In the past few years, state insurance departments have
observed a common practice in the life and accidental death benefit insurance
industry that is shockingly pervasive. This practice benefits the insurer,
leaves loved ones without a death benefit, and further cheats state revenue
departments out of much-needed revenues from abandoned or unclaimed property.
This practice hit one financially distressed Arizona man
– a client whom I will refer to as “John” – particularly hard, and he died not
knowing whether his insurer would pay an accidental death benefit his family
would sorely need.
In 2002, John’s wife, “Mary,”
died in a rollover accident outside of Payson, Arizona. With her were eight
occupants – including her two children – none of whom was wearing a seat belt.
The car came to rest on her son, and the other occupants were thrown through the
windows and killed or severely injured. Mary died a few days after the accident,
leaving John to struggle with the loss of his wife and her son and the care of
her injured children.
Thirteen years later, in 2015, John was diagnosed with
terminal cancer. As he reviewed his estate planning documents, he found an
accidental death insurance policy that named Mary as the insured, and on which
he had been paying the premiums before and after her death. The policy would pay
$250,000 if a claim was made and approved.
Death Benefits Claim
When John showed me Mary’s policy, my first reaction was
that the insurer would likely deny a claim made in 2015 for a death that
occurred in 2002, particularly because the policy required that a claim be made
within two years of death.
Despite his weakened condition and diminished finances,
John wanted to file a claim and compile the necessary documentation to support
his claim. This documentation included marriage and death certificates, medical
records, sheriff’s reports and the autopsy report, in addition to the
certificate of insurance and the master policy, which were obtained only after
repeated contacts with the insurer.
Shortly after John filed his claim in December 2015, the
insurance company issued a denial letter, basing its decision solely on the
passage of time. Weakened by experimental medical treatments and disappointed by
the denial, John was unwilling to challenge the insurer’s decision through
Governmental agencies can be an effective alternative to
the time and expense of litigating a dispute. Our research into this insurer’s
claims history revealed that in 2013
it entered into a regulatory settlement agreement
with the insurance departments of seven states (California, Florida, Illinois,
New Hampshire, North Dakota, Pennsylvania and Vermont). In that agreement, the
insurer promised to change its claim-denial practices and agreed to pay $11
million to reimburse the states for costs incurred in their audits of the
insurer’s records. We wondered whether John’s claim had been subjected to the
same claim-denial practices that the insurer was to change pursuant to the
settlement agreement, and if the Arizona Insurance Department was aware of the
“Death Master File”
We further learned that this insurer, like many others,
periodically receives the Social Security Administration’s “Death Master File”
containing the names of recently deceased persons. An insurer uses the Death
Master File to stop annuity payments to deceased policyholders
– a reasonable
practice. But a related practice is not reasonable, and this related practice
was the subject of the settlement agreement mentioned above.
The settlement agreement reports that this insurer –
again, like many others – used the Death Master File to stop paying annuities
but did not use that information to identify deceased persons who were
policyholders. Consequently, the insurer continued to send premium bills to
the deceased; the deceased’s bank accounts or heirs continued to send payments
to the insurer; the insurance policies did not expire; beneficiaries were not
notified by the insurer of their entitlements; and death benefits were not paid.
This practice, in effect for many years, provided
revenue to the insurers that was not earned. By not directing its staff to pay
death benefits to beneficiaries designated by the deceased whose name appeared
in the Death Master File, the insurer received a financial windfall, and
beneficiaries received nothing. It is not uncommon for beneficiaries, like John,
to be unaware that a policy existed or that benefits were payable on the death
of an insured loved one.
With John’s claim demand and the insurer’s denial letter
in hand, I filed a complaint with the Arizona Department of Insurance (ADOI),
protesting the denial in light of this insurer’s knowledge of the wife’s death
shortly after it had occurred. I urged the ADOI to find that the insurer’s
failure to notify and pay John within a reasonable time after receiving notice
of Mary’s death represented an unfair claims settlement practice in violation of
consumer rights. I also notified the Arizona Attorney General’s Office (AAG) and
Department of Revenue of these failings.
Initially, the response from the State was not
encouraging. The ADOI advised that it was in the process of auditing the records
of this and other insurers to determine the breadth of claim denials based upon
lapse of time. The ADOI could not predict when this insurer would re-examine its
denial of John’s claim.
However, within a month the AAG reported that the
insurer would immediately pay the claim, plus interest, without further
investigation or inquiry into the accident that had killed Mary 14 years
earlier. More than $250,000 was received, but, sadly, John passed away before he
could revel in his victory over the big insurance company.
Are You a Beneficiary?
It is a testament to John’s persistence and strength
during his illness that he refused to accept the insurer’s denial of his claim.
We believe that his experiences as reported here will help others recover from
their insurers, too.
If a loved one has passed away and you do not know
whether insurance benefits are payable, the appropriate state agency may be of
help. State revenue departments receive from insurers and other businesses
various types of property that are deemed abandoned or unclaimed, and the states
earn interest on abandoned or unclaimed assets, including insurance benefits,
bank accounts and jewelry. In Arizona, you can contact the Arizona Department of
Revenue (ADOR) to search for “abandoned” or “unclaimed property” under the
deceased’s name; you should also search under your own name, just in case
property is being retained by Arizona for you (many other states have similar
registries). The ADOR website also includes instructions on
how you can claim abandoned property.
We also suggest that, if a policy exists on a person
since deceased, you make a claim immediately, stop making premium payments, and
contact the insurer until you get a definitive answer or claim denial. If the
insurer denies the claim on the basis of the lapse of time, we suggest you
contact an attorney or your state’s insurance department to report the insurer’s
response to, and possible unfair denial of, the claim.