A state court judge in California has taken up a question that has confused many insurance agents and brokers over the years: What the heck is "guidance?"
San Francisco Superior Court Judge Harold Kahn wrote last week, in a ruling on a life insurance unclaimed property case, that two pieces of California unclaimed property "guidance" are really just invalid regulations.
Kahn blasted California's life insurance unclaimed property regulations in Thrivent Financial for Lutherans et al. v. Betty T. Yee, individually in her capacity as California state controller, et al. (Case Number CGC 15-548384.)
(Related: Thrivent Sued on Unclaimed Property)
Kahn granted summary judgment in favor of Thrivent, which is a Minneapolis-based life insurer, and against Betty Yee, the California controller.
The Case
In California, the controller is the official in charge of handling unclaimed life insurance death benefits and other types of unclaimed assets and dormant accounts.
The controller's office has an incentive to maximize the amount of unclaimed assets it takes in, because the state adds the money to its budget and uses the money while waiting for the owners to show up.
The California state controller's office talks, in a handbook, about how life insurers should proceed when insureds die. In a dormancy trigger section, officials talk about how long life insurers should hunt for the beneficiaries before notifying the controller's office. The office recommends, in an external database section, that life insurers should check the Social Security Death Master File and similar databases to see whether any of their insureds have died.
Thrivent sued over the handbook sections in 2015, arguing that the controller's office had adopted what amounted to harmful regulations through an informal process, without providing the kind of public comment period proposed regulations would have received.
Yee has argued in court pleadings that the handbook is an informal batch of guidance that describes best practices, not a set of regulations.
In the death dormancy trigger section in the handbook, for example, the controller's office suggests that a life insurer turn a policy over to the controller's office after three years, even if the insurer has known about the death for less than three years.
In a pleading filed June 25, Yee argued that the death dormancy trigger is simply her office's interpretation of what Section 1515(a) of the state unclaimed property law, means not a regulation.
The interpretation is not a regulation for two reasons, Yee said:
1. The controller's office has not applied it generally.
2. Even if the interpretation were applied generally, it's the only legally tenable construction of Section 1515(a) of the unclaimed property law.
Yee made a similar argument about the nature of the external database section.
Kahn's Ruling
In the new ruling, Kahn says Yee's reasoning lacks merit.
The regulations are rules of 'general application,' because they require the insurer to check outside databases in some cases, and, in some cases, they require an insurer to report a policy to the controller's office less than three years after learning about the insured's death, the judge writes.
