Lawsuit seeks millions from insurers in policy claims

Whistleblower suit targets MetLife and Prudential for allegedly failing to pay death benefits on nearly 600 Minnesotans' policies.

A whistleblower lawsuit accuses two life insurance giants of failing to pay benefits on the life insurance policies of nearly 600 Minnesota policyholders who died.

The lawsuit, filed last year in federal district court on behalf of Minnesota, was unsealed Thursday and seeks $230 million in damages. It targets MetLife Inc. and Prudential Financial Inc., claiming the companies violated the state's False Claim Act.

The action is one of several similar whistleblower lawsuits filed in different states by Total Asset Recovery Services, a small, privately held investigative company in Auburn Hills, Mich.

"The magnitude of the life insurance fraud committed on the states is in the billions of dollars," said Jeffrey Sloman, a lawyer for Total Asset Recovery Services, and a former U.S. attorney for the Southern District of Florida. "Nationally, the numbers are mind-boggling."

On a parallel track, the Minnesota attorney general and the state's Department of Commerce are jointly investigating how 40 major life insurance companies operate, as scrutiny intensifies over how the firms handle unclaimed death benefits.

MetLife spokeswoman Jessica Ong said the Minnesota lawsuit is without merit. "The figures in the complaint are based on unreliable assumptions and wildly overstated insurance amounts," she said, declining to discuss the case further.

Prudential said it can't discuss the lawsuit, but said it's cooperating with Minnesota officials on their investigation.

"We're actively working with Minnesota on that inquiry," said Prudential spokesman Bob DeFillippo. "We make a best effort to find people who may have died."

Whistleblower lawsuits are filed under seal in order to give the government the opportunity to intervene. In the Minnesota case, the lawsuit was unsealed after the state attorney general's office declined to intervene, Sloman said.

A spokesman for Attorney General Lori Swanson confirmed that the office decided not to participate in the lawsuit at this time. "This does not preclude an intervention ... at a later date," spokesman Ben Wogsland said.

Commerce Commissioner Mike Rothman said the state is "already looking into it ourselves for our own consumers."

Rothman said state officials are concerned that insurers are selectively using the Social Security Death Master File database to stop paying on annuity policies when a policyholder dies, but not to pay out benefits due from the person's life insurance policies -- or turn over unclaimed benefits to the state as required.

Since the state investigation started last year, some insurers have been contacting families "out of the blue" and paying on unclaimed policies, a Commerce Department spokesman said.

Scores of other states have similar examinations underway. Earlier this year, Prudential entered into two multi-million-dollar, multistate settlements over related issues, led by California and Florida.

In Minnesota, life insurance companies are required to notify the state Department of Commerce when the benefits from a deceased policyholder's life insurance policy sit unclaimed for three or more years. The insurer is supposed to turn the benefits over to the state's unclaimed property unit, which is supposed to locate beneficiaries and pay the money.

According to the lawsuit, Prudential and MetLife didn't do that in Minnesota for all their policyholders who died between Sept. 31, 1986, and Sept. 31, 2009, resulting in about 584 unclaimed policies when the companies "knew or should have known the policy holders were deceased."

The average life insurance policy in Minnesota is $130,000, according to the lawsuit. With penalties and tripled damages, the total damages are estimated at $230 million.

In an interview, Total Asset Recovery Services said it anticipates discovering many more than 584 unclaimed policies.

"We have reason to believe the 584 is just the tip of the iceberg," said Sloman, the company's lawyer.

The company is seeking between 15 and 25 percent of the proceeds of the lawsuit or any settlement that ends it.

Bruce Ferguson, an executive with the trade group American Council of Life Insurers, said in an interview that he wasn't familiar with the Minnesota lawsuit. But he was critical of the wave of national settlements and examinations underway, calling them "regulation by settlement agreement."

"The issue really is, OK, what should company obligations be in 2012 with respect to uses of databases to determine if individuals are deceased and benefits are payable in the absence of a claim," Ferguson said. "That's the essence of the issue."

Jennifer Bjorhus • 612-673-4683

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