Life Insurance Industry Facing Multi-Pronged Investigations
Fresh from facing an onslaught of regulatory inquiries and litigation related to retained asset accounts, life insurers now face multiple inquiries related to the Death Master File investigations. This advisory explains the latest regulatory inquiries and what steps life insurers can take to protect themselves.
It has long been industry practice, for good reason, to process death claims when an actual claim is made by a beneficiary. Now, however, states and litigants are asserting that the industry should have been proactively searching public databases to determine if claims should have been paid.
Life insurers are facing regulatory inquiries on multiple fronts. Many states, perhaps most prominently New York, are investigating the process by which life insurers handle claims and are promoting changes to longstanding industry practices.
For example, the New York State Insurance Department issued a Section 308 letter on July 5, 2011, advising all life insurers that a cross-check of all life insurance policies, annuity contracts, and retained asset accounts on their administration data files should be performed with the latest updated version of the Death Master File, or another database or service at least as comprehensive, to identify any death benefit payments that may be due under such policies and provide the results of such cross-check to the New York Department.
Subsequently, on August 8, 2011, and September 28, 2011, the New York Department refined its filing guidance and somewhat narrowed the scope of its inquiry by excluding specified categories of policies and including others. The New York Department also extended the deadline for life insurers to provide the results to the Department from September 30, 2011, to October 31, 2011. On October 25, 2011, New York issued additional guidance regarding the filing format for providing the Death Claims Practices Special Report.
Other states are concentrating on the unclaimed property angle, as they employ the services of third parties to recover moneys claimed to be owed to state treasuries. To heighten the pressure, class action attorneys have sued insurers utilizing new theories and claiming that life insurers have violated their good faith and fair dealing obligations to their insureds.
Life insurers must be aware of the potential for these multiple and, in some cases, inconsistent approaches by states and litigants and respond accordingly. Life insurers must be vigilant as these regulatory inquiries proceed and long standing practices are being challenged and changed.