Legal Alert: California Controller’s Handbook Requires Insurers to Perform Quarterly DMF Searches

by Eversheds Sutherland (US) LLP

In a recently released update to its Unclaimed Property Holder Handbook (Handbook), the California State Controller’s Office has apparently taken the position that life insurers must search the Social Security Death Master File (DMF) on a quarterly basis to determine whether they have any reportable property. In the September 2013 update, the Controller also takes the position that a DMF hit constitutes proof of death for unclaimed property purposes. Click here for the latest version of the Handbook.

The Handbook purportedly provides unclaimed property holders with guidance on how to comply with their reporting obligations under California’s Unclaimed Property Law.

With respect to DMF search requirements, the latest edition of the Handbook adds the following language:

An insurer shall perform a comparison of its insureds’ life insurance policies, retained asset accounts, and contracts against a Death Master File, on at least a quarterly basis, to identify potential matches of its insured. (p. 15.)

However, the Handbook is silent on when the quarterly search requirement takes effect.

As to what constitutes “proof of death,” the Handbook has been amended to provide:

A policy will be deemed matured upon proof of death that may be identified through a declaration of death, death certificate, comparison of the holder’s records against the Social Security Death Master File or other equivalent resources available to the company.1 (p. 12.)

The Handbook retains the following language from earlier versions:

A holder must report all funds held and owing by a life insurance corporation under any life or endowment insurance policy or annuity contract that has matured or terminated when such funds have remained unclaimed for more than three consecutive years after becoming due and payable. (p. 12).

All holders of unclaimed property are required to review their records annually to determine if they are holding any property, whether tangible or intangible, that has remained unclaimed for the required dormancy period. (p. 15).

Regarding the dormancy period, the Handbook states “[t]he dormancy period, also known as escheat period, commences on the date of last activity by the owner.” (p. 15).

The updates discussed above amended the Handbook’s previous edition, which cited to the same provisions of California’s Unclaimed Property Law, but did not mention the requirement that the insurer must perform DMF searches four times a year. Also, the California Legislature has not amended the state’s Unclaimed Property Law since the last update to the Handbook to require quarterly DMF searches.

It remains to be seen how the Controller will enforce this apparent shift in unclaimed property regulation in the state. At a minimum, life insurers and other entities that are holders of unclaimed property in California should be aware that the revision to the Handbook – and the Controller’s current view on when property becomes reportable – may be raised in audits of those not currently conducting quarterly DMF searches of their records or calculating the dormancy trigger based on the date of a DMF match.

1This is a substantive change from the March 2013 Handbook, which explicitly stated that a policy matured upon actual proof of death: “A policy is deemed matured upon actual proof of death of the insured (death certificate, court order, or declaration of death) or if the insured has attained the limiting age under the mortality table on which the reserve is based.” (March 2013 Handbook, p. 12).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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