West Virginia is throwing the book at 69 life insurance companies for alleged violation of state unclaimed property laws.
The suits are somewhat different than actions pursued against insurers in other states, such as California, because it demands payment of penalties and punitive interest if an insurer has been found to not have complied with the West Virginia escheat statue.
It also is different in that it says that the state will seek to apply civil fraud statutes if its scrutiny of the insurer’s records determines that is warranted.
One suit, against Great Western Insurance Co., Ogden, Utah, has already been dismissed with prejudice. Great Western was dismissed from the West Virginia unclaimed property litigation because they had transacted no business with residents of West Virginia, according to an official familiar with the case.
Amongst the insurers cited in the litigation are American General Life and Accident, AXA Equitable Life, Hartford Life and Annuity, Lincoln National Life Insurance, Massachusetts Mutual Life, Metropolitan Life, Monumental Life, Nationwide Life, New York Life, and Prudential Life.
The suits were filed by John D. Perdue, state treasurer. Diana Stout, general counsel for the state treasurer, was traveling and not available for comment.
The suits were filed in Putnam County, West Virginia Circuit Court.
He contends in the lawsuit that the insurers violated the West Virginia unclaimed property statute by failing to report and escheat insurance proceeds wherein the beneficiary could not be located by the insurance firm.
The suits were filed based on insurers’ market share. Insurers with market share in West Virginia as low as 0.51 percent were sued, according to several firms which are monitoring the issue on behalf of the industry.
West Virginia requires that insurers turn over unclaimed property to the state if there has been no claim for three years.
The suit asks each insurer to pay attorney’s fees, fees to have outside auditors examine their books, and a “penalty of 12 percent annual interest on the value of the life insurance proceeds accruing from the date the proceeds first became reportable and payable.”
Moreover, the suit asks the court to impose civil penalties for “willful failure” to comply with the statute, if applicable.
Those penalties “should be in the amount of $1,000 a day per unclaimed life insurance policy from the date each such unclaimed life insurance policy became reportable and payable up to a maximum of $25,000, plus 25 percent of the value of the each unclaimed policy,” the lawsuit said.
Phillip Stano, a partner at Sutherland, Asbill & Brennan, Washington, represents 13 of the insurers involved, and, combined with other Sutherland lawyers, the firm represents approximately one-third of all the insurers that have been sued.
Stano said that on behalf of his clients and others represented by Sutherland, he is arguing in a motion to dismiss that West Virginia is contending that the insurers violated a duty that does not exist.
As of this date, no hearing has been set on the motion to dismiss. The court has also set no date for the state to respond to the insurer’s motions.
Specifically, the lawsuit said the insurers should have checked their lists of insureds against “readily available information,” for example, the Social Security Death Master File or “or other reliable databases available for use through third-party providers using the DMF information.”
In his motion, Stano argues that, “This alleged legal duty to search the DMF ("duty to search") does not exist in the unclaimed property Act or under any other West Virginia law.”
The motion contends that, “West Virginia case law and the insurance code both mandate that payment obligations under life insurance policies arise upon receipt of proof of loss from a claimant.”
Only “after a life insurance claimant provides notice of a claim does the life insurer have a duty to investigate and, if appropriate, pay the claim,” the motion says.
“The Treasurer's duty to search theory, if adopted by the court, would turn longstanding contractual principles on their head, violate West Virginia law, and violate defendant's due process rights, by requiring life insurers to seek out potential claimants rather than requiring claimants to submit notice and proof of loss,” Stano states in the brief.
Disclosure of the West Virginia lawsuits is the latest in a series of actions prompted by the decision of the California treasurer to examine the books of life insures doing business in the state to determine if they were lawfully complying with escheat laws calling for turning over unclaimed property to the state if beneficiaries to life insurance policies had not come forward.
Just last week, John Chang, the California treasurer, sued American National Insurance Company, Galveston, Texas, for allegedly stonewalling providing the state access to all its records.
Chang settled with John Hancock Insurance Company, Boston, in 2011, and there have been nationwide settlements involving 20 or more states with six large insurers.
He alleged that Hancock had “asymmetrical” policies regarding use of the Social Security Death Master File when dealing with annuities with riders that required monthly or quarterly payments by insurers, or with life insurance policies, where the beneficiaries must file with the insurer for payment.
The West Virginia lawsuit also cites the “asymmetrical” policies of insurers regarding how they handle claims regarding life insurance companies as compared to annuities with riders that require monthly or quarterly payments to annuitants.
And, the states are now turning their attention to smaller insurers, according to industry lawyers.
Recently, the John Hancock Companies were hit with a class action lawsuit regarding their life insurance death benefit payments policy.
Verus Consulting Group, LLC, Waterbury, Conn., is conducting audits in 45 states regarding compliance with unclaimed property laws, and Xerox Unclaimed Property Clearinghouse is conducting audits for California.
In another development, the John Hancock Companies were hit with a class action lawsuit regarding their life insurance death benefit payments policy.