California State Controller John Chiang has sued American National Insurance Company (ANICO) for failing to comply or cooperate with audit requests under a multi-state unclaimed property audit. The lawsuit was filed in Superior Court in Sacramento County.
The California unclaimed property act includes Section 1571 which states "(a)The Controller may at reasonable times and upon reasonable notice examine the records of any person if the Controller has reason to believe that the person is a holder who has failed to report property that should have been reported pursuant to this chapter."
The audit was conducted by Xerox Unclaimed Property Clearinghouse, on behalf of multiple participating states. California joined the audit in August 2012. According to the lawsuit filed by the Controller, ANICO has failed to submit to a full examination of its books and records, engaged in obstructive activities to delay and impede a timely audit, asserted that the auditors will not be given access without litigation, and otherwise refused to turn over records because of the company's assertion that it has no unclaimed property to report.
In order to complete an audit, the state(s) or a third-party auditor reviews the books and records of a company. In the case of a life insurance company, the auditors will review outstanding insurance policies to determine if there is ongoing contact or if contact has ceased, whether the proceeds should be paid to a beneficiary or to the state as unclaimed property. According to the lawsuit, ANICO has failed to provide the necessary information surrounding all policies, which impedes the auditors ability to conduct the audit. California has requested injunctive relief, requiring ANICO to comply with audit requests and to provide the necessary information to complete the audit. Furthermore, the state has requested attorneys' fees and damages and penalties.
Ongoing Industry Legal Activity
California is one of many states that have led the recent push against life insurance companies for failure to use reasonably available methods to identify deceased policyholders and inform potential beneficiaries of potential proceeds. California has reached global settlements with seven different life insurance companies, representing more than $140 million in unclaimed policies and increasing compliance requirements on the insurance companies. Other states have begun passing laws containing requirements that insurance companies search the Social Security Death Master File, similar to the requirements of the global settlements. Kentucky's new search requirements were recently upheld by a state court there, while West Virginia has had to sue several insurance companies to enforce compliance with the state's unclaimed property laws.
Companies have also been the target of lawsuits by private parties for not paying proceeds of policies. John Hancock was recently sued by a beneficiary over failure to receive the proceeds; the plaintiffs there are seeking class action status.