Unum 2011 Annual Report Download - page 162

Notes To Consolidated Financial Statements
Unum 2011 Annual Report
160
payment under Maine’s late payment statute, requiring us to pay interest on the undrawn retained asset account funds at an annual rate of
18 percent. On February 3, 2012, the District Court issued an opinion rejecting both of plaintiffs’ principal theories and ordering judgment for
us. At the same time, however, the District Court held that we breached a fiduciary duty to the beneficiaries by failing to pay rates
comparable to the best rates available in the market for demand deposits. The District Court also certified a class of people who, during a
certain period of time, were beneficiaries under certain group life insurance contracts that were part of ERISA employee welfare benefit
plans and were paid death benefits using retained asset accounts. The District Court authorized the parties to make an immediate appeal of
its decision to the First Circuit Court of Appeals, and we plan to do so.
In March 2011, we received a request for information from an independent third party as part of an examination on behalf of 26 states
and the District of Columbia to evaluate our compliance with the unclaimed property laws of the participating states. Industry-wide
practices are currently under review concerning the identification and handling of unclaimed property by insurers, and numerous other
insurers are under similar examination. We are cooperating fully with this examination.
In July 2011, the New York State Insurance Department, now known as the New York State Department of Financial Services, issued
a special request to approximately 160 insurers, including Unum Group’s New York licensed insurance subsidiaries, which requires the
insurers to cross-check their life insurance policies, annuity contracts, and retained asset accounts with the latest version of the Social
Security Master Death Index to identify any matches. Insurers are also requested to investigate the matches to determine if death benefits
are due, to locate the beneficiaries, and to make payments where appropriate. We are cooperating fully with this request. We accrued an
estimated loss contingency in the fourth quarter of 2011, the amount of which was immaterial to our consolidated financial position and
results of operations.
It is possible other state jurisdictions may pursue similar investigations or inquiries or issue directives similar to the New York State
Department of Financial Services’ letter. It is possible that the audits and related activity may result in additional payments to beneficiaries,
the payment of abandoned funds under state law, and/or administrative penalties. We are currently unable to estimate the reasonably
possible amount of any additional payments.
In 2009, a Pennsylvania-based insurance company and its affiliates were ordered into rehabilitation, and the Pennsylvania Insurance
Commissioner, who was appointed as the Rehabilitator, filed petitions for liquidation with the Commonwealth Court of Pennsylvania. Under
Pennsylvania legislation, payment of covered claims and other related insurance obligations are provided, within prescribed limits, by state
guaranty funds. These guaranty funds assess fees on insurance companies that sell insurance within the state, which are generally based
on a company’s pro rata portion of premiums written or received prior to the insolvency. Under Pennsylvania statutes, an insurer is declared
insolvent only after it is placed under an order of liquidation by a court of competent jurisdiction with a finding for insolvency. If and when
the formal order of liquidation is issued, we would then be subject to an assessment and would record a contingent liability net of any
recoverable premium tax offsets. We do not believe our exposure to potential assessment is material to our consolidated financial position
or results of operations.
Summary
Various lawsuits against us, in addition to those discussed above, have arisen in the normal course of business. Further, state insurance
regulatory authorities and other federal and state authorities regularly make inquiries and conduct investigations concerning our compliance
with applicable insurance and other laws and regulations.
Given the complexity and scope of our litigation and regulatory matters, it is not possible to predict the ultimate outcome of all
pending investigations or legal proceedings or provide reasonable estimates of potential losses, except if noted in connection with specific
matters. It is possible that our results of operations or cash flows in a particular period could be materially affected by an ultimate
unfavorable outcome of pending litigation or regulatory matters depending, in part, on our results of operations or cash flows for the
particular period. We believe, however, that the ultimate outcome of all pending litigation and regulatory matters, after consideration of
applicable reserves and rights to indemnification, should not have a material adverse effect on our financial position.