State treasurer, 3 insurance companies duel over audits

By Mark Fitton
Illinois News Network

SPRINGFIELD — Three insurance companies are suing state Treasurer Michael Frerichs over his request to audit their records to make sure death benefits have been paid out.

Frerichs said his office wants to identify life insurance policies belonging to people who have died but who have not had their insurance benefits paid out to rightful beneficiaries.

Frerichs, D-Champaign, said those audits predate his taking the treasurer’s office in January 2015, and most insurance companies have complied with the audit requests.

Since 2013, the audits have identified more than $195 million in previously unpaid life insurance benefits and annuities, the treasurer said.

“We will defend ourselves,” Frerichs said after an appearance in Springfield on Monday.

“I’m not quite sure why they are doing this, but we have requested to audit their books to make sure that consumers in the state of Illinois have their wishes complied with. And rather than talking with us, rather than sitting down, they filed a lawsuit. We can only assume their reasons.”

Essentially, he said, “this company has maintained they don’t have to pay out until someone comes to them with proof of death.”

Frerichs said he’s doing his job, one aspect of which is making sure unclaimed property — including life insurance proceeds — gets turned over to rightful owners or heirs.

And time matters, the treasurer said.

“Not only does allowing decades to pass following a death needlessly harm the policyholder’s beneficiaries or heirs, but it also drastically reduces the possibility of finding those beneficiaries,” Frerichs said in a news release.

Suing are United Insurance Co. of America, Reserve National Insurance Co. and The Reliable Insurance Co., which are part of the Kemper Corp. family of companies.

In the lawsuit filed Oct. 26 in Sangamon County Circuit Court (Case No. 2015 MR 998), the company, among other things, argues the treasurer and hired auditors Verus Financial LLC are overstepping their legal authority. The insurance companies contend:

  • No law supports the audits as they stand and that any requirement the companies submit to them contradicts the state’s Unclaimed Property Act.
  • The auditors demands cannot be squared with Illinois Insurance Code, nor the companies’ policies with the people insured.
  • The current audits exceed constitutional limits on the treasurer’s authority as a state regulator and violates the Illinois Department of Insurance’s exclusive authority.
  • The audit requirements were drawn without regard to rulemaking requirements of the Illinois Administrative Act.

“Kemper believes it is in full compliance with Illinois law regarding both unclaimed property as well as the payment of life insurance benefits,” Kemper’s media relations office said in an emailed response to an Illinois News Network request for comment.

“The audit in question has been underway for four years. We’ve already produced thousands of documents, and our issue is with the scope of the audit that is beyond the reach of the law and the treasurer’s authority,” the company said.

Kemper said it has paid valid insurance claims for nearly a century according to the terms of its policies and state law and is “ready and willing to complete the audit to the extent it is conducted within the confines of Illinois law.”

Frerichs said he would ask Illinois Attorney General Lisa Madigan to represent his office.

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