Presentation Transcript

1. Unclaimed Property – Taming the Beast

   American Fraternal AllianceAnnual MeetingHollywood, FloridaSeptember 7, 2013Phillip E. Stano

2. Meet the Beast New Normal – Regulation by Settlement Audit Litigation Trends Medium to Small Company Audits Revenue Stream Press/Public Perceptions – Changing?
3. Pre-U.P. Audit Preparation Consider Voluntary Disclosure Agreements (VDAs): Beware harmful language Self audit Time frame/extension Avoids penalties/interest More control Less attractive target
4. Pre-U.P. Audit Preparation Remediation Privileged Determine your exposure/options Control costs Sampling Develop data to rebut auditors
5. U.P. Audit Ground Rules All communications in writing Assert, maintain privileges Preserve objections to data requests Adherence to law “Past due” example
6. U.P. Audit Ground Rules Claims-only approach Unif. Unclaimed Property Act 1981 § 7 [Funds Owing Under Life Insurance Policies]. (a) Funds held or owing under any life or endowment insurance policy or annuity contract . . . are presumed abandoned . . . after the funds became due and payable as established from the records of the insurance company holding or owing the funds… * * * (c) For purposes of this Act, a life . . . insurance policy or annuity contract not matured by actual proof of the death of the insured or annuitant according to the records of the company is matured and the proceeds due and payable if: (1) the company knows that the insured or annuitant has died; or (2)(i) the insured has attained, or would have attained if he were living, the limiting age under the mortality table on which the reserve is based;
7. U.P. Audit Ground Rules Unif. Unclaimed Property Act (1995) § 1 [Definitions] (13) Property . . . includes property that is referred to as or evidenced by: * * * (vi) an amount due and payable under the terms of an annuity or insurance policy.
8. General Ledger Audits – Additional Exposure Very different than Verus-type audits; Different scope of property and information requests May ask for 20+ years of financial data, bank account statements, canceled checks, general ledger accounts Looking for unclaimed property taken into income Auditors – use of estimation techniques
9. Audit-Related Litigation Chiang v. American National Insurance Company Active policies not produced. What is reportable property? What company records are subject to unclaimed property audit?
10. Audit-Related Litigation West Virginia Unclaimed Property Act - no duty to search the DMF. Treasurer’s alleged duty to search: violates insurance code, insurance regulations, case law. Treasurer lacks authority to bypass Legislature; impose through litigation his vision of legislative policy. Treasurer violates insurers’ Due Process rights by punishing legal conduct.
11. Audit-Related Litigation Favorable Trend – Ohio, Massachusetts, Illinois, Florida Andrews v. Nationwide – Ohio Court of Appeals No duty to search the DMF – “Settlement shall be made on receipt of due proof of death” Ohio Supreme Court declined to review (April 24, 2013)
12. Audit-Related Litigation Feingold v. John Hancock (D. Mass. August 19, 2013) Ruling depended on “established principles of insurance law” No duty to search the DMF Requiring life beneficiaries to submit proof of death before payment “comports with both Massachusetts and Illinois law.”
13. Audit-Related Litigation “Florida has not adopted a law requiring [the insurer] to consult [the DMF] . . . in connection with payment or escheatment of life benefits. Likewise Florida has adopted no law imposing an obligation on [the insurer] to engage in elaborate data mining of external databases . . . in connection with payment or escheatment of life insurance benefits.” Total Asset Recovery Services, LLC v. MetLife, Inc. (Fla. Cir. Ct. August 20, 2013)
14. Challenge to NCOIL Statutes Kentucky Declaratory Judgment Action in KY State Court alleging impairment of contract; retroactive application April 1, 2013 – statute upheld; insurers appeal to Kentucky Court of Appeals Maryland July 5, 2013 – declaratory judgment action filed in Maryland August 15, 2013 – Maryland filed a Motion to Dismiss September 18, 3013 – Kemper’s response due
15. Duty to Search Legislation Enacted Alabama (AL HB 192, effective 1-1-2016) Kentucky (KY BR 487, HB 135, effective 1-1-2013) Maryland (MD SB 77, effective 10-1-2013); Montana (SB 34, effective 1-1-2014) Nevada (AB 226, effective 7-1-2014) New Mexico (SB 312, effective 7-1-2013) New York (NY SB 6943, AB 9845 effective June 15, 2013) North Dakota (HB 1171, effective 8-1-2013) Vermont (HB 95, effective 7-1-2013)
16. Recent Settlements California Comptroller – UP settlements – 11 Additional Insurers $763 million nationwide $86.7 million California beneficiaries 3% interest paid from owner’s death, or 1995
17. Minnesota Settlement Minnesota – not participating in multi-state unclaimed property audits and market conduct exams May 2013 Resolution and Regulatory Settlement Agreement with Prudential Incorporates elements of Regulatory Settlement Agreements and Global Resolution Agreements Additional requirements – e.g., data cleanup
18. Future Developments? NCOIL Duty to Search legislation expands Additional settlements reached Litigation outcomes impact Industry response Regulatory predictability returns . . . eventually.