Imagine that a parent or grandparent takes out a life insurance policy, pays premiums for it for years, sticks the policy in a cabinet or drawer someplace, and the beneficiaries (children or grandchildren) never know the policy exists. In that situation, the beneficiaries never make a claim because they don't know the policy even exists. The benefits are not paid to the beneficiaries as the insured intended, despite the fact that the insurer reaped the premiums for many years. This situation is not uncommon. However, oftentimes, someone knows both that the policy exists and that the insured has died. That "someone" is the insurance company who issued the life insurance policy.
Recent settlements between States and prominent life insurance companies have exposed a dubious practice whereby the insurers routinely search a database maintained by the Social Security Administration which verifies when a person is deceased. In addition, court filings can be searched for evidence of a person's death. Many insurers are searching those databases as a matter of practice in order to determine if its insured is dead. Although there are a variety of motivations for an insurer to do so for its own interest, one example is that it may stop making monthly annuity payments to a person who has died. Unfortunately, the insurance companies are not using this information to alert or pay beneficiaries of policies owned by a person they learn has died, leaving the unknowing beneficiaries in the dark, and holding the money for themselves, sometimes eventually escheating the money to the State for the State to disburse or hold.
This "asymmetrical" use of the Death Master Files has come under attack recently. Many insurers have entered into a global resolution agreement with various States for these failures, and have agreed to change their ways in the future. The beneficiaries themselves, however, are still without recourse. At least two attempted class actions have been filed on behalf of policy holders in different states. Both have been dismissed, although the appellate process is unfinished. To read more about those cases, click here.
In Wisconsin, an insurer is required by law to notify the beneficiaries and take reasonable steps to pay them within four months once it knows the insured is dead, even if the beneficiaries have not presented a "proof of loss." If you are aware of a situation where an insurance company may have violated this duty, please contact Atterbury, Kammer & Haag, S.C., to discuss this situation at no cost.