LEGAL NEWSLINE

CHICAGO -- State lawmakers and insurance regulators aren't the only ones trying to resolve concerns over some insurance companies' failure to pay out death benefits.

Following investigations into these companies' practices over the past few years, some states have entered into agreements with insurance companies while others have enacted or are considering legislation to better regulate the industry.

Both moves aim to ensure that insurance companies regularly check the Social Security Death Master File (DMF) to properly notify beneficiaries and report policies as unclaimed property if a beneficiary can't be located.

And on top of these efforts, at least one audit company and an Illinois man have filed lawsuits against some of the nation's largest insurance companies in hopes of resolving what one Kentucky lawmaker has dubbed a "huge consumer protection issue."

Since 2011, Total Asset Recovery Services Inc. -- one of several audit companies states have hired in recent years to investigate insurance companies' practices - has filed at least three lawsuits over unpaid death benefits.

The suits the company filed in Illinois and Minnesota have been dismissed and the one it brought in Florida remains pending, said Melissa Damian Visconti, an attorney at The Ferraro Law Firm in Miami who represents Total Asset Recovery.

These suits accuse MetLife Inc. and Prudential Financial Inc. of fraud by failing to turn over money from unclaimed life insurance policies even though they knew or should have known the policyholders were dead.

They were brought as qui tam lawsuits under the states' False Claims acts, which allow those who disclose fraud against the state to share in the suit's proceeds. They are filed under seal and give states the opportunity to intervene.

The suits filed in Illinois and Minnesota were unsealed last year and the Florida suit was recently unsealed. If Total Asset Recovery has filed other similar suits, Visconti said they would still be under seal and as such, couldn't comment on them at this time.

Last year, Visconti said, her client voluntarily dismissed the Illinois suit and a judge in Minnesota dismissed its suit there.

She said her client dropped the Illinois suit based on "procedural technicalities," and that it had "nothing to do with the validity of the claims and the strength of the claims."

Saying that the False Claims Act is a complicated statute, Visconti explained that if a plaintiff bringing such a suit amends the complaint to add anything substantive, the new material would be barred.

"Theoretically, once you give information to the government, the government knows about," she said.

Visconti said the company's Minnesota lawsuit "was kind of a long shot" because the state didn't have its own version of the federal False Claims Act until 2010.

A judge there, she said, determined that Minnesota's statue couldn't be applied retroactively and dismissed the suit. Her client decided not to appeal the ruling.

While those two suits have been dismissed, Visconti said Total Asset Recovery is "proceeding full speed ahead against Prudential and Metlife" in its recently unsealed suit in Florida. The state declined to intervene, she said.

The Florida suit initially named John Hancock Life Insurance Co. as a defendant, but Visconti said her client dismissed that insurance company based on the Global Resolution Agreement (GRA) that it had entered into in 2011 with several states, including Florida.

The agreement required John Hancock to change to the way it handles unclaimed property. Visconti said Florida was one of the lead states on the agreement, which more than two dozen states signed on to.

"It's our position they [the states that entered into the agreement] basically sold out for pennies on the dollar and ripped off citizens," she said.

Visconti said "one of the interesting angles" that she has come across deals with how well the states that didn't enter into the Global Resolution Agreement are doing in recovering money for their residents, as opposed to the states that did enter into the agreements.

Although her client's Florida suit remains pending, Visconti said she doesn't think anymore suits over unpaid benefits will be brought under the False Claims Act because "the cat is out of the bag."

"The fraud we allege is going on is now public," she said, noting that the act doesn't allow people to bring suits over fraud that has already been disclosed.

Aside from the Florida suit, an Illinois man in January filed a lawsuit in federal court in Massachusetts over unpaid death benefits. It remains pending.

Richard Feingold brought the complaint, which seeks class action status, against John Hancock Life Insurance Co. and John Hancock Life & Health Insurance Co. He claims the insurance company has used the DMF for its own advantage.

"For example," the suit alleges, "Defendants have accessed the DMF regarding clients with annuities to provide a basis for Defendants to stop making annuity payments, but Defendants have not equally used the DMF to the benefit of the insureds or beneficiaries to determine when benefits are payable."

This practice has allowed John Hancock "to collect and enjoy interest on unclaimed benefits, charge against policy benefits and otherwise benefit from holding unclaimed benefits," the suit states.

It goes on to explain that "as a result of this industry wide practice, life insurance companies, including Defendants, have been and are the subject of numerous investigations by State regulators."

Feingold's suit asserts that an investigation into John Hancock's practices led the company to enter into the GRA and that it also settled with several states, including Florida and California, "to create new policies for handling unclaimed property and for the payment of fines for failing to adhere to unclaimed property laws."

Feingold, however, argues in his complaint that entering into the agreement and settlements with individual states "does not shield Defendants from liability for damages owed to Plaintiff and the Class who were not parties or signatories to the agreement or settlements and did not receive compensation from the Global Resolution Settlement."

"Defendants' pattern and practice of handling unclaimed property has directly resulted in damages to Plaintiff and the Class and the damages are ongoing," he asserts.

Feingold, according to the suit, is a resident of Lake County, Ill., and is the beneficiary of a life insurance policy that his mother, Mollie Feingold, purchased from John Hancock in 1945. She died in 2006.

He asserts that he was unaware of his mother's policy until 2010, when he checked the Illinois Treasurer's Office's unclaimed property website and "was informed that $459 was the full payment of money remitted from dividends and there was no money escheated from any life insurance policy."

He contends he received the $459 from the state in December 2011 and the following month, contacted the defendants to seek "information about the unclaimed funds arising from dividends" and "whether there were any life insurance proceeds."

John Hancock, the suit states, first informed Feingold "there was no life insurance policy purchased by his mother," but shortly after, told him they found her policy and sent him forms to fill out.

Feingold claims he filled out the forms and continued to request a copy of the policy to no avail.

"Without providing a copy of the policy on June 1, 2012," Feingold asserts in his suit that the defendants sent him "a check for $1,349.71 without explanation as to why this money was not escheated to the State of Illinois when the dividend monies were escheated or explaining with any degree of certainty what the check was for."

Feingold's suit includes counts for violations of state consumer protection laws, unjust enrichment, conversion, breach of fiduciary duty and declaratory relief. It states that the class claim seeks more than $5 million.

A judge in February denied Feingold's motion to certify a class without prejudice as "premature," court records show.

Later that month, John Hancock filed a motion to dismiss for failure to state a claim. In that motion, the company stresses that Feingold admits he was unaware his mother had a policy and didn't contact it until last year.

Feingold's complaint, John Hancock asserts in its motion to dismiss, "seeks to discard settled law by requiring payment or escheatment of life insurance proceeds where a beneficiary has made no claim on the policy."

It contends that Feingold's claims under the Massachusetts Consumer Protection Act should be dismissed because 1) the act does not apply to out of state plaintiffs, 2) and even if it did, he failed to comply with its provisions, and 3) John Hancock did not engage in deception under the act by not paying out the benefits before Feingold contacted it.

The company asserts the other claims should be dismissed as well.

Feingold points to the GRA, in which John Hancock made contractual promises to the states on how it would handle unclaimed benefits, in its response to the motion to dismiss.

Those promises, the response states, "put duties and obligations on Defendants above and beyond the normal claims processes and unclaimed property laws."

"Defendants move to dismiss Plaintiff's complaint by arguing that Defendants only have to meet their duties and obligations by following those normal claim processes and unclaimed property laws without recognizing their additional duties and obligations arising from the Global Resolution Agreement," the suit states.

It adds, "In fact, Defendants don't even mention the Global Resolution Agreement in their Motion to Dismiss."

Late last month, John Hancock filed a reply to Feingold's response over its motion to dismiss, saying that the suit "'goes above and beyond the normal claims processes and unclaimed property laws' by relying on provisions of the Global Resolution Agreement."

Despite the regulatory settlement between John Hancock and some states, the company contends that Feingold "cannot sue for any alleged breach of GRA, nor does the invocation of the GRA cure any of the flaws in the claims alleged in the complaint."

A message left for Alan Cantor, the Massachusetts attorney representing Feingold, was not immediately returned. The John Hancock defendants are represented by attorneys at Sloane & Walsh in Boston and Debevoise & Plimpton in New York.