When the NC Department of Insurance collects restitution from a regulated insurer but the affected consumers cannot be identified or each share is too small to mail, does that money have to be turned over to the State Treasurer under the unclaimed property law?
Plain-English summary
Peter Kolbe, the Department of Insurance's General Counsel, had a recurring problem. The Department's enforcement actions against insurers and other regulated entities often produced restitution checks that the Department then had to figure out how to distribute. Three things kept tripping up the distribution: sometimes the harmed consumers could not be identified at all (a class of similar policyholders, say); sometimes the consumers were identified but each individual share was so small that the cost of mailing the check and reconciling the records would exceed the share; and sometimes a consumer was identified but the Department could not actually find or deliver to that consumer. Kolbe asked whether any of those buckets had to be handed over to the State Treasurer under the escheats law or the new Unclaimed Property Act that took effect January 1, 2000.
Senior Deputy AG Reginald Watkins, with Special Deputies Lorinzo Joyner and Douglas Johnston, walked through three layers. First, the old escheats law in G.S. §§ 116B-1 to -8 was off the table. That law applied only when a person died intestate without surviving heirs. None of the Department's situations involved a deceased policyholder, so escheats analysis was not the right frame.
The second layer was the new Unclaimed Property Act in G.S. §§ 116B-51 et seq. That Act used a two-part test: was the property "abandoned," and if so, was North Carolina the right State to take custody. Abandonment turned on whether the "apparent owner" had communicated with the "holder" about the property in writing or otherwise reflected in a contemporaneous record. The Act also presumed government-held property abandoned after one year. The Act's "apparent owner" was the person on the holder's records as entitled to the property; the "holder" was the entity obligated to deliver the property; and "property" was tangible personal property in NC or a fixed and certain intangible interest.
Applying those definitions to Kolbe's three scenarios produced three different answers:
- Identified consumer, fixed sum, delivery not possible. The Department was the holder; the consumer was the apparent owner; the consumer's interest was fixed and certain. Once one year passed from the distributable date, the funds belonged to the State Treasurer under the Unclaimed Property Act. The Department could not keep them indefinitely.
- Unidentified consumers. If the harmed consumers could not reasonably be identified, the Act's definitions did not fit. There was no "apparent owner" on the holder's records. The funds were not unclaimed property and were not subject to State custody.
- De minimis shares. Where each consumer's hypothetical share was so small that the costs of identifying consumers and administering the fund would consume the fund, the AG concluded no consumer had a vested ownership interest and there had been no "abandonment." Those funds, too, fell outside the Act.
The AG flagged that the analysis was deeply fact-sensitive: court orders, settlement agreements, and the specific structure of each enforcement action would change the outcome. The opinion offered general principles rather than a one-size rule, and invited the Department to consult on specific cases as they came up.
Currency note
This opinion was issued in 2000. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. North Carolina's Unclaimed Property Act was substantially rewritten by S.L. 1999-460 (the version this opinion analyzed) and has been amended further since, including changes to dormancy periods and reporting procedures. Any current insurance enforcement office or consumer protection division should consult the present version of Chapter 116B and the State Treasurer's Unclaimed Property Division regulations before applying this opinion's framework.
Background and statutory framework
Escheats versus unclaimed property. Many people use these terms interchangeably, but North Carolina kept them in separate chapters with different scope. Escheats (Chapter 116B, Article 1 in the 2000 text) was a common-law-derived doctrine narrowly tied to the death of an intestate decedent without heirs. The Unclaimed Property Act (Chapter 116B, Article 5) was a broader modern regime that captured intangible property abandoned by an apparent owner with the holder. The 1999 General Assembly enacted a comprehensive Unclaimed Property Act that took effect January 1, 2000, exactly the period this opinion considered.
Holder, apparent owner, and property. The Act's three core definitions did most of the work. A "holder" was anyone "obligated to hold for the account of or deliver or pay to the owner property that is subject to this Chapter." An "apparent owner" was "a person whose name appears on the records of a holder as the person entitled to property held, issued, or owing by the holder." "Property" included tangible personal property physically located in North Carolina or "a fixed and certain interest in intangible property" held by a business or government. Restitution funds that the Department was holding for a named consumer were squarely within these definitions.
The two-part Act framework. Under G.S. § 116B-53(a), property was unclaimed when the apparent owner had not communicated with the holder, in writing or in any other contemporaneous record, about the property. For property "held by a court, government, governmental subdivision agency or instrumentality," § 116B-53(c)(12) added a one-year abandonment presumption running from the date the property became distributable. Once abandoned, the property became subject to North Carolina's custody under § 116B-56 if a sufficient connection existed between the State and the apparent owner, the holder, or the property itself. Delivery procedures were in § 116B-59.
The three Department scenarios. The first scenario (identified consumer, fixed sum, undeliverable) fit the Act's framework cleanly. The Department, as a government instrumentality holding the funds, had to deliver them to the State Treasurer one year after they became distributable. The second scenario (unidentifiable consumers) failed at the "apparent owner" step. With no name on the records as entitled to the property, the basic prerequisite was missing. The third scenario (de minimis shares) also failed at the "fixed and certain interest" step. The AG concluded that when administrative costs would consume the fund, no individual consumer had a property interest at all; the fund was a tool of the Department's public-trust enforcement responsibility rather than a holding account for identifiable consumer shares.
Court orders and settlements as overrides. The opinion explicitly cautioned that the conclusions could shift based on the terms of any court order or settlement agreement that produced the restitution. A consent decree directing a particular distribution path would control over the AG's general framework. The opinion was a default rule, not a categorical bar to other dispositions.
Common questions
Q: Did the Department have to publish notice or run a search before treating funds as falling outside the Act?
A: The opinion did not impose any specific notice procedure. It did emphasize that the answer in each case depended on the particular facts, which implied the Department needed to make a real attempt to identify the consumers before concluding they were unidentifiable.
Q: What counted as 'de minimis' for the third bucket?
A: The opinion did not draw a numerical line. It described the test as whether the costs of identification and administration would be high in relation to the fund and would be subtracted from the fund before or during disbursement. In practice, this required a fact-specific cost-benefit comparison.
Q: Could the Department use the surplus restitution funds for a related consumer-protection purpose?
A: The opinion did not directly address that. It noted that where consumers were not identifiable or shares were de minimis, the funds were not subject to State custody under Chapter 116B. The actual permissible use of those funds would turn on the Department's own statutes and any court order.
Q: What if a consumer surfaced years later asking for their share?
A: Under the Unclaimed Property Act, an apparent owner could file a claim with the State Treasurer at any time after the property went into State custody. For funds the Department had kept (because no apparent owner was identifiable at the time), the late-surfacing consumer's remedy depended on whether the Department still held identifiable funds.
Citations from the opinion
- N.C. Gen. Stat. §§ 58-1-1 et seq.
- N.C. Gen. Stat. § 58-2-60
- N.C. Gen. Stat. § 58-2-70(c), (d), (e)
- N.C. Gen. Stat. § 58-63-50
- N.C. Gen. Stat. §§ 116B-1 to 116B-8
- N.C. Gen. Stat. § 116B-2
- N.C. Gen. Stat. §§ 116B-51 et seq.
- N.C. Gen. Stat. § 116B-52(1)
- N.C. Gen. Stat. § 116B-52(5)
- N.C. Gen. Stat. § 116B-52(11)
- N.C. Gen. Stat. § 116B-53(a)
- N.C. Gen. Stat. § 116B-53(c)(12)
- N.C. Gen. Stat. § 116B-56
- N.C. Gen. Stat. § 116B-59
Source
Original opinion text
Re: Advisory Opinion — N.C.G.S. §§ 58-2-60; 58-2-70(c), (d) and (e); 58-63-50 – Scope of Authority of Commissioner of Insurance
Dear Mr. Kolbe:
You have asked for further guidance concerning the proper disposition of monetary payments the Commissioner of Insurance may collect from regulated persons and businesses for failure to comply with North Carolina's insurance statutes, N.C.G.S. §§ 58-1-1 et seq. You ask whether restitutionary payments collected by the Department which are de minimis, or the owner of which cannot be identified, or which equity otherwise requires to be used for a public purpose, are subject to the escheats law in Chapter 116B of the North Carolina General Statutes. For the reasons outlined below, whether such payments are subject to Chapter 116B depends on the specific facts at hand.
The escheats law, N.C.G.S. 116B-1 through -8, applies only to property of a person who dies intestate, or dies testate but does not dispose of all of his property by will, without leaving any surviving heirs. N.C.G.S. § 116B-2. Accordingly, it does not apply here.
The recently enacted North Carolina Unclaimed Property Act, N.C.G.S. §§ 116B-51 et seq. (eff. Jan. 1, 2000), has several provisions that relate more closely to your question. This Act has a two-part framework, first, establishing whether property is considered abandoned, and second, determining whether abandoned property is subject to the custody of the State.
N.C.G.S. § 116B-53(a) provides that property is considered unclaimed:
if the apparent owner has not communicated in writing or by other means reflected in a contemporaneous record prepared by or on behalf of the holder, with the holder concerning the property or the account in which the property is held, and has not otherwise indicated an interest in the property.
Property "held by a court, government, governmental subdivision agency or instrumentality" is presumed abandoned if it is unclaimed by the apparent owner within "one year after it becomes distributable." N.C.G.S. § 116B-53(c)(12).
The Act defines "apparent owner" as "a person whose name appears on the records of a holder as the person entitled to property held, issued, or owing by the holder." N.C.G.S. § 116B-52(1). It defines "holder" as "a person obligated to hold for the account of or deliver or pay to the owner property that is subject to this Chapter." N.C.G.S. § 116B-52(5). Although the Act lists several types of property subject to its mandates, it generally defines "property" as "tangible personal property physically located within this State or a fixed and certain interest in intangible property that is held, issued, or owed in the course of a holder's business, or by a government, governmental subdivision, agency, or instrumentality, and all income or increments therefrom." N.C.G.S. § 116B-52(11).
Unclaimed property becomes subject to the custody of the State in a variety of circumstances which may be summarized as demonstrating a sufficient connection between the State and either the apparent owner, the holder, or the property. N.C.G.S. § 116B-56.
These provisions lead to different possible conclusions depending on the facts of each particular case, including the terms of any court orders or settlement agreements. For instance, as a general matter, where the Department of Insurance obtains restitution for a particular consumer, the consumer is identified in Department records and the consumer's individual interest is fixed and certain, the Department is the "holder" and the consumer is the "apparent owner" of the "property." If the funds belonging to the particular consumer cannot reasonably be delivered, see N.C.G.S. § 116B-59, the other requirements of establishing a connection with the State are met, N.C.G.S. § 116B-56, and no other factors appearing, the funds should be delivered to the State Treasurer upon the expiration of one year from the date they became distributable.
In contrast, where, for example, the consumers who may have been harmed by the conduct for which the restitution payment is made cannot reasonably be identified by the Department, the property is not considered unclaimed property and is not subject to the custody of the State under the Unclaimed Property Act. See N.C.G.S. §§ 116B-52(1) and -56. Similarly, where a state agency charged with acting on behalf of the public obtains a restitution payment that might otherwise be paid to individual consumers, but the amount for each consumer is de minimis, the costs of identifying the affected consumers and of administering the fund would be high in relation to the amount of the fund, and those costs would be subtracted from the fund before or during the course of disbursement, each consumer has no ownership interest, and there has been no abandonment of property by any person.
The Unclaimed Property Act must be read in light of the particular facts and circumstances at hand, the relevant statutes and the public trust responsibilities of the Department of Insurance. While there are many possible factual permutations which may lead to different results, the foregoing outlines the general principles applicable to the type of restitution recoveries we anticipate may be obtained by the Department of Insurance under its consumer protection powers. If in the future you are faced with a specific circumstance regarding particular restitution funds, we would of course be available for consultation and guidance as to the proper disposition of the funds.
Signed by:
Reginald L. Watkins, Senior Deputy Attorney General
Lorinzo L. Joyner, Special Deputy Attorney General
Douglas Johnston, Special Deputy Attorney General