Is it an ice cube or an iceberg? – Only time will tell. But to be safe, captain, let’s assume it is an iceberg until we know for sure. This article is intended to increase awareness of a potential exposure – the lookout on the bridge of a ship spots a shiny object in the water and alerts the captain. It is not intended as a legal opinion – contact your legal team for more information on this topic.
The shiny object we see floating in the water is called “escheatment.” Never heard of it? Well, your third-party administrator (TPA) has. If you are involved in the casualty claim profession and are not familiar with the word and the potential exposure it poses to your company, you may want to keep reading. If you are an expert on the subject, you can stop here.
“The process of turning over unclaimed or abandoned property to a state authority.” Keep reading – it really does impact the casualty claim world.
Why it is important to understand the issues
As state budgets tighten, focus is being placed on additional revenue opportunities, and “escheatment” meets that objective. As a result, the level of enforcement is on the rise, and the potential resulting exposure from non-compliance is on the increase.
In the past, escheatment may have been viewed as a subtle and insignificant topic in the world of claim management, but this is not the case today. A deeper understanding of the applicable state laws on escheatment and the potential exposure it presents is important in the turbulent waters of today.
The foundation of escheatment dates back to the reversion of lands in English feudal law to the “lord” when there were no heirs capable of inheriting under the original grant, and the reversion of property to the crown in England or to the state in the United States when there were no legal heirs. As you can see, the concept is not new, but increased enforcement is.
How it relates to casualty claim management
An easy way to explain it in the context of casualty claims is this: money may be due to the state for uncashed checks for disability payments made to an injured party, medical service, or vendor, as examples. What complicates the issue is the scope of each state’s law is different in terms of:
- when it’s due to be paid to the state
- the amount due the state
- the amount of the potential fines when one does not adhere to state law
Just to name a few.
The basic process
An uncashed check expires due to its age and is re-issued. If the re-issued check is not cashed for a pre-determined number of days (typically 120) and expires, but later the payee makes contact, the check may be re-issued. However, at a date prescribed by state law, unclaimed money is required to be paid to the state. Thus, it is important to work closely with your TPA to attempt to locate the payee prior to the escheatment date and to monitor funds that should be paid to the state.
Can you answer these questions?
- Who is responsible for monitoring and responding to our company’s escheatment obligations?
- What does our TPA contract say about the subject?
- What is our current obligation to the state(s)?
- Is the process we have in place today capable of meeting the increased focus on compliance?
- If we switch TPAs, do we have the proper procedures in place to deal with the legacy claim payments as well as those made by the new TPA?
The above questions are focused solely on uncashed checks associated with the casualty claim process. Obviously the potential exposure a company faces due to “escheatment” extends far beyond the scope of this article. However, the underlying point is applicable to any financial instrument that poses a potential exposure due to escheatment – states are increasing their efforts to collect revenue through escheatment, and thus demand for complacence is increasing.
If we are seeing the “tip of an iceberg” and not an ice cube, then knowledge and preparation on the subject provides the insight necessary to make the appropriate course correction and avoid the potential risk posed by “escheatment.”