State fines Binghamton life-insurance firm for rescinding policies

Columbian Mutual Life is also required to pay the beneficiaries 

 

The state is requiring the Binghamton–based Columbian Mutual Life Insurance Company to pay a fine of $257,000 and pay the beneficiaries after it “improperly” denied coverage and rescinded life-insurance policies for 257 deceased policy holders.

 

The life-insurance policies, which were marketed to low- and middle-income New Yorkers for funeral, burial, and other final expenses, totaled about $2 million, the office of Gov. Andrew Cuomo said in a news release issued Dec. 21.

 

New York State Department of Financial Services (DFS) will select an independent third-party administrator that will oversee the restitution process to “ensure that all eligible beneficiaries receive the payments to which they are entitled,” it added.

 

“Insurance companies have an obligation to cover these death benefits, and we will not hesitate to hold them to their responsibilities,” Cuomo said in the news release. “This action ensures all eligible beneficiaries receive the payments they are entitled to and sends a strong message that New York has zero tolerance for companies who seek to skirt their obligations.”

 

Insurers owe policyholders a “duty of good faith” and must comply with the terms of their contractual obligations, Maria Vullo, financial services superintendent, said in Cuomo’s release. 

 

The Central New York Business Journal sought comment from Columbian Mutual Life Insurance Company on the matter, but the company declined in an email reply.

 

Background

DFS entered into a consent order with Columbian Mutual Life Insurance Company for violations of New York Insurance Law by Columbian and Unity Mutual Life Insurance, which Columbian acquired in 2011.

 

Columbian and Unity had improperly denied coverage and “unilaterally” rescinded life-insurance policies for 257 deceased holders of policies totaling about $2 million. 

 

The policies were sold by Columbian between 2006 and 2015 and by Unity between 2006 and 2011, Cuomo’s office said. 

 

The DFS order requires Columbian to pay the death benefits and the $257,000 fine.

 

A DFS investigation found that Columbian and Unity violated New York insurance law and regulations by improperly denying coverage and rescinding policies without proving misrepresentation when policyholders died within a two-year contestable period, and by unilaterally canceling policies without a judicial determination or settlement with beneficiaries. 

 

DFS also discovered that it was Unity’s practice to close claims without payment if either a death certificate or medical records were not provided, a “violation of New York law,” according to the news release.

 

The DFS investigation found that the insurers “failed to act in good faith and engaged in unfair claims-settlement practices in a number of ways.” 

 

They included failing to refer in writing to specific policy provisions or exclusions when denying payment of claims, along with not giving beneficiaries specific reasons why they denied claims.

 

The insurers also placed policies back into an active status and allowed them to lapse for non-payment of premiums after being advised of the death of policyholders, per the state.

 

In addition, they unilaterally rescinded policies and returned premiums after the death of the policyholder without obtaining a court order or obtaining all beneficiaries’ consent to rescind after they were made aware of their rights to contest the rescission in an action.

 

Columbian rescinded 162 claims with a face value of $1,429,341 and then returned $70,477 in premiums to beneficiaries of 123 of those policies, Cuomo’s office said.

 

Under the consent order, DFS will select an independent third-party administrator to review and administer the restitution process. 

 

This will include identifying and locating beneficiaries of contestable claims that were unlawfully closed without payment. 

 

The third-party administrator will establish an email address, a website and a toll-free telephone number for affected consumers.

 

Once selected, DFS will post information regarding the third-party administrator to its website at www.dfs.ny.gov.

 

Columbian is also responsible for paying for the costs of the administrator, Cuomo’s office added.