On December 21, 2016, the New York State Department of Financial Services (DFS) ordered Columbian Mutual Life Insurance Company (Binghamton, NY), a small company, to pay death benefits to the beneficiaries of 257 deceased policyholders, and to pay a fine of $257,000. According to the consent order, Columbian wrongly denied coverage and rescinded policies.
Columbian and Unity
Columbian began operations as a charitable and benevolent association in 1883, became a mutual life insurance company in 1952, and acquired Unity Mutual Life Insurance Company (Syracuse, NY), a small company, in 2011. Columbian is licensed in all states, but the bulk of its business is sold in New York and New Jersey.
The Investigation
After a routine examination, DFS began an investigation of Columbian's and Unity's contestable claims practices from 2006 through 2015. During that period, Columbian, using simplified issue with limited underwriting, sold small face amount policies to low- and middle-income consumers to cover funeral and other final expenses. From 2006 through 2011, Unity sold similar policies with limited underwriting.
DFS found that Columbian and Unity, without proving policyholders had made material misrepresentations in applications, wrongfully denied coverage and unilaterally rescinded policies when policyholders died within the two-year contestability period. Here are the six paragraphs under the heading "New York contestable claims" in the consent order:
Columbian agreed to select an independent third party administrator to oversee the restitution process. Columbian also agreed to pay the face amount, plus interest from the date of death to the date of payment, on each policy that had been closed without payment or had been unilaterally rescinded, unless the administrator determines that the insured made a material misrepresentation in the application. Columbian also agreed to pay a fine of $257,000, or $1,000 for each of 257 policies.
General Observations
This is a strange case. I do not recall having heard of companies brushing off small death claims or rescinding small policies where deaths occurred during the contestability period. Limited underwriting might include one or two general health questions, but I believe that, in many such cases, it would be difficult to mount a successful challenge based on the answers to such questions.
DFS has not yet made public the report of the routine examination that prompted the investigation of contestable claims. It is my understanding that the report may not be made public for some time. When I see the report, and if it contains any further information I consider significant, I will post a follow-up.
Available Material
I am offering a complimentary 21-page PDF containing the DFS press release (2 pages) and the DFS consent order directed at Columbian (19 pages). Email jmbelth@gmail.com and ask for the January 2017 package relating to Columbian.
Columbian and Unity
Columbian began operations as a charitable and benevolent association in 1883, became a mutual life insurance company in 1952, and acquired Unity Mutual Life Insurance Company (Syracuse, NY), a small company, in 2011. Columbian is licensed in all states, but the bulk of its business is sold in New York and New Jersey.
The Investigation
After a routine examination, DFS began an investigation of Columbian's and Unity's contestable claims practices from 2006 through 2015. During that period, Columbian, using simplified issue with limited underwriting, sold small face amount policies to low- and middle-income consumers to cover funeral and other final expenses. From 2006 through 2011, Unity sold similar policies with limited underwriting.
DFS found that Columbian and Unity, without proving policyholders had made material misrepresentations in applications, wrongfully denied coverage and unilaterally rescinded policies when policyholders died within the two-year contestability period. Here are the six paragraphs under the heading "New York contestable claims" in the consent order:
23. During the Relevant Period, Unity had 60 contestable claims with a face amount of $361,962 in New York State in which the claims were closed without payment or remained pending because Unity did not receive a death certificate or medical records. In 2010 and 2011, Unity returned $1,872 in premiums to beneficiaries for 6 of these contestable claims.
24. Starting in 2010, Unity also unilaterally rescinded 35 contestable claims with a face amount totaling $300,620 based on alleged material misrepresentations. During the Relevant Period, Unity returned $25,465 in premiums to beneficiaries for these claims.
25. During the Relevant Period, Columbian had 123 contestable claims in New York State with a face value totaling $1,106,642 where Columbian closed claims or unilaterally rescinded policies because it did not receive a death certificate or medical records.
26. Columbian also unilaterally rescinded 39 contestable claims with a face amount of $322,699 based on alleged material misrepresentation.
27. During the Relevant Period, Columbian paid $70,447 in returned premiums to claimants in connection with 123 of the 162 contestable claims that it rescinded.
28. The face amount of Unity's and Columbian's 257 contestable claims is $2,091,923.Restitution and Fine
Columbian agreed to select an independent third party administrator to oversee the restitution process. Columbian also agreed to pay the face amount, plus interest from the date of death to the date of payment, on each policy that had been closed without payment or had been unilaterally rescinded, unless the administrator determines that the insured made a material misrepresentation in the application. Columbian also agreed to pay a fine of $257,000, or $1,000 for each of 257 policies.
General Observations
This is a strange case. I do not recall having heard of companies brushing off small death claims or rescinding small policies where deaths occurred during the contestability period. Limited underwriting might include one or two general health questions, but I believe that, in many such cases, it would be difficult to mount a successful challenge based on the answers to such questions.
DFS has not yet made public the report of the routine examination that prompted the investigation of contestable claims. It is my understanding that the report may not be made public for some time. When I see the report, and if it contains any further information I consider significant, I will post a follow-up.
Available Material
I am offering a complimentary 21-page PDF containing the DFS press release (2 pages) and the DFS consent order directed at Columbian (19 pages). Email jmbelth@gmail.com and ask for the January 2017 package relating to Columbian.
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Email: jmbelth@gmail.com
Blog: www.josephmbelth.com