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Thursday, October 17, 2019

Audit firms help states land unpaid death benefits

By Bethany Krajelis | Apr 10, 2013

CHICAGO (Legal Newsline) -- A few years ago, a group of states began to look into unpaid death benefits from their residents' life insurance policies.

And with the help of audit companies using database and investigative search tools, their efforts have started to pay off -- literally.

Some of the nation's largest insurance companies in the past two years or so have agreed to fork over millions of dollars to states after audits revealed they were not issuing death benefits to beneficiaries of life insurance policies.

On top of the money pay outs, these companies also agreed to reform their practices to ensure they regularly check the Social Security "Death Master" file in order to properly notify beneficiaries and report policies as unclaimed property if a beneficiary can't be located.

One of the first agreements over unpaid benefits appears to have been made in 2011, when insurer John Hancock, a subsidiary of Manulife Financial Corp., entered into a Global Resolution Agreement with audit firm Verus Financial that several states approved.

In 2008, California Controller John Chiang lodged an investigation into the insurance industry's compliance with state unclaimed property laws, according to a news release from Chiang's office on the settlement.

Conducted by Verus, the audit, according to release, revealed that many companies were not paying out death benefits and in some cases, failed to notify the beneficiary of a policy even though they had direct knowledge of the policy owner's death.

"For example, a policy was issued by John Hancock on February 16, 1963, to an individual who subsequently died on April 20, 1999," Chiang's office stated in its 2011 release. "For the seven years following 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."

It added, "More than 11 years after the insured's death, John Hancock still has not paid the beneficiaries or sent to the State Controller's Office for safekeeping any benefits due under the policy. The company has written off all liability under the policy."

As part of the settlement, John Hancock agreed to restore the full value of thousands of California accounts, help reunite more than $20 million of death benefits and matured annuities with their owners, pay the state of California interest on the value of the held accounts and come up with better ways to identify deceased policy holders and notify beneficiaries.

Since that multi-state settlement, other insurance companies including Prudential Financial and MetLife have entered into similar agreements.

Late last month, Indiana Attorney General Greg Zoeller announced that his office recovered about $18 million in unclaimed property through agreements with some of the nation's biggest insurance companies.

This money, according to Zoeller's office, was previously held by American International Group, Inc., John Hancock, MetLife and Prudential.

The agreements announced by Zoeller were the result of audits conducted by Verus, which revealed more than 20,000 unreported insurance accounts belonging to Indiana residents who may have misplaced their policy, forgotten details or didn't even know they were beneficiaries.

"It's our obligation to do what we can to seek out these types of funds and to return them to the rightful owners," Zoeller said in a March news release about the agreements. "The recovered money represents hundreds of unreported insurance accounts for Hoosiers, so it is very important that people go online and check for their name, their relatives, neighbors and friends' names to determine if any of these funds belong to them or someone they know."

Jaime Barb, the unclaimed property public information officer for Zoeller's office, said states are responsible for holding onto to death benefits and other unclaimed property for a certain period of time - 25 years in Indiana--while they try to locate the owner.

The task of locating owners of unclaimed property has spurred many states, including Indiana, to create websites where residents can simply plug in their information to find out if the state is holding onto to any money for them.

Barb said her office places advertisements about unclaimed property "in every single newspaper in 92 counties" and visits the largest county in each region to talk to the public about unclaimed property and how they can recover it.

Without Verus and the technology it uses, Barb said it "probably would have taken a lot longer" to discover all of the unclaimed property belonging to Indiana residents.

"It would have taken time and resources that we just don't have," she said.

The $18 million Verus helped Indiana recover stems from the firm's audits of about a handful of insurance companies, she said, adding that the audits are ongoing as the firm continues to look into the practices of about 40 other insurance companies.

Barb said Verus contracts with several other states and continues to perform audits on the largest insurance providers in the nation.

Illinois is another state that contracts with Verus.

Melissa Hahn, public information officer for Illinois Treasurer Dan Rutherford's office, said Illinois has multi-year contracts with five audit companies: Verus, Kelmar Associates, Xerox, Unclaimed Property Clearinghouse and Audit Services.

"The contracts call for these companies to keep no more than 12 percent of the unclaimed property they find in an audit," Hahn said.

Indiana's contract with Verus also provides that the firm gets to keep a small percentage of the amount it finds, Barb said.

And like Barb, Hahn said Illinois contracts with these firms because it simply doesn't have the time or resources to perform such audits on its own.

Hahn said these audit firms have found about $59 million in unclaimed property so far in fiscal year 2013, which comes to a close June 30.

Her office also created a website - in an effort to help connect residents with their unclaimed property. The website, as well as community visits, has helped increase the amount of unclaimed property returned to residents in the past few years from about $80 million to more than $120 million, Hahn said.

Verus, according to its website, "is a privately held firm that works with state agencies to reunite citizens with their unclaimed property. We do this by auditing companies for escheatable funds and by helping states locate rightful owners."

According to a form filed with the U.S. Securities and Exchange Commission, Verus is based in Connecticut and was incorporated in 2007. The firm declined to disclose its revenue range in that filing.

Many of Verus' executive officers are affiliated with Drubner, Hartley & Hellman, a Connecticut law firm that was founded in 1980. It is unclear whether the firm that handled class actions, complex litigation, anti-trust and trade regulation, as well as consumer and commercial matters remains active.

Verus' general counsel, Caroline Marshall, returned a media inquiry from Legal Newsline on Wednesday, but said she would have to call back after being asked for more information about the firm and its audit process.

Although they do not appear to have as many contracts with states as Verus does, Total Asset Recovery and Kelmar Associates also do similar audit work regarding unclaimed property.

Kelmar is based in Massachusetts and state records show it registered there in 2001. Many members of its management team are lawyers and accountants.

According to its website, Kelmar specializes "in unclaimed property auditing and consulting" and "is widely recognized as a leader in assisting government to ensure corporate regulatory compliance."

"Since its inception in 2001, Kelmar has grown at a steady and rapid pace, doubling in size every 18-24 months," the firm's website states. "Kelmar has recently expanded each of its offices to continue accommodating this rate of growth."

Kelmar's website also notes that on behalf of its clients, it "has identified hundreds of millions of dollars in corporate non-compliance through detailed forensic audits and regulatory reviews" and "routinely examines multi-billion dollar international companies and interacts with high-level corporate officers as well as the nation's largest law and accounting firms."

Total Asset Recovery is based in Michigan and according to its website, is a "financial services business with clients around the globe."

Its website explains that it "uses a team of experienced and highly trained professionals, utilizing powerful database and investigative search tools, to locate assets that have been lost or previously deemed unrecoverable by individuals and/or businesses. "

Messages seeking information from both Kelmar and Total Asset Recovery were not immediately returned.

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