IN 2008, the California State Controller’s office led a multi-state audit of the practices of 21 national insurance companies, to determine these companies’ compliance with state unclaimed property laws. California’s unclaimed property program generally provides that businesses must send lost or abandoned financial accounts to the State after three years of inactivity in order to safeguard private property from being lost during mergers or bankruptcies, drawn down by service or storage fees, or simply used by private interests.
It was found that insurance companies engaged in the industry-wide practice of failing to pay death benefits owed to beneficiaries in life insurance policies. As a result, six of the audited insurance companies, namely AIG, Nationwide, Forethought, John Hancock, MetLife and Prudential, have agreed to settle their obligations to the beneficiaries and to the state. The various settlements with the insurance companies will result in approximately $138 million being paid to California beneficiaries.
It was discovered that insurance companies would draw down the cash value of the life insurance policy to continue paying premiums, even when they knew or should have known that the policyholder had died and the beneficiaries should be paid. The policies then would be cancelled but the policyholder or their family members would not be notified of the cancellation.
For example, on February 16, 1963 John Hancock issued a policy to a person who died on April 20, 1999. During the seven years after his death, the company continued to collect premium payments by depleting the policy’s cash reserves until it was finally cancelled on January 1, 2009. The policy’s file has no record of when the last contact with the insured occurred, or that any efforts were made to locate the insurance owner prior to the policy lapsing. More than 11 years after the insured’s death, John Hancock still had not paid the beneficiaries or sent to the State Controller’s Office for safekeeping any benefits due under the policy even though the company has written off all liability under the policy.
The investigation also exposed similar abuses regarding annuity contracts. For example, John Hancock issued a contract on June 7, 1991, to an individual who then died on May 1, 1995. The company’s own files contained notes that the annuitant’s mother called the company in August 2002 reporting that her son had died. Other notes in the file dated June 15, 2005, and October 13, 2005, state that the annuitant had died. Despite these acknowledgements, the company continued to send mail to him in 2005, 2006, and 2007, which were all returned as undeliverable. On July 14, 2009, a note in the file acknowledged that the owner was dead, and that the company had attempted to contact a relative for the first time. On October 26, 2009 – over 14 years after the annuitant’s death – John Hancock paid the death benefit to the annuitant’s estate.
People purchase life insurance policies for the protection of their family and loved ones who are dependent on them. Oftentimes, insurance benefits from these policies will substitute for the support that breadwinners had provided when they were alive. For insurance companies to bury their heads in the sand, and defeat the purpose for which the policy was bought, is unfair.
As of this date, the following insurance companies were to pay out benefits to California beneficiaries a total of the following amounts: John Hancock, $20 million; Prudential, $20 million; MetLife, $40 million; Forethought, $25 million; Nationwide, $3 million; and AIG, up to $30 million. Thus far, the nation-wide audit has resulted in close to $900 million in settlements from these 6 insurance companies.
California beneficiaries who believe that they are beneficiaries of any of the mentioned policies above should visit the State Controller’s Unclaimed Property website at HYPERLINK “http://www.claimit.ca.gov/” www.claimit.ca.gov to search for life insurance and other assets that may belong to them. They may also contact insurance companies directly.
Consumers must recognize that unless they, or other pro-consumer agencies, proactively engage in claiming benefits due, insurance companies will not simply pay out of the goodness of their hearts.
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C. Joe Sayas, Jr., Esq. is an experienced trial attorney who has successfully obtained significant results, including several million dollar recoveries for consumers against insurance companies and big business. He is a member of the Million Dollar-Advocates Forum—a prestigious group of trial lawyers whose membership is limited to those who have demonstrated exceptional skill, experience and excellence in advocacy. He has been featured in the cover of Los Angeles Daily Journal’s Verdicts and Settlements for his professional accomplishments and recipient of numerous awards from community and media organizations. His litigation practice concentrates in the following areas: serious personal injuries, wrongful death, insurance claims, unfair business practices, wage and hour (overtime) litigation. You can visit his website at www.joesayas law.com or contact his office by telephone at (818) 291-0088.
