The Office of General Counsel issued the following opinion on September 20, 2007, representing the position of the New York State Insurance Department.
RE: Interest computed pursuant to § 3214 on unclaimed life insurance proceeds
Is interest computed pursuant to Insurance Law § 3214 on unclaimed life insurance proceeds that were turned over to the state considered part of the abandoned property?
Yes. Interest computed pursuant to Insurance Law § 3214 on unpaid life insurance proceeds is considered part of the abandoned property. In accordance with N.Y. Abandoned Property Law § 700, the accrued interest is included as to what is payable to the beneficiaries.
The inquirer reports that his company held a life insurance policy on its owner, who passed away in 1998. The policy was issued through a life insurance company. A partial payment was made within a year of the death, but for unknown reasons, the balance in the amount of $351,000 was never claimed by the inquirer’s company as the beneficiary.
In September 2005, the life insurance company turned over the money to the State of New York as unclaimed funds, with no interest having been paid on or added to the $351,000 sum. The inquirer asserts that shortly after this turnover occurred, the inquirer’s company discovered these unclaimed proceeds and is now trying to recover these funds. The inquirer contends that interest should have been added to the amount turned over to the state, while the life insurance company is taking the position that the amount was transferred to the state as unclaimed funds and did not go to a beneficiary, and for that reason, there is no requirement for interest to be paid.
Insurance Law § 3214(c) governs the payment of interest on the proceeds of life insurance policies and annuity contracts where no action has been commenced. It provides, in relevant part, that where no action has been commenced, interest must be computed daily at the rate of interest that the insurer pays under the interest settlement option from the date of death of the insured to the date of payment. The statute reads as follows:
(c) If no action has been commenced, interest upon the principal sum paid to the beneficiary or policyholder shall be computed daily at the rate of interest currently paid by the insurer on proceeds left under the interest settlement option, from the date of the death of an insured or annuitant in connection with a death claim on such a policy of life insurance or contract of annuity and from the date of maturity of an endowment contract to the date of payment and shall be added to and be a part of the total sum paid.
In Metropolitan Life Insurance Co. v. Office of the State Comptroller, 120 A.D. 2d 140, 508 N.Y.S.2d 307 (3d Dept.1986), a case construing the interplay between Insurance Law § 3214 and Abandoned Property Law § 700, the court held that the State Comptroller was correct in deeming interest, computed pursuant to Insurance Law § 3214 on unpaid proceeds of life insurance policies, to be part of the abandoned property that should have been turned over to the State.
Accordingly, as Metropolitan Life Insurance Co. illustrates, interest computed pursuant to Insurance Law § 3214 on unpaid life insurance proceeds is considered part of the abandoned property that beneficiaries may seek to reclaim.
For further information you may contact Principal Attorney Alan Rachlin at the New York City Office