Four years ago we blogged about Metropolitan Life Insurance Company’s (“MetLife”) inconsistent use of the Social Security Administration’s Death Master File database to deprive beneficiaries of $40 million in life insurance benefits.  See https://mslawllp.com/metlife-pays-40-million-to-settle-allegations-that-it-failed-to-properly-identify-and-pay-life-insur/.  That database, created by the Social Security Administration, is consistently updated with the names and identity of everyone for whom a death certificate is filed in the United States.  The Administration licensed it to life insurance companies so they could easily identify decedents, a necessary part of their business.

Not surprisingly, it turns out that most life insurance insurers are engaged in the same actions.  Until recently, many insurers, just like MetLife had, used the Death Master database for their own economic benefit – to identify deceased annuity holders in order to stop making annuity payments.  But they failed to use the database to identify deceased policyholders in order to pay life insurance benefits.  This has reportedly deprived life insurance beneficiaries of over $5 billion in benefits nationwide!

The life insurance industry’s inconsistent use of the Death Master File was featured in a 60 Minutes segment on April 17, 2016.  It reported that the California Insurance Commissioner headed a national investigation into life insurers’ inconsistent use of the database.  On April 18, 2016, the California Department of Insurance issued a press release about the 60 Minutes program entitled, “200,000 consumers receive $5 billion resulting from Insurance Commissioners’ investigation.”  The press release stated:

SACRAMENTO, Calif. – Last night, 60 Minutes profiled a national investigation of life insurers’ failure to pay life insurance benefits. California Insurance Commissioner Dave Jones is one of the leaders of the national insurance commissioners’ investigation into life insurers’ use of the Social Security Administration’s Death Master File for their business benefit while ignoring information the database contained that would allow life insurers to identity deceased life insurance policyholders whose beneficiaries were owed benefits. 60 Minutes interviewed Commissioner Kevin McCarthy of Florida, one of the five commissioners leading the national investigation.

The investigation led by Commissioner Jones and the other commissioners has resulted in 20 life insurers, representing over almost 70 percent of the market, agreeing to use the Death Master File and match it against their lists of past and current policyholders to determine if a policyholder has died and then to search for the beneficiaries of the policyholder in order to pay benefits. In addition, two insurers were found already in compliance. As a result, over 73 percent of the market is now in compliance.

“The nationwide Death Master File investigation is one of the most important investigative and enforcement efforts ever undertaken by insurance regulators,” said Insurance Commissioner Dave Jones. “Our work investigating insurers’ failure to use the Social Security Administration’s Death Master File and the settlement agreements we have obtained has resulted in over $5 billion in life insurance benefits being paid to over two hundred thousand beneficiaries nationwide. More than $400 million has been paid to California beneficiaries alone.”

Created by the Social Security Administration, the Death Master File is updated with the names and identity of everyone for whom a death certificate is filed in the United States. The Social Security Administration uses the Death Master File to determine when to stop paying social security benefits because someone has died. The Social Security Administration licensed the Death Master File to life insurance companies.

Until recently, many life insurers only used the Death Master File for their own economic benefit to identify deceased annuity holders in order to stop making annuity payments, but the life insurers failed to use the Death Master File to identify deceased policyholders in order to pay life insurance benefits.

Initiated by former Controller and now Treasurer John Chiang and now led by Controller Betty Yee, State Controllers’ offices are undertaking a parallel investigation because life insurance companies also violated state laws that require unclaimed property held by corporations to be turned over to the State Controller so that the Controller can search for the property owners — in this case unpaid life insurance benefits. Then California Controller John Chiang (now Treasurer) initiated the investigation of life insurers’ failure to escheat unclaimed property to the states. State Controllers have also obtained settlement agreements from life insurers requiring them to hand over life insurance benefits to the Controllers where the Death Master File indicates the life insurance policyholder is dead and the life insurer cannot find the beneficiary.

“We urge the remaining life insurers to follow the lead of the 22 companies that are now using the Death Master File database to search their records for deceased life insurance policyholders and to pay their beneficiaries benefits owed,” said Jones. “Until they do so, our investigation and enforcement actions will continue.”

As this press release confirms, insurance commissioners across the country are working diligently to curb the life insurance industry’s apparent deep-seeded practice of manipulating the Death Master File database solely for their own economic benefit and failing to treat their insured’s financial interests equally with their own, as California’s “bad faith” laws require.  The task is daunting.  The 60 Minutes segment reported that Mr. McCarthy, the Florida Insurance Commissioner, said there are 32 insurers who have not conceded they will agree to pay life insurance benefits based upon using the Death Master File database.  Mr. McCarthy reported that Kemper Insurance Company is fighting the hardest against using the database.

It would therefore behoove policyholders and beneficiaries to vigilantly investigate and protect their own life insurance assets.  Many insurers obstinately refuse to do it despite their duty of good faith and fair dealing.  If you believe that a life insurance company failed to pay the benefits you are owed under a life insurance policy, please contact our office for a free consultation.