MANHATTAN (CN) – MetLife used a public database of death notices to stop its clients’ annuity payments, but ignored the database when it informed the insurer that it must start paying on a policy, shareholders say in a derivative class action.
MetLife exploited the Social Security Administration’s Death Master File (DMF) to withhold more than $52 million in life insurance benefits to survivors, in some cases for as long as 40 years, lead plaintiff Jack Fishbaum claims in New York County Court.
“Specifically, MetLife has consulted the DMF assiduously for those clients with annuities to enable the company to stop paying annuity payments at the time of death,” the complaint states. “For regular life insurance policies, however, MetLife ignores the DMF so that the company can avoid paying death benefits. MetLife disregarded the DMF for life insurance policies despite touting that beneficiaries would receive benefits upon the death of the insured. This practice enables Met Life to draw the value of a permanent life policy down to the final point of cancellation and continue to collect interest on unclaimed benefit cash. In such instances, MetLife also continues to be a ‘beneficiary’ of the amount with interest collected, and can, over time, allow its requirement to pay benefits at all to basically expire. Thus, MetLife has long used the DMF to promptly stop issuing annuity payments to contract holders who have died, but has ignored the same list to locate family members of deceased policyholders in order to issue payments to a life insurance beneficiary.” Fishbaum says the practice has subjected MetLife to state investigations.
“As a result of MetLife’s unfair and wrongful practices, the company is now the subject of numerous investigations by state regulators,” the complaint states. “Additionally, MetLife’s stock price has declined after it was forced to take charges to increase its reserves in connection with the use of the DMF.”
Defendants in the derivative class action include MetLife CEO and Chairman Steven A. Kandarian; former CEO and President C. Robert Henrickson; and directors Sylvia Mathews Burwell, Eduardo Castro-Wright, Cheryl W. Grise, R. Glenn Hubbard, John M. Keane, Alfred F. Kelly, James M. Kilts, Catherine R. Kinney, Hugh B. Price, David Satcher, Kenton J. Sicchitano, and Lulu C. Wang.
Fishbaum claims the directors “knew, or were reckless in not knowing that the company was wrongfully and unfairly using the SSA’s DMF to determine whether its annuity policyholders had died so that MetLife could stop making payments, but ignored the SSA’s DMF to determine whether death benefit payments were due under life insurance policies. Accordingly, the individual defendants breached their fiduciary duties to the company and have subjected the company to hundreds of millions of dollars in charges, a substantial drop in the value of the company’s stock, adverse publicity, lawsuits, potential fines, investigation costs, and other occurrences harmful to the company.”
On Feb. 2, 2010, MetLife reported “earnings of $822 million, up significantly from $277 million, largely due to strong business growth, [and] significant equity market improvements,” according to the complaint. (Brackets in complaint.)
The company’s 2009 Form 10-K, released weeks later, revealed the company’s liabilities, stating: “‘The liability for policy and contract claims generally relates to incurred but not reported death, disability, long-term care and dental claims, as well as claims that have been reported but not yet settled. The liability for these claims is based on the company’s estimated ultimate cost of settling all claims. The company derives estimates for the development of incurred but not reported claims principally from actuarial analyses of historical patterns of claims and claims development for each line of business. The methods used to determine these estimates are continually reviewed. Adjustments resulting from this continuous review process and differences between estimates and payments for claims are recognized in policyholder benefits and claims expense in the period in which the estimates are changed or payments are made,'” according to the complaint.
Fishbaum says MetLife’s press releases on April 29 and July 29, 2010 both reported positive financial results, but the Aug. 2, 2010 release mentioned that it had received a subpoena form the New York State attorney general.
MetLife denied the allegations.
“We believe that any allegations that information about the TCA [Total Control Account] is not adequately disclosed or that the accounts are fraudulent or otherwise violate state or federal laws are without merit,” the company stated, according to the complaint.
Fishbaum says that California- and Florida-based regulators probed the allegations in 2011.
California Insurance Commissioner Dave Jones and Controller John Chiang held a hearing on May 23, 2011, which found that “life insurers with access to the Social Security Administration’s ‘Death Master File’ are not using information about deaths to trigger payments to life insurance beneficiaries,” according to the complaint.
On July 5, 2011, Reuters reported that New York Attorney General Eric Schneiderman issued subpoenas to MetLife and eight other insurers, and MetLife disclosed its mounting liabilities the following month, according to the complaint.
“As a result of these disclosures, MetLife’s stock price declined 11 percent between Friday, August 5, 2011 and Monday, August 8, 2011,” the complaint states.
It calls the results of Schneiderman’s investigation damning.
“As a result of its investigation, the New York State Department of Financial Services determined that life insurers in New York – including MetLife – have been withholding more than $52 million in life insurance benefits to the survivors of deceased policy holders – in some cases for as long as 40 years,” the complaint states. “The results of the investigation revealed that at least 7,934 policies were outstanding because of the failure of insurance companies to consult the Death Master File. One such case involved a policyholder who died in 1970. Another case involved an outstanding payment of $673,485, plus interest. Benjamin Lawsky, the Superintendent for the Department of Financial Services, indicated that ‘this is just the beginning.’ Currently, an additional 950,000 policies are under review, and 27,889 new ‘old’ claims were being processed. Eventually, the amount owed to beneficiaries is expected to reach hundreds of millions of dollars. The Department claims that insurers – including MetLife – have shirked their responsibility to match policies to the official record of deaths.”
Fishbaum says the individual defendants wanted to maintain their stock options at shareholders’ expense.
A chart of the 12 defendant directors’ compensation for 2010,not including the CEO or previous CEO, show that all 12 received more than $226,000 that year.
Fishbaum seeks damages for breach of fiduciary duty, gross mismanagement, contribution and indemnification, abuse of control and waste of corporate assets.
He is represented by Elizabeth M. Gonsiorowski with Glancy Binkow & Goldberg.