are young adults with beneficiaries unaware of the policies and with policyholders believing death benefits will be paid to their beneficiaries upon their deaths.
These schemes are unethical attempts by insurers to avoid life insurance claim payouts for the purpose of resolving their unjust use of captive reinsurance schemes. Universal life and flexible premium policyholders are sent letters advising of future, and considerable, increases. Often, insurers state that such increases are due to surges in mortality rates. To avoid coverage losses, consumers are forced to pay increases that may be triple or quadruple the original costs.
The strategy, by enabling insurers to receive greater profits at the expense of policyholders, causes financial tragedy for families denied access to their rightful benefits. Worse, many insurers attempt to ensure policyholders do not know of their options should they opt to close their policies or are unable to afford their policies. Because of this, tens of thousands of American seniors either allow their policies to lapse or rescind their policies yearly instead of pursuing other options that may provide better financial value.
For example, a life settlement transaction may bring four to eight times more money to a policyholder than what would have been paid by the insurer for a policy surrender; however, many insurers have avoided death benefit payouts and have kept information about life settlements from reaching a broad audience. In fact, most seniors over the age of 65 do not know about the option of selling their life policy; even more—90 percent—who have lapsed a policy may have considered selling the policy had they been aware that a life settlement was an option.
In one class action lawsuit filed in the District of Maryland, allegations included that a major life insurance company was imposing groundless insurance cost increases for the purpose of benefiting its shareholders and eliminating near-term liabilities—elderly policyholders—over the insurer’s inappropriate handling of wholly owned captive reinsurance companies. Specifically, the insurer and its parent corporations developed a scheme to take funds meant to pay policyholder death claims and turn those funds into investor and executive staff benefits.
The insurer deceptively divested billions in liabilities to its wholly owned captives and other affiliates so that a fake surplus would appear on its balance sheets and it could pay hundreds of millions of dollars in what has been described as “extraordinary stockholder benefits.” The insurer was, in fact, placing these funds into the wholly owned captive reinsurance companies, which were unable to satisfy assumed debts, to free the many millions of dollars that would be, in any other case, legally required to be held as reserves to pay death benefits. Meanwhile, the captive reinsurance companies were based in jurisdictions that permit reinsurers to not file public financials, effectively hiding the true purpose of the transactions.
To locate new cash to fund future dividends and to put off potential financial ruin over near-term liabilities, the insurer advised its policyholders that large insurance cost increases were required because the insurer had not appropriately considered future pay-outs, such as the number of death claims, when these claims would occur, for the length of time the insured would maintain their polices, how the firm’s investments would perform, and the cost of policy administration. There was no indication prior to this insurer’s 2015 letter to policyholders that its policies’ profitability had become severely degraded. Rather, policyholders believed their policies were performing without issue and building cash value and found themselves, due to the insurers actions, either having to forfeit their policies or allow the cash values to be taken—actions that were the insurers ways to unethically cancel the policies or take accumulated policyholder savings.
New York Unclaimed Death Benefit Investigation
In the summer of 2011, New York Attorney General Eric Schneiderman expanded a probe into the way life insurance companies identify deceased insureds and pay death benefits. In July 2011, The Wall Street Journal reported that Scheiderman’s office had issued subpoenas to nine life insurance companies: 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 New York investigation is trying to determine if these life insurance companies are doing enough to identify deceased insureds and make payments to beneficiaries. The New York Attorney General is also trying to determine if the companies properly turned over unclaimed life insurance proceeds to the state’s unclaimed property fund. Insurance companies can use a database prepared by the Social Security Administration called “Death Master,” which lists all Americans who die to make such determinations. While is known that insurance companies use the database for other parts of their business, they often ignore its existence when it comes to making sure unclaimed death benefits are paid to the rightful beneficiaries.
The New York subpoenas were issued under the Martin Act, a state law that doesn’t require prosecutors to prove intent to defraud. Originally passed in 1921, the Martin Act gives New York Attorney General exceptionally broad enforcement authority to bring both civil and criminal actions. The Martin Act also grants the Attorney General extremely broad investigative authority, including the ability to subpoena any document from anyone doing business in New York. New York regulators contend failure to comply with a Martin Act investigative subpoena can constitute prima facie proof of fraud.
California Unclaimed Death Benefit Investigation
In the spring of 2011, the California Insurance Commissioner also embarked on an investigation of life insurance death benefit payouts. Like the New York investigation, the California probe focused on whether unclaimed death benefits were paid in a timely manner, either to named beneficiaries or to the state after a company had learned that an insured person has died. As part of the probe, the California Insurance Commissioner issued subpoenas to MetLife, Prudential Insurance Co. of America, Nationwide Life Insurance Co., The Hartford Financial Services Group Inc., Sun Life Financial Inc., New York Life Insurance Co., The Lincoln National Life Insurance Co., Pacific Life Insurance Co., John Hancock Life Insurance Co. and Aegon Group. At the time the subpoenas were issued, California had already settled a similar complaint against John Hancock valued at $20 million.
Florida Unclaimed Death Benefit Investigation
In May 2011, the state of Florida convened a hearing to determine whether or not life insurers were properly handling unclaimed death benefits. During the hearing, the Florida Insurance Commissioner said the state’s audits and examinations of the 40 largest insurance groups may go on for another 18 to 24 months. The commissioner also asserted that the investigation could recoup “north of $1 billion” for both beneficiaries and state unclaimed property funds. In connection with the probe, Florida announced on May 18 that John Hancock had reached a settlement with the state, and had agreed to pay $2.4 million for “investigative costs and attorneys fees,” and establish a $10 million fund to pay back beneficiaries of life insurance policies. The $10 million fund is slated to l be used to return monies to beneficiaries as they are located, including interest payments owed since the date of death.
State Task Force Unclaimed Death Benefit Probe
In May 2011, a task force was established through the National Association of Insurance Commissioners (NAIC) by regulators in 10-states to investigate whether a number of large life insurance companies failed to pay death benefits to beneficiaries. The alleged practices targeted by the investigation include use of the Death Master File by insurers for purposes of terminating payments under annuity contracts, but failure to use this same information to facilitate the payment of claims on life insurance policies. State members of the task force include California, Florida, Illinois, Iowa, Louisiana, New Hampshire, New Jersey, North Dakota, Pennsylvania and West Virginia.
Unclaimed Death Benefit Investigations
Several states are investigating various insurance companies over the handling of unclaimed death benefits. In some of these instances, it has been revealed that insurance companies often learn of the deaths of insured individuals via various databases, including one operated by the Social Security Administration called “Death Master,” which lists all Americans who die. In some cases, despite knowing of their death, life insurer companies continued taking premium payments from the policyholder’s account until the cash reserves were used up, and then canceled the life insurance contract. At the same time, these insurers use the information gleaned from the “Death Master” and other databases to justify cutting off annuity payments for customers who had died.
Insurers claim their actions are lawful, and they assert that they are only legally obligated to pay death benefits if a beneficiary or other party makes proper notification of a death. According to a report published by The Wall Street Journal in April 2011, some states don’t see it that way, however. In at least two – Florida and California – “regulators are questioning if the legal dynamics change if insurers learn of a customer’s death while monitoring databases to determine when to cut off retirement-income checks such as annuity payments.” Regulators in those states have issued subpoenas to insurance companies to testify at hearings into their practices.
According to the same Journal report, Manulife Financial Corp.’s John Hancock unit became the first insurer to disclose a settlement with officials over the issue of unclaimed death benefits, saying it had agreed with 23 states to set up a system to determine which policies should be handed over to those states. The insurer, however, still maintains it had not violated any laws.
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