Columbian Mutual Life Insurance Failed to Pay Death Benefits to Low- and Middle-Income Consumers
Company Ordered to Pay Beneficiaries of Deceased Policy Holders, in Addition to $257,000 Penalty
Governor Andrew M. Cuomo today announced that the New York State Department of Financial Services is taking action against Columbian Mutual Life Insurance Company after it improperly denied coverage and rescinded life insurance policies for 257 deceased policy holders. Columbian will be required to pay the beneficiaries of the policy holders, in addition to a $257,000 fine. The life insurance policies, which were marketed to low- and middle-income New Yorkers for funeral, burial and other final expenses, totaled approximately $2 million. An independent third-party administrator, selected by DFS, will oversee the restitution process to ensure that all eligible beneficiaries receive the payments to which they are entitled.
“Insurance companies have an obligation to cover these death benefits, and we will not hesitate to hold them to their responsibilities,” Governor Cuomo said. “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.”
Financial Services Superintendent Maria T. Vullo said, “Insurers owe policyholders a duty of good faith and must comply with the terms of their contractual obligations. These two insurance companies took advantage of policyholders who wanted to make sure that expenses connected to their funeral and other end of life issues were not borne by their loved ones. DFS has now ordered the company to pay the death benefits to the beneficiaries as well as a fine to the State.”
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 Columbian and Unity had improperly denied coverage and unilaterally rescinded life insurance policies for 257 deceased holders of policies with aggregate face amount totaling approximately $2 million. The policies were sold by Columbian between 2006 and 2015 and by Unity between 2006 and 2011. Pursuant to the consent order with DFS, Columbian will pay the death benefits and pay a $257,000 fine.
An investigation by DFS 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 rescinding 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, in violation of New York law.
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, including:
- Failing to refer in writing to specific policy provisions or exclusions when denying payment of claims, as well as not giving beneficiaries specific reasons that claims were denied;
- Placing policies back into an active status and allowing them to lapse for non-payment of premium after being advised of the death of policyholders;
- Unilaterally rescinding policies and returning 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.
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. Information regarding the third-party administrator will be posted to the DFS website at www.dfs.ny.gov upon selection. Columbian, which is headquartered in Binghamton, will be responsible for paying for the costs of the administrator.
The consent order can be found here.