Our Unclaimed Property team has counseled Fortune 500 companies and other complex entities, including insurers, major retailers, oil and gas companies and manufacturers, on a 50-state unclaimed property compliance strategy. We have experience defending, negotiating and resolving dozens of multi-state unclaimed property audits by the states’ third party auditors, the filing of voluntary disclosure agreements to resolve all past due unclaimed property liability, litigating particular legal issues surrounding states’ attempts to audit the company, advising companies on implementing proactive unclaimed property policies and procedures to address unclaimed property reporting on a going forward basis and a range of related matters.
We have counseled clients in the following industries:
The single biggest issue currently confronting life insurance companies is whether insurers were legally obligated to check the Death Master File (DMF) to determine when life benefits were allegedly due and payable to a beneficiary, so as to trigger the dormancy period for purposes of reporting unclaimed property. What started as inquiries by various states several years ago has evolved into third-party audits and even state-initiated litigation filed against insurers.
We have counseled numerous stock and mutual life insurers with respect to unclaimed property audits conducted by Verus Financial and Kelmar Associates. Currently, most of our representations have focused on defending multi-state, two-phase Kelmar audits of life insurance companies. To date, that has included negotiating non-disclosure agreements with Kelmar, assistance with responding to document requests, and general counseling on audit defense strategies.
We have represented life insurers in civil litigation arising out of the so-called asymmetrical use of the DMF, including current representation of a number of stock and mutual life insurance companies defending a lawsuit recently filed by the West Virginia state treasurer, seeking in part to audit companies for past due unclaimed property liability, based on putative asymmetrical use of the DMF.
Our team has counseled numerous life insurance companies on a multitude of unclaimed property regulatory issues, including inquiries from New York, Minnesota, Maryland, and other states, as well as counseling on unclaimed property triggers, the calculation of interest and participation in voluntary compliance programs.
Property and Casualty Insurance
We have advised property and casualty insurers and certain affiliated entities in connection with unclaimed property issues, including the appropriate treatment of amounts held in connection with uncashed checks for return premium or claim payments. We have analyzed which state unclaimed property laws might apply, what those laws require, and what events trigger reporting and payment obligations. We have also advised clients on reporting strategies and procedures, and any available voluntary disclosure programs.
Regulatory compliance goes hand and hand with unclaimed property law compliance. Our team has advised property and casualty insurers and their affiliates in connection with appropriate procedures and internal audits to ensure financial reporting systems accurately account for unclaimed property, and to avoid statutory financial examination issues prior to the receipt of an audit notice.
For most retailers, the historic treatment of unclaimed gift cards poses a substantial risk of exposure. Our team has defended multi-state third party auditor-led general ledger examinations of major retailers. Our advocacy resulted in the reduction of our clients’ unclaimed property exposure by millions of dollars from the preliminary assessment of liability provided by the state.
Our team has counseled several major retailers on strategies to manage this potential exposure on a historic and going forward basis – including the creation of a gift card holding company. In one instance, how gift card liability was ultimately treated was a “bet the company” issue, and members of our team provided a detailed analysis to address a year-end financial audit that ultimately led to the client’s auditor concluding that the company only had a minimal contingent liability with respect to its historic gift card liability.
Oil and Gas
Members of our team have represented Fortune 100 oil & gas companies in a multi-state examination. Key issues in such an examination include unclaimed royalty payments and wholly foreign transactions.
Because Delaware is the corporate home of more than 60 percent of the Fortune 500, unaddressed, unclaimed intangible property, such as gift cards and uncashed checks, must be remitted to Delaware after the dormancy period has run under the second priority rule established by the seminal U.S. Supreme Court case, Texas v. New Jersey, 379 U.S. 674 (1965). As a result, Delaware receives a disproportionate amount of revenue from companies complying with their legal obligations under Delaware’s unclaimed property/escheat law and Delaware is considered a leading state for unclaimed property law.
In June 2012, Delaware created a three year Voluntary Disclosure Program in order to increase the number of annual unclaimed property compliance filings, and decrease the number of audits. The state issued a nationwide Request for Proposal for a law firm or accounting firm to administer this program.
Based on our experience in this area, coupled with the state’s desire to have Drinker Biddle’s nationwide name recognition and resources backing the new program, the firm was selected and currently administers Delaware’s Voluntary Disclosure Program.