Friday, April 29, 2016

Friday Lost + Found: More Fraud Warnings, Is DMF the Answer?

Massachusetts Warns of Fraudulent Letters -- Massachusetts Treasurer Deborah Goldberg issued a warning that her office has been receiving reports of fraudulent unclaimed property letters seeming to come from the Office of the Commonwealth Treasurer.  As a reminder, states do not charge owners of unclaimed property for searching for and obtaining property from the state.

Life Insurance on Sixty Minutes -- CBS's news program 60 Minutes recently ran a story about life insurers payment practices that is based, in large part, on the mutli-state audits of insurers' unclaimed property practices.  As a result of those investigations, states have become increasingly more insistent that insurers consult the Social Security "Death Master File" in order to determine when life insurance benefits have become payable.

But Is DMF The Answer? -- Though more and more states are requiring DMF searches as part of unclaimed property law or insurance regulatory compliance, some in the industry think that the approach is flawed.  In a recent editorial on InsuranceNewsNet, Michael Babikian voices some of those concerns and offers some alternatives.


Tuesday, March 22, 2016

Further Update on West Virginia Life Insurance Legislation

We recently published a brief post concerning West Virginia legislation relating to the obligation (or not) of life insurers to review the Social Security Death Master File (DMF) to determine when a life insurance policy becomes payable.  After the West Virginia Supreme Court held that life insurers had a duty to periodically ascertain when life insurance policies become payable, a few West Virginia legislators introduced a bill that would largely undo that decision - by specifically providing that "the obligation to pay does not arise until after a claim is made."

Instead of that legislation, however, the West Virginia legislature recently passed a bill that would make DMF searches a statutory requirement for insurers.  The Governor signed that bill on April 1, effective June 30, 2016.

Monday, March 14, 2016

West Virginia Insurance Battle Moves From Courts to Legislature

Last summer, the West Virginia Supreme Court of Appeals issued an opinion in Purdue v. Nationwide Life Insurance Company, a case presenting the issue of whether a life insurer is required to undertake periodic investigations to determine whether any of its policyholders are deceased (and, thus, that a death benefit is payable).  While the Court did not rule that insurers had a specific obligation to review the Social Security Death Master File (DMF) or similar databases, it nonetheless held that the dormancy period for a life insurance policy begins at the date of death and placed the burden on insurers to figure out how to ascertain that information.  Of course, an insurer could search the DMF, the Court explained, but they could also "contact its insureds directly" (e.g., call them every year), farm the task out to agents, or do whatever else the found "the most economical" so long as they obtained the required information.

 While the West Virginia Supreme Court's ruling seemed to be the end of the matter, some lawmakers are opening up a new front in the state legislature.  A few weeks ago, two West Virginia lawmakers introduced House Bill 4473, which would amend the state unclaimed property act to provide that: 
in the case of a life or endowment insurance policy or an annuity payable upon proof of death, the obligation to pay does not arise until after a claim is made with the insurer and due proof of death is received by the insurer.
 The bill provides that it is being introduce to "clarify an unintended result" of the Supreme Court's decision in Nationwide.  Not everyone agrees, however, that the obligation to contact holders was "unintended" by the Court.  According to a story in the Charleston Gazette-Mail, one of those who disagrees with this characterization, and the new legislation, is West Virginia State Treasurer John Purdue, the official who began the case against the insurers in 2012 which led to the Supreme Court's decision.  According to the Gazette-Mail the Treasurer noted that the Supreme Court's decision was "bipartisan" and unanimous, and urged the legislature to reject the bill.

The bill is currently pending before the West Virginia House Judiciary Committee.

Wednesday, March 9, 2016

Delaware Proposes New VDA and Audit Guidelines - Comments Welcome

The Delaware Department of Finance has posted proposed regulations for public comment to govern the state's unclaimed property audits and VDA proposals.  The proposed regulations are intended to implement the Delaware legislature's direction "to complete the development of a detailed manual containing procedural guidelines for the conduct of Delaware unclaimed property examinations" as per January 2015's Senate Bill 11.

Among the highlights of the proposed regulations relating to VDAs administered by the Department of Finance* is the establishment of a "rolling look-back date of 19 report years" for all VDAs entered into on or after January 1, 2017.

The proposed audit regulations include details regarding the appropriate sampling and estimation methodologies, rules for the auditor's conduct of the audit, procedural steps, as well as a sample (though very summary) non-disclosure agreement acceptable to the state.

The proposed regulations also contain a list of information and factors that may be used to select a holder for audit.  These include a review of the holder's reports for "inconsistencies, omissions or a lack of detail" and a "comparison of a Holder’s past reports to the reports of similar Holders within the same industry and of the same approximate size." 

Comments are due to the Department of Finance by 4:30 p.m. on April 1.

*  By virtue of legislation enacted in 2012, the Delaware Secretary of State's office also administers a Voluntary Disclosure Agreement program for holders of unclaimed property.  The proposed regulations above relate to the Department of Finance program.  Implementing guidelines for the Secretary of State's program can be found here.

Monday, February 29, 2016

Supreme Court Declines to Hear Unclaimed Property Case, But Fires a Shot Across the Bow of "Cash-strapped States"

Today, the Supreme Court of the United States issued an order declining to hear the case of Taylor v. Yee.  In Taylor, the United States Court of Appeals upheld a federal court's dismissal of a case challenging the methods used by California to notify owners that there property is about to be, or has been, escheated to the state. Specifically, the Taylor plaintiffs alleged that California violated the constitutional rights of unclaimed property owners by failing to, among other things, access databases of other California government agencies for information relating to the whereabouts of unclaimed property owners.

The Supreme Court's review of lower court decisions is mostly discretionary, so the decision not to review a particular case is not an approval by the Supreme Court of the decision reached below.  In fact, that seems to be especially the case here, as Justices Alito and Thomas agreed with the decision to deny review the Ninth Circuit's decision in Taylor, but warned that the "constitutionality of the current state of escheat laws is a question that may merit review in a future case."

In making that determination, the Justices noted that the combination of "shortened escheat periods with minimal notification procedures" raised "important due process concerns."  Among the notable points of the concurrence:
  • a critique that some states' notification procedures "rely on old-fashioned methods that are unlikely to be effective."  (citing Delaware's newspaper publication statute); and
  • affirmation of the view that the Constitution requires states to provide "pre-escheat notice" before property is taken by the state; and
  • a recognition that "[a]s advances in technology make it easier and easier to identify and locate property owners, many States appear to be doing less and less to meet their constitutional obligation to provide adequate notice."
While the states may have avoided review of their escheat practices in Taylor, the Alito/Thomas concurrence suggests that they may want to take a long hard look at their notification procedures before the Supreme Court does so.