Last week a Kentucky state court ruled against three insurers and for a new state unclaimed property law. This law expands existing due diligence requirements by directing life insurance companies to check their insured lists against the Social Security Administration’s Death Master File and to take ‘good faith’ steps to notify beneficiaries.”

Judge Philip J. Shepherd in Franklin County Circuit, Frankfurt, Kentucky specifically noted that “The traditional industry practice allows insurance companies to stick their heads in the sand and ignore publicly available data regarding the death of their insureds, to the detriment of the beneficiaries and the public.” Furthermore he found that “In a highly regulated industry such as insurance, companies should be aware that their rights are always subject to the regulatory power of the state to enact consumer protections such as the one at issue here."

Kentucky is one of six states that have recently passed such laws (last week Montana became the newest such state) which expand insurers due diligence requirements to search for beneficiaries even without a claim being submitted.

The Kentucky court's decision follows on the heels of a settlement entered into between six states and the John Hancock Companies forcing the John Hancock Companies to act more proactively in terms of ensuring property is properly disbursed. This settlement requires the John Hancock Companies to check their records against the Social Security Administration’s Death Master File on a monthly basis.

Given the aggressive new stance taken by many states regarding unclaimed property and other state reporting/compliance issues, this represents a signficant source of liability for your organization. Accordingly, please do not hesitate to join many of your peers and consider a subscription to our TIR Answer Center - where client questions on such matters (and federal 1099/1042-s compliance/reporting issues) are guaranteed to be answered within two business days or less!