Legal Foundation for CSLN Access to Automated Insurance Records

Background:

In 1996, Congress passed the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA), better known as Welfare Reform. Strong child support enforcement tools were universally lauded and made part of PRWORA: license and passport suspension, automatic income withholding in almost all cases, liens arising by operation of law, financial institution data match, mandatory passage of a new uniform model interstate law (the Uniform Interstate Family Support Act or UIFSA) that included interstate income withholding, mandatory honoring of administratively issued interstate subpoenas and interstate liens, and the matching of databases to locate parents and/or information on their income and assets. State legislatures had to pass these welfare reform measures by 1998 to retain their welfare and child support funding. Today, all states have passed laws that meet these federal requirements. Two key provisions in PRWORA that support child support’s access to insurance records is in the definition of an insurer as a financial institution and the granting of non-liability to financial institutions when they provide such information to the child support agencies.

Prior to the passage of PRWORA, Rhode Island had passed a statute in 1995 requiring insurance companies doing business in Rhode Island to participate in its program to intercept insurance claims for past due child support. (RIGL 27-57-1. to 4.) The Rhode Island Child Support Lien Network (“CSLN”) was originally created to implement the access to these insurance records through electronic interface with the insurance industry. The CSLN was expanded in 1999 to all other interested states to take advantage of the PRWORA powers given to the child support agencies to access information (insurance assets) and to issue administrative subpoenas and place administrative liens on found assets.

Legal Foundation for CSLN

A. Subpoena Power

Under PRWORA, and corresponding state laws, state child support agencies were given the power to issue intra- and interstate administrative subpoenas to collect "financial or other" information needed to establish, enforce or modify a child support order. 42 U.S.C. sections 652(a)(11), 654 (a)(9)(E), 666 ( c). This means a child support agency could subpoena an insurance carrier for every record related to anyone who owes child support who may have a claim with that carrier.

B. Authority to Access Information

Under PRWORA and corresponding state laws, state child support agencies were given the power and authority to obtain access, subject to privacy safeguards, and provide non-liability to entities that afford such access, to information contained in numerous and various state and local government records, tax, income and asset records, and various professional and occupational licensing records (including automated access in the case of records maintained in automated databases). Included in this authority to access information are records concerning real and titled property; information on assets held by financial institutions (including insurance companies); and records held by private entities with respect to individuals who owe or are owed support or against or with respect to whom a support obligation is sought. 42 U.S.C. 666( c)-(1)(D).

C. Lien Power

When states passed their PRWORA legislation, it also gave the child support agencies the power to place liens automatically on all real or personal property owned by the person who owes past-due child support. The lien arises by operation of law, meaning that there is no need for a court or administrative finding that a lien should arise. The amount of the lien equals the amount of the child support that is past due under the order, which normally varies over time. Each State must afford full faith and credit to liens arising in another state through state law. The child support agencies are to use a standardized lien form in all interstate lien cases, sent to the location in the other state in which liens of that nature are recorded. Local lien perfection procedures are followed. 42 U.S.C. sections 666 (a)(4), 666 ( c).

The lien needs to be "perfected" before it can be enforced, and that usually means at a minimum that a notice is given to a person who owes child support that a lien is on his or her property. A change in the amount of the lien over time does not generally require a new notice. Notice in some states can be done "constructively" by the placing of a lien document in a public file. Other state laws may require that the notice be also sent to the person whose property is being encumbered. The notice usually describes the property and the amount of the lien as of a certain date and can be sent by first class mail, registered and/or certified mail, express mail, e-mail to the property owner. In all situations, the state child support agencies are responsible for the sending of such notices to the obligors.

D. Execution on the Lien

There are several ways that state child support agencies can execute on the lien placed on an asset. Some states execute through a notice of levy, turnover, or seizure action, through a forced sale, or through income withholding orders or attachment writs

State child support agencies have used their states' general execution laws for years to seize and liquidate encumbered property. PRWORA provided administrative power to the child support agencies to "secure assets to satisfy any current support obligation and the arrearage by… intercepting or seizing periodic or lump-sum payments from,,, judgments, settlements and lotteries [and] attaching and seizing assets of the obligor held in financial institutions [and] imposing liens… and, in appropriate cases, to force sale of property and distribution of proceeds." 42 U.S.C. 666 ( c) (1) (G). There is no need for child support to obtain an order from any other judicial or administrative tribunal prior to serving the writ or order. 42 U.S.C. 666 ( c).

E. High-volume Administrative Enforcement Interstate

Another PRWORA provision allows for high-volume automated enforcement between states to the extent that states match databases within their states. This is known as Administrative Enforcement Interstate (AEI). 42 U.S.C. 666 (a)(14).

One intrastate child support requirement is that quarterly, states are to match tapes of persons who owe past-due support with financial institution (FI) data, either by uploading FI information to the state, or sharing state data with the FIs. Matches are duly recorded, and the accounts or claims are encumbered and seized if not successfully challenged by the account holder or claimant. Such challenges are usually handled through administrative or judicial hearings in the appropriate state child support agency or court. They are not held by the financial institution, nor is the financial institution involved in the hearing.

Under AEI, states send their tapes or electronic files to the other states or to the Federal Government for multi-state FI matching. Under the PRWORA AEI requirements, states can refer delinquent cases to Rhode Island, for instance, to be included in any data matching performed by Rhode Island, including the CSLN / ISO interface with insurer’s claims registered with ISO’s ClaimSearch system.

F. Non-Liability for Insurers for Disclosure to Child Support Agencies

The definition of a ‘financial institution’ (FI) in the PRWORA Act is very important to insurance carriers. The definition of a Financial Institution specifically includes insurance companies, and as such, is afforded non-liability protections. 42 U.S.C. section 669A(d)(1)(D). Insurers cooperating with child support agencies in the administration of the child support program are protected from claims of privacy invasion under the non-liability provisions within federal and state laws. Immunity is given to FIs for disclosing financial information under the FI and AEI data matches, and by the nature of the section, applies to any enforcement-related child support activity, such as the CSLN –Insurance Claim Interface at the behest of the child support agency. 42 U.S.C. section 669A (a). Insurance companies and any other financial institutions are not liable under any federal or state law to any person for disclosing any financial record of an individual to a State child support enforcement agency attempting to establish, modify, or enforce a child support obligation of such individual.

G. Using CSLN to Access Insurance Claim Records

A state can elect to use the web-enabled CSLN – Insurance Claims Automated Interface process, based on insurance industry set protocols, to match delinquent child support obligor records to the automated claimant records in the ISO ClaimSearch file. CSLN makes the process appear uniform to the carrier, yet the claim seizure procedure is tailored to the uniqueness of each CSLN-member state’s administrative lien law. The CSLN / ISO method of accessing and identifying matched insurance records appears to be the most desirable for all. CSLN, electronically or otherwise, alerts the affected insurer when there is a “match” and at the same time, alerts the appropriate state member. CSLN would then provide the follow up instructions and procedures and steps to be followed by the insurance adjuster to effect a collection for the child support agency. Under this method, insurers only have to react to a verified match, thereby reducing the tremendous labor burden of having to research their insurance files upon the receipt of hundreds of thousands of requests for information or subpoenas that could potentially be received from states.