LEGAL NEWSLINE

FRANKFORT, Ky. (Legal Newsline) - When allegations started to surface that some insurance companies weren't paying out death benefits on life insurance policies, Kentucky Rep. Bob Dameron was concerned from two different perspectives.

Not only was he distressed as a lawmaker looking to protect his constituents, but the Democrat who doubles as a member of the National Conference of Insurance Legislators (NCOIL) found himself in the seat of a frustrated consumer trying to settle his late mother's estate.

After his mother died, Dameron said he called the insurance company listed on a policy he found in her belongings only to be told that no such policy by that name was in effect.

"I thought 'this is kind of strange,'" he said. "So, I called and asked them to check again. I gave them the policy number, date of birth, date of death and my email."

An email exchange followed, but ended with the same result: he was told no such policy existed. Thinking that his mother might have cashed in the benefits, he decided to send one more email.

"This time, I used my title," Dameron said, noting that putting "Rep." in front of his name at the end of the email. "I also added in there that I talked with the insurance commissioner in my state and that she indicated I should find out when the policy was cashed in or canceled."

Two days later, he said, the insurance company responded and notified him that it had found his mother's policy after all, but that another life insurance company in Wisconsin was holding on to it.

Although he eventually recovered the benefits of his mother's life insurance policy, Dameron said the process irked him as both a consumer and a lawmaker.

"If this happened to me, I knew it probably was happening to hundreds of thousands of other consumers," he said. "And how many of those people didn't have a title to use? How many of those people just gave up after they were told no?"

Dameron said his personal experience with unpaid death benefits, something some states started to investigate a few years ago with the help of audit firms, highlighted the need to address "this huge consumer protection issue."

At about the same time that some of the nation's largest insurance companies first began to enter into settlements over unpaid death benefits, Dameron said NCOIL, a group he served as president for in 2010, started to research the issue.

The purpose of NCOIL, according to its website, is "to help legislators make informed decisions on insurance issues that affect their constituents and to declare opposition to federal encroachment of state authority to oversee the business of insurance."

Susan Nolan, executive director of NCOIL, said her group took an interest in the issue after the media started reporting on it and has worked with the majority of interested parties ever since.

Although many states have hired audit firms such as Verus, Total Asset Recovery and Kelmar Associates to determine whether insurance companies have failed to pay out benefits or notify beneficiaries, Nolan said her group believes regulations governing these companies' practices need to be in statute.

Dameron agreed, saying he believes it is more responsible for states to put these regulations in statute so insurance companies know exactly what rules they need to follow.

He also said he thinks states' use of audit firms, which typically get paid a percentage of the unclaimed property they recover, represents an abuse of executive and regulatory powers.
In 2011, NCOIL's executive committee adopted the Model Unclaimed Life Insurance Benefits Act, which was sponsored by Dameron and amended the following year.

The model law requires "complete and proper disclosure, transparency and accountability relating to any method of payment for life insurance death benefits regulated by the state's insurance departments."

Among other provisions, NCOIL's model law requires insurance companies to match records from the Social Security "Master Death" file to their in-force life insurance policies on a semi-annual basis to identify potential matches.

The model law then requires companies that identify matches to determine if benefits are owed and if so, to use "good faith efforts" to locate the beneficiary. If a beneficiary can't be found, it requires the company to turn over the unclaimed property to the appropriate state.

Many of the settlements that states and insurance companies have entered into as a result of the audit firms' findings include similar provisions regarding the Master Death file.

Since NCOIL adopted the model law, Nolan said it has been passed in some form in six states: Dameron's home state of Kentucky, Maryland, Montana, New Mexico, New York and Alabama.

According to a letter NCOIL's current president, Dameron and another past president sent earlier this month to the chairman of the U.S. Senate Committee on Finance, five more states - Massachusetts, Nevada, North Dakota, Rhode Island and Vermont - have legislation pending.

Dameron said although the settlements between states and insurance companies have resulted in promises of reform, the language of the agreements are not applicable to every case involving unpaid death benefits, an inconsistency he said favors the adoption of the model law.

Some groups, however, have voiced opposition to NCOIL's model law, saying it might create more confusion and the possibility that insurance companies will point to it as a reason why states should stop conducting audits.
The National Association of Insurance Commissioners (NAIC) has discussed the unclaimed property issue at the group's state government liaison meetings, as well as at meetings between NAIC and NCOIL members.

Although individual members of the NAIC may have positions on NCOIL's model law, the group that works to establish standards for state insurance regulators has not taken an official stance on the model law.

Dameron said that when he proposed the model law in Kentucky's legislature, he was met with some opposition from small insurance companies who claimed the proposed regulations would create more of a burden on them than the larger companies.

On the flip side, Dameron said, he received a lot of support from fellow lawmakers and others who heard him testify in committee about his personal experience and expressed curiosity over whether they may be owed benefits.

Shortly after the Kentucky legislature passed NCOIL's model law in 2012, Dameron said a group of insurance companies challenged the law in circuit court.

A judge this month upheld Kentucky's new unclaimed property law, he said, adding that the ruling that will likely be appealed affirms the need to regulate the insurance industry and protect consumers.

Dameron said he hopes the recent court ruling will encourage more states to adopt NCOIL's model law.

"It's beginning to pick up some steam around the country," he said. "We're still encouraging states to pass it and there is still some opposition from small insurance companies that would like to be exempt, but I am hopeful."

Dameron, however, said going forward, he is concerned by a movement in Congress to limit access to the Master Death file.

The U.S. Senate Committee on Finance held a hearing this month on tax fraud and ID theft. Some media outlets have reported that the Obama administration is pushing Congress to limit access to the Master Death file as part of a package of proposals to curb tax fraud.

"I know they are trying to protect people from fraud and tax
invasion, but they need to ensure it doesn't have an unintended consequence of preventing consumers from receiving death benefits," he said.