House panel approves bill to clarify that life insurance law is retroactive

A House panel approved a bill Wednesday to clarify that a law protecting the rights of life insurance beneficiaries was meant to be retroactive so that existing policies are covered.

“This bill will not require insurance companies to pay one red cent more than their contracts require them to pay. It does, however, require them to make a concerted effort to pay what they actually owe to our constituents,” the bill’s sponsor, Rep. Chris Harris, D-Forest Hills, told the House Banking and Insurance Committee.

House Bill 408, which proceeds to the full House, would add language to the Unclaimed Life Insurance Benefits Act of 2012 to specify that it applies to all policies in Kentucky issued before and after the law took effect.

The law requires insurers to make “good faith efforts,” using public death records, to determine whether policyholders have died so their benefits can be paid to the listed beneficiaries.

Several insurance companies owned by Kemper Corp. of St. Louis sued the Kentucky Department of Insurance to block the law from being applied retroactively to more than 9,000 policies they sold going door-to-door in low-income neighborhoods.

The state prevailed in Franklin Circuit Court, but the companies won at the Kentucky Court of Appeals.

Under then-Gov. Steve Beshear, a Democrat, the state took the case to the Kentucky Supreme Court. But this month, new Republican Gov. Matt Bevin ordered state lawyers to drop the case days before the high court was set to hear oral arguments. Bevin said he agreed with the insurers.

“Basically the appeals court has ruled that what was being required, which was a retroactive application of the law, violated the law,” Bevin said two weeks ago. “And our thorough analysis of this from a legal perspective affirms that.”

Democratic Attorney General Andy Beshear, son of the former governor, has filed a motion to intervene at the Supreme Court on behalf of the citizens of Kentucky. That motion is pending.

The Unclaimed Life Insurance Benefits Act was approved by the General Assembly unanimously four years ago. However, in the wake of Bevin’s objections, a partisan split is emerging over efforts to clarify that it was meant to be retroactive.

The House committee voted 18-0 Wednesday to approve Harris’ bill, but nine Republicans abstained. Several said they have legal concerns about retroactively adding to the insurance companies’ obligations, or making insurers search for beneficiaries who might have moved from their last known address.

“How much additional work will these smaller insurance companies — how much are they expected to put into this $500 policy or $2,500 policy from 65 years ago, to find those beneficiaries that probably don’t live in the same place, probably don’t have the same address?” asked Rep. Brad Montell, R-Shelbyville.

House Speaker Greg Stumbo, D-Prestonsburg, and Rep. Sannie Overly of Paris, chairwoman of the Kentucky Democratic Party, spoke in support of the bill. They said the legislature clearly intended in 2012 for the law to apply to existing insurance policies.

“The alternative would not provide protection for consumers for years to come,” said Overly. “It is truly, truly disturbing to me as a member of this body that this governor and this insurance commissioner — who is a former life insurance executive — would withdraw their defense for the consumers of Kentucky on a case that was only days away from being argued before the Kentucky Supreme Court.”

This story was originally published February 24, 2016 at 3:14 PM with the headline "House panel approves bill to clarify that life insurance law is retroactive."