As reported in our November 2012 Client Alert entitled Latest Regulatory Developments Concerning Unclaimed Life Insurance Benefits, a few states have passed new laws governing claims investigation practices to address the issue of unclaimed life insurance benefits. New York's law, enacted on December 17, 2012, is scheduled to take effect 180 days thereafter. Prior to the law's enactment, the New York Department of Financial Services (Department) issued New York Insurance Regulation 200 on an emergency basis outlining standards for investigating unclaimed life insurance benefits and policy identification. While much of the new statute addresses issues that are included in Regulation 200, the law does vary somewhat from the regulation. Consequently, the Department is working on revisions to Regulation 200 to align the regulation with the new law. The idea is to have the new regulation become effective at the same time that the new statute does.
Application of the New Law
For New York domestic insurers, the new statute applies to all policies issued and all accounts established under or as a result of the issuance of a policy. For foreign insurers licensed to do business in New York, the new law applies to all policies delivered in New York and any account created under or as a result of that policy. The law requires insurers to request sufficient information to ensure that all benefits due under the policy are paid upon the death of the insured or accountholder and sets forth standards for quarterly cross-checking of policies against the Social Security Master Death File.
The new law introduces new mandates that are not contained in the current version of Regulation 200. These additional requirements will necessitate changes to compliance plans developed pursuant to Regulation 200. For example, where an insurer identifies a death index match or is notified of an insured's or accountholder's death, the law requires the insurer to notify not only United States affiliates of the insurer but also any entity with which the insurer contracts that may have records relating to the policy. Also, the law includes "lapsed or terminated" contracts within the definition of "policy" whereas Regulation 200 excludes certain "lapsed or terminated" contracts from cross-checking obligations, but does not expressly include them in the definition of "policy."
Additionally, the new statute does not apply to (1) group policies where the insurer does not maintain policy records on its administrative systems; (2) policies that provide a death benefit under an employee benefit, government or church plan subject to or as defined in the Employee Retirement Income Security Act of 1974 (ERISA); or (3) any other circumstances enumerated through a regulation. Although Regulation 200 contains a long list of exceptions to cross-checking obligations, the specific exclusions referenced in the statute are not directly addressed in the regulation. Further, the law states that insurers must establish procedures to confirm the death of the insured and begin to locate beneficiaries within ninety (90) days after identification of a potential match and obligates the insurer to continue to search for beneficiaries until the benefits escheat to the state. Regulation 200 does not include such a provision.
Amendment under Consideration
As insurers doing business in New York develop compliance plans to address the requirements of the new law, the New York State Assembly passed a bill in February amending such law in certain respects. The amendment is now being considered by the New York State Senate and, if enacted, would take effect on the same day as the current statute. As a result, insurers need to be prepared to revise their compliance plans to adapt to the modifications found in the amendment and to implement any other operational changes that may be necessary to implement such plans.
Perhaps the most significant difference between the new law and the amendment is that policies providing death benefits under an employee benefit, government or church plan subject to or as defined in ERISA would no longer be exempt. This modification may cause several issues for insurers offering these types of policies, including systems or coding issues for insurers that do not segregate these types of policies from other types of group policies that may fall under the remaining group policy exemption.
It is important to note that while insurers doing business in New York finalize their compliance plans based on the new law and the amendment if passed, these same insurers may be subject to different rules when they are doing business in other states. As was discussed in the Client Alert referenced above, several insurers have entered into multistate settlements that dictate the claims investigation procedures the insurer needs to follow in those states. Regulatory investigations of other insurers are ongoing, making it almost certain that most insurers will have to continue to adjust their compliance plans and incorporate state-specific variations as this regulatory process unfolds. This process may become more of an issue for New York domestic insurers as the New York law applies to all policies issued by a domestic insurer rather than just policies issued in New York. If a conflict exists between the New York law and a multistate settlement, the insurer will need to address these issues with multiple regulators and the Department.
Wilson Elser can assist insurers with developing compliance plans that address the New York laws and regulations as well as multistate settlements to which they may be subject. Wilson Elser will continue to monitor legislative and regulatory developments involving unclaimed life benefits.
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