MetLife Hit With Second Subpoena in Claims Settlement Investigation

By Jeff Jeffrey
A.M. Best
April 26, 2011

Just days after MetLife was slapped with a subpoena by the Florida Office of Insurance Regulation, the company has received a second subpoena from regulators in California who are examining the company's life insurance claim settlement practices.

MetLife for two decades allegedly failed to pay life insurance policy benefits to named beneficiaries or to the state -- even after learning that an insured had died, according to the California Department of Insurance, which is co-leading an investigation into MetLife with the California Office of the Controller. The company has a large number of "industrial policies," which were primarily sold in the 1940s and 1950s to working-class people. Those policies are valued at an estimated $1.2 billion.

The payments, which were collected weekly, were typically higher than the final death benefit. A state-led audit found that MetLife allegedly did not take steps to determine whether policyowners of dormant accounts are still alive, and if not, pay the beneficiaries, or the state if they cannot be located, according to California Controller John Chiang.

The investigation also alleges that when MetLife knew that an owner of an annuity contract had died, or the annuity had matured, the company did not contact the policyholder or beneficiary, even though it subscribed to the Social Security Association's Death Master File database. Furthermore, MetLife continued making premium payments from the policyholder's account until the cash reserves were used up, and then cancelled the contract.

John Calagna, vice president of corporate communications at MetLife, said the company plans to "fully cooperate" with both investigations.

"MetLife's first priority is to keep its promises to its policyholders," Calagna said. "MetLife has a strong history of taking proactive measures beyond those required by law to improve its ability to make prompt payment of life insurance benefits to the correct beneficiary upon notice of death."

Calagna said MetLife pays billions of dollars in death benefits each year. In 2010 alone, MetLife made payments in excess of $11 billion to beneficiaries, he said.

In California, a MetLife representative will be required to appear before the California Department of Insurance on May 23. In Florida, a MetLife representative will be required to attend a May 19 hearing.

Depending on a state's unclaimed property laws, when a policy beneficiary cannot be located within three to five years after the company receives notice of a death, the policy benefits are considered unclaimed and insurers escheat the benefits payable under the policy to the appropriate state. MetLife escheated $51 million to the states in 2010, Calagna said.

The subpoenas issued to MetLife by the Florida OIR and the California regulators are part of a push by at least 23 states to crack down on life insurers' unclaimed property practices. State regulators are looking at how insurers use federal databases, such as the SSA's Death Master File, to determine which of their policyholders have died and which beneficiaries should begin receiving payments.

MetLife is one of two companies that received subpoenas from the Florida OIR. The other company, Nationwide Life Insurance Co., said it also plans to fully cooperate with the investigation.

The OIR said it has not ruled out subpoenaing other life insurance carriers in addition to MetLife and Nationwide (BestWire, April 26, 2011).

In California, John Hancock Life Insurance Co. recently reached a settlement agreement with the California Office of the Controller. John Hancock agreed to restore the full value of more than 6,400 impacted accounts dating back to 1992; cooperate with efforts to reunite more than $20 million of death benefits and matured annuities with their owners or the owners' heirs; and pay the State of California 3% compounded interest on the value of the held amounts from 1995, or from the date of the owner's death; and create and adhere to methods for better identifying deceased policyholders and notifying their beneficiaries.

Chiang said in a recent statement that his office had audited 21 insurance companies in California and found widespread instances of insurers failing to properly pay off beneficiaries.

Instead, companies would allegedly draw-down the policies' cash reserves in order to continue collecting premium payments from the deceased. Once the cash reserves were depleted, the company would cancel the policy, Chiang alleged. The audits also found that insurers did not routinely cross-check the owners of dormant accounts with government databases listing the deceased. In other cases, the company allegedly had direct knowledge of the death of a policyowner, but still did not notify the beneficiaries (BestWire, April 26, 2011).

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