Insurer ordered to turn over property records

A Texas insurance company must submit its life insurance policyholder records to the California comptroller for scrutiny as to whether it is complying with the state's unclaimed property laws.

Judge David Brown issued an order mandating such compliance for American National Insurance Company of Galveston, Texas, Oct. 9. Brown is a judge in state Superior Court in Sacramento.

The case also has implications for Kemper Insurance Co. of Chicago, formerly Unitrin. Kemper filed a lawsuit in July similar to one filed by ANICO in May. Both argued in court papers that it did not have to submit its policyholder records to scrutiny by an outside vendor hired by the California Comptroller's Office.

The lawsuits allege that currently "in-force policies" are not subject to the controller's audit and that such data would not be produced because the insurance companies have made their own determination that such data will not lead to reportable property."

Brown held in his decision that the comptroller, John Chiang, "may at reasonable times and upon reasonable notice" examine the records of any insurance company "if the Controller has reason to believe that the company is a holder of unclaimed property that should have been reported" pursuant to California's unclaimed property law.

The injunction, which can be appealed, appeared to be a blanket endorsement of Chiang's contentions in the lawsuit. That contention was that, "There are no time limitations on the period to be covered by an audit and no limitations on the documents of a property holder than can be audited, so long as there is a possibility that the records or information will lead to the discovery of reportable property."

According to the court decision, Anico has been challenging comptroller's request for its policyholder records since June 2012.

In his lawsuit, Chiang alleged that, "ANICO's dilatory and obstructive actions have significantly impeded the Controller's audit."

The California/ANICO conflict, which obviously has attracted the attention of the entire industry, is the latest twist in a saga that became public in 2011 when John Hancock Insurance Company, Boston, settled with Chiang.

The issue now involves not only some state comptrollers, but also actions by insurance regulators in approximately 47 states that separately seek to compel life insurers to comply with unclaimed property laws.

In a statement, Chiang said the lawsuit stemmed from audits of some of the nation's top life insurers which exposed an alleged industry-wide practice of companies failing to pay death benefits to policy holders and their beneficiaries. It also found that some life insurers failed to report the accounts as unclaimed property for the rightful owner.

"While 18 among the nation's top insurers have responsibly come forward to work out settlements that fulfill their promises to policy holders and their families, ANICO resorted to obstructionism in refusing to open its books and determine whether it paid the beneficiaries of policyholders," Chiang stated.

"I appreciate the court's action to hold ANICO accountable to its customers and to force it to comply with California's nearly 55-year-old unclaimed property law in safeguarding these accounts for life insurance beneficiaries," he added.

Steven S. Rosenthal of the Washington office of Kaye Scholer, LLP, and Marc S. Cohen, of Kaye Scholer's Los Angeles office, represented Chiang.

Rosenthal declined comment on the case.

Michael E. Williams of the Los Angeles office of Quinn Emanuel Urquhart & Sullivan, represented Anico.

He said he would check with Anico's office in Galveston, as to what next step Anico would take.