2013 In Review: Legislative and Regulatory Recap. UPPO Presentation Disclaimer

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1 2013 In Review: Legislative and Regulatory Recap Mark A. Paolillo Ryan LLC Principal and Practice Leader, Abandoned and Unclaimed Property Karen Anderson UPPO President UPPO Presentation Disclaimer Use of the Unclaimed Property Professionals Organization, Inc., (UPPO) name or copyrighted materials in this presentation does not constitute an endorsement by UPPO of a member, vendor, product or service. The content represents the opinions of the author and not necessarily those of UPPO. This information is not intended as legal advice and should not be used to replace the advice of legal counsel. UPPO Antitrust UPPO has a policy of strict compliance with federal antitrust laws. UPPO members and/or meeting attendees cannot come to understandings, make agreements, or otherwise concur on positions or activities that in any way tend to raise, lower or stabilize prices or fees. Members and/or attendees can discuss pricing models, methods, systems, and applications, as well as certain cost matters that do not lead to an agreement or consensus on prices or fees to be charged. However, there can be no discussion as to what constitutes a reasonable, fair or appropriate price or fee to charge for any service or product. Information may be presented with regard to historical pricing activities so long as such information is general in nature and does not include data on current prices or fees being charged in any trade area. Any discussion of current or future prices, fees, discounting, and other terms and conditions of sale, which may lead to an agreement or consensus on prices or fees to be charged, is strictly prohibited. 1

2 CPE Credit CPE credit is available at this conference. However, NASBArules require proof you attended the sessions. For UPPO to provide verification of attendance, you MUSTbe scanned in ANDout of each session to be eligible to receive credit(s). Please see the room monitor(s) at the back of room to have your name badge scanned. Case Law Developments Other New Developments 2013 in Review Case Law Developments 2

3 State of West Virginia Insurance Case WV State Treasurer filed 69 lawsuits from 9/30/12 to 12/28/12 against life ins. companies doing business in the State of WV Plaintiff sought injunctive relief, penalties, interest and attorneys fees for alleged failure of Defendants to comply with West Virginia Unclaimed Property Act ( UPA ) Plaintiff alleged Defendants had affirmative duty under WV law to search SSA Death Master File ( DMF ) Plaintiff also alleged policyholder death triggered running of dormancy period State of West Virginia Insurance Case (cont d) Circuit Court, Putnam County, WV, issued Order on 12/17/13 granting Defendants Motions to Dismiss, and dismissed lawsuits with prejudice Court ruled WV Insurance Code and UPA must be read together; Insurance Code conditions an insurer s liability upon a presentation of a claim ; Court ruled only two statutory triggers for dormancy period for life ins. are receipt of due proof of death and limiting age Court found it significant that other courts interpreting provisions similar to UPA have held that insurers lack any obligation to search the DMF Feingold et al. v. John Hancock Life Ins. Co. et al. Plaintiff sued in USDC, Dist. Of Mass., alleging breach of various state consumer protection laws, breach of fiduciary duty, and other claims Plaintiff alleged Defendants had duty of good faith and fair dealing to use SSA Death Master File ( DMF ) Court stated that under insurance law, proof of death must be provided to ins. co. before obligation to pay arises Court granted Defendants Motion to Dismiss, and stated that requiring beneficiary to furnish proof of death before payment comports with both Mass. and Illinois law Court ruled Defendants had not violated duty of good faith and fair dealing by failing to use DMF 3

4 Promotional Marketing Insights, Inc. v. ACS, Inc. (USDC, Dist. of Minn.) Plaintiff alleged Defendant failed to provide accounting and to pay certain commissions owed in connection with fees paid to ACS by states resulting from recovery of funds on rebate unclaimed property audits that ACS had performed Plaintiff allegedly identified prospective rebate audit candidates to Defendant; Plaintiff sought to recover damages, attorneys fees, etc. Court ruled that amount of fees paid to ACS by the states was relevant to the disputed issues in the suit, and allowed subpoenas ducestecumto be served on authorities in: CA, DE, FL, IA, MA, MN, NJ, and WA; indicated subpoenas could later be served on additional states if necessary American Express v. Hollenbach AmExchallenged 2008 amendment to Kentucky unclaimed property law reducing dormancy period for travelers checks from 15 to 7 years; in 2009 U.S. Dist. Ct. ruled amendments unconstitutional violated substantive due process 2011: 6th Cir. overturned: raising revenue is legitimate state purpose under Due Process; remanded re other constitutional claims Sept. 12, 2012: District Court denies AmEx s remaining claims Sept. 17, 2013: 6th Circuit Court of Appeals affirmed District Court s decision; however, did rule that 2008 amendment only applies prospectively, as AmExhad contended, and not retroactively, as Kentucky had contended Select Medical Corp. v. Cook et al. (USDC Delaware) Plaintiff sued Delaware Sect. of Finance, Dir. Of Rev., and State Escheatorin U.S. District Court ( USDC ) on 4/17/13, seeking injunctive relief to prevent Defendants from enforcing a 3/4/13 Request for Payment of some $300,000 arising from a UP audit Plaintiff alleged numerous violations of Constitutional law, improper use of estimation provisions, and other claims On 11/7/13, Defendants filed Motion to Dismiss, indicating that they had received sufficient information from Plaintiff subsequent to the 3/4/13 Request for Payment such that no estimation was needed; DE agreed to withdraw the 3/4/13 Request for Payment All parties filed a Stipulation of Dismissal with Prejudice with Court on Jan ; USDC approved settlement on 1/23/14 4

5 Thrivent Financial for Lutherans v. Chiang et al. Plaintiff filed suit in San Francisco County Superior Court on 10/30/13 against Mr. Chiang and CA State Controller s Office Plaintiff sought injunctive relief to prevent Kelmar audit that Plaintiff alleged was overly broad and contrary to Due Process limitations; Plaintiff also sought declaration of its rights Plaintiff objects to statement in CA Sept Holder Handbook to effect that life ins. policy is payable upon death, regardless of whether claim has been made; Plaintiff further objected to fact CA would not provide written guidance as to what legal standard applies to trigger running of dormancy period for life ins. policy Defendants filed suit on 11/4/13 against Thrivent, seeking injunctive relief to prevent alleged violations of CA s UP Law California Announces Settlement with Eleven Insurance Companies CA Controller issued Press Release dated 6/7/13 which stated settlement was reached with eleven large ins. companies Release stated collectively the settlements worth up to $763 nationwide, with up to $86.7 million going to CA Release indicated companies are to cooperate with efforts of Controller to reunite death benefits with owners or heirs; beneficiaries to be paid 3% compounded interest on value of amounts from 1995, or from date of death, whichever is later Release also stated Controller reached global settlements with 18 life ins. companies, with aggregate value of $266.7 million belonging to CA beneficiaries, and estimated $2.4 billion nationally Staples, Inc. v. Thomas Cook, Sect. of Finance for Delaware, et al. (Delaware State Court) Staples had challenged various actions of state arising under audit Staples had argued rebates were not a covered property type under DE law, but state court had ruled they were covered Arguments raised that shorter statute of limitations under DE UCC law governed over state UP law Settlement of case reported in 2013 Major wire service reported Staples had paid $8.9 million to settle the case 5

6 Alabama H.B. 112 (Effective 7/1/2013) -Many changes including the following: Requires reports to be filed electronically, and the funds to be remitted electronically. Requires separate reports for tangible and intangible property, and that reports be verified and balanced before submitted to the state. Permits the state to set an aggregate reporting amount (now $50) by rule. Eliminates the requirement for holders to include former names and addresses of previous owners and/or holders. Changes the time frame for due diligence to not less than 60 days before filling the report from not less than 60 but no more that 120 days before filing the report. Permits the state to increase the due diligence minimum (now $50) by rule. Indiana S.B. 222 (effective 7/1/2013) Reduced dormancy period for property held in safe deposit box from 5 to 3 years. Requires electronic reporting as specified by the IN attorney general and payment or delivery of property in the manner specified by the IN attorney general. Authorizes the attorney general to deduct from the proceeds paid to the owner, the costs of selling the property (including tangible property and securities) or the costs of identifying or recovering the property (including the costs of examination or the costs incurred in connection with an interstate agreement). California A.B (effective 1/1/14) Permits only an owner to file a claim with Controller to recover UP; Bill amends Sec of CA UPL to define owner, for purposes of filing UP claim, primarily as person who had legal right to property prior to its escheat, his or her heirs or estate representative 6

7 California A.B. 212 (effective 7/1/14) -reduces the aggregate limit from $50 to $25, effective 7/1/14, except for traveler s checks and money orders Illinois S.B (effective 8/16/13) reduces aggregate reporting threshold to $5 from $25 Colorado H.B (signed by Governor on 3/15/13, effective immediately) - Clarifies that gift cards (GCs) are covered property type under Colo. UP law Exempts GCs where holder or issuer is a business association that has annual gross receipts from sale or issuance of all GCs totaling $200,000 or less Act applies to any unresolved claims by the State Treasurer against any business for payment related to unclaimed GCs as of effective date of the Act Florida S.B. 492 (signed by Governor on 6/14/13, effective 10/1/13) - Creates new section in Florida UP law for property held by fiduciaries under trust instruments Generally provides that such property is presumed abandoned two years after it becomes payable or distributable, unless owner-generated activity occurs with respect to the property Florida officials have indicated that the property code TR10 should be used in reporting this property Louisiana H.B. 348 (8/25/2013) Statute of Limitations: Prohibits the state administrator from bringing any action against an FDIC insured financial institution for violation of the UP law that occurred more than 6 years prior to the most recently completed auditable period which ends on June 30 th each year. Record Retention: Limits the record retention requirements for a FDIC insured financial institution by requiring them to: 1) maintain reports filed for 6 years after the report filing date, and 2) maintain their records containing the info required to be in the report until the holder files the report and for 6 years after the filing date. North Carolina H.B. 257 (signed by Governor on 7/18/13 Act effective immediately) eliminated (i) fee for extension request for annual report, and (ii) requirement to file affidavit with annual report; holders now file a certification and verification that holder has complied with G.S. Sec. 116B-59, i.e., the due diligence provision of the UP law. 7

8 Michigan H.B (signed by Governor on 10/29/13; effective on 91st day following final adjournment of 2013 MI legislature) 1) Audit Report -Requires that an entity which has undergone a UP audit must receive complete copy of audit report which identifies work performed, property types reviewed, any estimation techniques employed, and copies of all correspondence and documentation which formed a basis for the findings. 2) Rulemaking on Audit Standards -Within six months after Act effective date, administrator must file request for rule-making on auditing standards. 3) No Audit Estimation If: If substantially accurate records are maintained, then examination may not be based on an estimate. DMF Match-Related Alabama H.B. 192 (signed by Governor on 5/8/13; see effective date below) - Changes the life insurance death master file matching requirements enacted in 2012 (HB 126 Eff. 1/1/2014) by limiting the matching requirements to life insurance policies, annuity contracts, and retained asset accounts issued and delivered in Alabama, and which are issued or entered into on or after January 1, Requires the first of such matches to be completed by 1/1/2019 and then performed every 3 years thereafter. MD S.B. 77 (effective 10/1/2013): Requires DMF comparisons semiannually on in-force policies and retained asset accounts and if benefits due, locate and notify beneficiaries. MT S.B. 34 (effective 1/1/2014): Requires DMF comparisons semiannually on in-force policies, annuity contracts, and retained asset accounts and if benefits due, locate and notify beneficiaries. DMF Match-Related ND H.B (effective 8/1/2013): Requires life insurers to perform DMF matches before 11/1/14 and then, semiannually on in-force policies and retained asset accounts and if benefits due, locate and notify beneficiaries. Reduces the dormancy period from 3 years to 1 year for funds held or owing under a life or endowment insurance policy that matured or terminated. NM S.B. 312 (effective 7/1/2013): Requires semiannual matches of in-force policies and retained asset accounts against the DMF and if benefits due, locate and notify beneficiaries. NV A.B. 226 (effective 7/1/2014): Requires that at least semiannually, a life insurer shall compare its in-force life insurance policies, annuities, benefit contracts and retained-asset accounts against a death master file & if benefits due, locate and notify beneficiaries. VT HB 95 (effective 7/1/2013): Requires semiannual DMF comparisons on in-force policies, annuity contracts, and retained asset accounts and if benefits due, locate and pay beneficiaries. Applies to all in-force life insurance policies, annuity contracts, and retained asset accounts in force on or after 7/1/

9 Other New Developments Other New Developments Delaware Sect. of State VDA Program: i. eligible companies may continue to enroll through 6/30/14; program currently set to expire on 6/30/15; if enrolled by 6/30/14, review look-back period limited to 1993 (as opposed to audit look-back to 1981) ii. H.B. 2 expands SOS VDA program by allowing holder that had previously entered into State EscheatorVDA on or before 6/30/12 to enter into new VDA with SOS, with respect to entity not included in earlier VDA, or with respect to property types/periods not in prior VDA Securities audits and life ins. company audits continue to proliferate Other New Developments Consumer Financial Protection Bureau (CFPB) CFPB is federal agency charged with primary responsibility for regulating consumer protection for financial products and services On 4/19/13, CFPB issued Notice of Preemption Determination regarding whether certain provisions, relating to unredeemed GCs, of the Maine UP Act and the Tennessee UP Act are pre-empted by the Federal CARD Act and the EFTA. The CFPB ruled that the Maine law was NOT pre-empted but that the Tennessee law WAS pre-empted. The CFPB s rationale for preempting the Tennessee law was that the business ( holder ) is not required by this law to honor a gift card after it is presumed abandoned (unlike the Maine statute) and as the Tennessee law has a 2 year dormancy period the CFRB indicated that the law had the effect of making gift cards expire earlier than the five years required by the EFTA and CARD Act. 9

10 Other New Developments Nat. Conf. of Ins. Legislators ( NCOIL )has adopted Model Life Ins. Benefits Act in November, Such act contains requirement that insurers periodically compare insuredsunder their in-force life insurance policies against DMF Order in recent WV case noted that some states have enacted a version of the NCOIL Model Act or have enacted their own DMF legislation, citing AL, KY, MD, NV, NY, ND, VT, NM, and MT in this category; bills proposing legislation of this type have also been introduced in several states this year (i.e., IA, IN, GA, MS, OK, PA, RI and TN) Other New Developments Uniform Law Commission Update of Uniform Unclaimed Property Act (UUPA) ULC Release dated 7/16/13 indicated ULC Exec. Comm. appointed a Drafting Committee to revise the UUPA UUPA last revised in 1995; Drafting Comm. presumably will take into account regulatory and technological changes since 1995, as well as emergence of new property types not discussed in 1995 version of UUPA Amer. Bar Assn. Committee also is providing input to ULC First drafting committee meeting was held on 2/ In Review: Q & A Mark Paolillo Principal & Practice Leader, Abandoned and Unclaimed Property Ryan LLC (857) mark.paolillo@ryan.com Karen Anderson Senior Vice President UPRR, LLC (317) kanderson@uprrinc.com 10