Unclaimed property compliance is a best practice for corporations of all sizes. In addition to avoiding audits and audit assessments, annual compliance can also benefit a company when dealing with long lost shareholders, employees, vendors and customers. By turning the money over to the state, you can direct any person over to the appropriate state to collect their money while keeping your own books and records clean without old, stale dated checks or credits.
In Finley v. Transamerica Life Insurance Company, the judge dismissed the case for failing to state a claim. In this case, the insurance company issued a life insurance policy in 1964. The insured died in 1987, but the insurance company was never given due proof of death. In 2013, Transamerica settled its multi-state unclaimed property audit and agreed to report an estimated $137 million to various states and search the U.S. Social Security Death Master File as part of its ongoing compliance duties. In late 2014, the insured's son contacted Transamerica seeking payment on the policy. Transamerica directed the son to the State of California to claim the benefits as they proceeds were previously reported as unclaimed property. The son claimed the proceeds from California and also subsequently filed suit against Transamerica.
In addition to contractual arguments relating to when Transamerica was required to pay the proceeds, the company was able to rely on an indemnity provision in the California unclaimed property law. The indemnity provision, section 1560(a), says that if the holder has complied with the due diligence requirements and reported the property, the holder is relieved of all liability to the extent of the value of the property so paid. By following the contractual provisions of the insurance policy and the state's unclaimed property laws, the insurance company was also able to defend against a claim for breach of implied covenant of good faith and fair dealing.
While the insured was given leave to amend his complaint, Transamerica has thus far been able to successfully defend a lawsuit brought by a beneficiary, due in part to the company's prior reporting of the policy as unclaimed property. Unclaimed property compliance can become an affirmative defense against disgruntled individuals looking to extract money and ruin a company's reputation.
Other insurers, including John Hancock and MetLife, have been the subject of beneficiary lawsuits in wake of the multi-state life insurance audits. Prudential has been the subject of shareholder litigation, also stemming from their multi-state unclaimed property audit.