How does Bevin’s drop of defense for the consumer-protection law on life insurance benefits affect the Commonwealth?

By: Darrin Wilson, Ph.D.

Kentucky Governor Matt Bevin ordered his new Insurance Commissioner H. Brian Maynard to drop the legal defense of the 2012 Unclaimed Life Insurance Act.  The Act (HB 135) requires life insurance companies to compare lists of policyholders to public death records to determine if any policyholders have died.  The Act passed the House and Senate unanimously.  After the bill was signed into law, most insurance companies complied and retroactively provided payment to any beneficiaries the companies missed.  However, this is where the legal challenge came.

The Kemper Corporation challenged the law by saying companies cannot be forced to go back and look for deaths they might have missed and pay out the claim.  Up until this point a Circuit Court Judge ruled in favor of the bill and the Court of Appeals ruled in favor of the insurance companies.  The Commonwealth of Kentucky had appealed to the Supreme Court and was awaiting a hearing at the time Governor Bevin withdrew the case. 

The biggest question is, how does a life insurance claim differ from other unclaimed property?  By law (KRS 393), if a financial institution or other type of company has made a good faith effort of returning property (financial and non-financial) to its owner but has not been able to locate them, the company must transfer the property to the State Treasury.  The State Treasurer, through the Unclaimed Property Division, holds the property until a claim is made on it.  For example, if you had an auto insurance claim and for some reason the check never made it to you, after a few years the insurance company would hand over the money to the State Treasury.  The Treasury would then make an effort to reunite you with the money.  However, in the case of life insurance, the company has to know that you died in order to release the funds.  If they missed your death, then the funds are not unclaimed because in order to have a claim, they have to recognize your death. 

The death oversight by the insurance companies has allowed them to hold millions of dollars in their bank accounts without having to go back and confirm people’s deaths.  Now, you may wonder, why would someone not make a claim for the insurance policy when a person died?  The biggest reason is that sometimes, family members or other beneficiaries didn’t know the person had a life insurance policy.  Another reason is, as in the case of the Kemper Corporation, many of these policies were sold to low income, rural people with families that had limited ability to make a claim.  Finally, as the law’s author, former State Rep. Bob Damrom found out after the passing of his mother, the insurance companies will deny knowing of any policy. 

Due to the withdrawal of the Commonwealth’s case, the state will not be able to force life insurance companies to go back and look at previous years’ Death Master File and confirm policyholders’ deaths.  The current law will only apply from 2012 forward, leaving behind families before that date.

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Published on February 22, 2016