Several years ago a controversy arose about whether life insurance companies were wrongly holding on to life insurance proceeds when policyholders died and no one claimed the funds. New York, among other states, looked into this issue because New York’s Abandoned Property Law, deems life insurance proceeds abandoned when the proceeds are not claimed within three years. When property is deemed abandoned, the law requires that those funds are to be paid by the life insurance company to the state comptroller. This is the concept of escheatment. The controversy resulted in statutory and regulatory changes to make sure life insurance companies were taking appropriate action to determine if a policyholder had died and whether their existed any beneficiaries rather than merely relying on a party to file a claim for policy benefits.

As a result of this controversy, certain parties brought qui tam claims against life insurance companies under various statutes claiming that the life insurance companies had made false claims to the state to avoid escheating these allegedly abandoned life insurance proceeds to the state. In a recent case, a New York intermediate appellate court reversed the dismissal of a false claim action and allowed the plaintiff to file a third amended complaint, albeit on a limited basis.

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