TALLAHASSEE – Four insurance companies are now suing the state of Florida's chief financial officer over a bill passed earlier this year that they deem unfair and too costly.
United Insurance Co. of America, Reliable Life Insurance Co., Mutual Savings Life Insurance Co. and Reserve National Insurance Co. have filed a lawsuit against CFO Jeff Atwater over a bill sponsored by state Rep. Bill Hager (R-Dist. 89) that requires insurance companies to comb the federal death records all the way back to 1992 in order to pay out any unclaimed policies.
Barry Richard, the attorney for the four insurance companies, filed the lawsuit in Florida's 2nd Judicial Circuit and insists that the lawsuit covers the retroactive portion of the bill only, claiming to Florida's WMFE in Orlando that going back and searching 25 years of death records would prove long and costly for the insurance companies, while being of limited benefit to the insured.
"It's a draconioan imposition," Richard told the Florida Record. "It costs a huge amount of money, and it probably is a relatively small number. It's like searching for a needle in a haystack. Some of these people can't even be found any more. These records are a long way to go back, particularly when the company never had this obligation before, so it's not something that their records have been set up to do."
When Hager originally proposed the bill, he claimed the legislation could uncover $250 million in claims for Floridians and that he only wishes to ensure insurance beneficiaries receive what is due to them.
A representative for Atwater, spokeswoman Ashley Carr, told Health News Florida in May that most companies regularly search the death file anyway for the purpose of stopping annuity payments to clients who have died.
"We find it unfortunate that they have chosen to file a lawsuit that to prevent themselves from having to pay benefits that we believe are owed to families and are sometimes owed for several years," Carr said.
Richard, however, told the Florida Record that it's just not that simple.
"My clients are prepared to provide testimony of both experts and laypeople that this will be very costly," he said. "But it's not just the matter of the cost of doing it. Keep in mind, (the bill) doesn't just say that you have to search the file. You have to search the files; and then from what you find, you have to determine whether or not there is a match. And there could be hundreds of people that have the same name, so then you have the administrative burden of having to go to other files to find out whether this is the same person."
In April, Atwater and former State Insurance Commissioner Kevin McCarty appeared on "60 Minutes" to discuss the situation. On the broadcast, Atwater claimed there could be as many as several hundred thousand unpaid policies totaling up to several billion dollars if an audit could be made back to the 1960s, and that common procedure for insurance companies was to cancel the policies and keep the money if the benefactor failed to file a claim, which most often occurred because the benefactor was unaware of the policy.
Richard, however, thinks the state is really only guarding its own financial interests first and foremost under the guise of consumer benefit.
"You have to keep in mind this is not as altruistic as it sounds," he said. "This is a moneymaker for the state because it has the effect of contracting the time of the escheat when nobody is ever found, so that the money goes to the state sooner."
Richard also explained that this bill could have the undesired effect of sending premiums significantly upward.
"There also is a cost factor that has an impact, not only on the insurance company, but on all of the insurants who are paying premiums, which ultimately have to pay the underlying costs of administering the policies," he said.
Ultimately, despite the lawsuit, the companies are prepared to abide by the bill moving forward. It's the prior cases that have already long been under contract that are being called into question.
"(The companies) are prepared to do this," Richard said. "The state wants it done, and they are prepared to do it, but this has been the methodology that the state had approved in these policies for over 50 years. So the only thing my clients are saying is if you want us to do it, that's fine, but don't make it retroactive. We've been doing what the law says, and we have contracts that are based upon that and we build our profit margins and our premiums based on it. We're happy to do it going forward, but it's not fair to impose it going backward."
Richard insists that his clients were never attempting to not pay out claims, only abiding by these contracts and the state-approved policies they contained.
"To the extent that this legislation was precipitated by some concern by the state that insurance companies were attempting to avoid making payments once they knew somebody was deceased, that's not the case with (these companies), and they've never been accused of that," he said. "As soon as my clients receive proof of death, they make the payment. And if there is no proof of death, then the insured reaches the age where there is a presumption of death, they make the payment or they escheat to the state. My clients are not avoiding making the payments that they've been contracted to pay."