Florida Court of Appeal Holds Insured’s Death Alone Does Not Trigger Unclaimed Property Law Obligations
In an opinion filed August 5, Florida’s First District Court of Appeal held that Florida’s unclaimed property law does not make life insurance proceeds due and payable at the time of the insured’s death and does not impose an affirmative duty on life insurers to search death records to ascertain whether an insured has died. Click here to view opinion.
In Thrivent Financial for Lutherans v. State of Florida, Department of Financial Services, the insurer sought a declaratory statement from Florida’s Department of Financial Services (DFS) that life insurance proceeds become “due and payable as established from the records of the insurance company” under section 717.107 of the Florida Disposition of Unclaimed Property Act when the insurer receives proof of the insured’s death and surrender of the policy.
In response, DFS issued a declaratory statement taking the position that life insurance proceeds are “due and payable” under subsection 717.107(1) upon the death of the insured. Under the DFS interpretation, the dormancy trigger for unclaimed property is triggered by the mere fact of death, and policy proceeds become due to the state as unclaimed property three years after death regardless of whether the insurer received a claim or was even aware of the death. DFS also took the position that section 717.107 creates an affirmative duty on an insurer to search the Social Security Administration’s Death Master File (DMF) or similar commercially available databases to determine if any of its insureds have died, ostensibly for the purpose of identifying purported unclaimed property. The insurer appealed the DFS’s declaratory statement to the Florida Court of Appeal.
The court reversed DFS’s declaratory statement, holding that its interpretation of section 717.107 was clearly erroneous. Construing subsection 717.107(1)’s provision that proceeds “become due and payable as established from the records of the insurance company” consistent with the Florida Insurance Code provision that payment “shall be made upon receipt of due proof of death and surrender of the policy,” the court held that the records of the insurer do not establish proceeds as “due and payable” until “the insurer receives proof of death and surrender of the policy.” (Slip. Op. at 5.) The court stated that “[n]othing in the plain language of section 717.107 supports DFS[’s] interpretation that funds become ‘due and payable’ at the moment the insured dies.” (Id.) The court noted that if proceeds were automatically “due and payable” at the time of death under subsection 717.107(1), that would render meaningless subsection (3)’s provision that contracts “not matured by actual proof of the death” become due and payable when the insured knows the insured had died or when the insured attained or would have attained the limiting age. (Id.)
The court further held that “[n]othing in the plain language of section 717.107 imposes an affirmative duty on insurers to search” the DMF or other database to determine whether any of its insureds have died. This ruling is significant because it interprets Florida’s law, which is based on the widely adopted 1981 Uniform Unclaimed Property Act.
The Thrivent case is one of several cases pending before appellate courts in 2014. Concurrently on appeal in Florida is a trial court decision in a different case holding that there is no duty to search the DMF in Florida. See Total Asset Recovery Servs. LLC, v. Metlife, Inc., Case No. 2010-CA-3719 (Fla. Cir. Ct. Aug. 20, 2013). The West Virginia Supreme Court of Appeals is also expected to consider similar issues in appeals of 63 separate lawsuits filed against life insurers and dismissed by a West Virginia circuit court in late 2013. Recently, the U.S. Court of Appeals for the First Circuit affirmed a decision by the U.S. District Court in Massachusetts, applying Massachusetts and Illinois law, which held in a putative class action brought by a beneficiary that a life insurer need not search the DMF and could await receipt of a proof of death. Feingold v. John Hancock Life Insurance Co., No. 1:13-cv-10185-JLT, 2013 WL 4495126 (D. Mass. Aug. 19, 2013), aff’d Feingold v. John Hancock Life Ins. Co. (USA), 753 F.3d 55 (1st Cir. 2014).
On July 30, in United Insurance Company, et al. v. Boron, Case No. 13-CH-20383 (Circuit Court of Cook County, Illinois), an Illinois trial court issued an oral ruling denying a motion by the Illinois Department of Insurance (DOI) to dismiss two counts of the plaintiff-insurers’ complaint, which sought a declaration that the DOI did not have authority to compel insurers to provide policy records to enable a DMF comparison or require insurers to do the comparison themselves. In so holding, the court emphasized the DOI letter admitting that it “may” run records produced against the DMF. The ruling is expected to be reduced to writing shortly, and the plaintiff-insurers will thereafter move for summary judgment.
Litigation in Kentucky challenging the constitutionality of recent legislation imposing a DMF search requirement is now on appeal to the Kentucky Court of Appeals. United Ins. Co. of Am. v. Kentucky (Ky. Cir. Ct. April 1, 2013). And, in the first litigation arising directly out of the ongoing unclaimed property audits, an insurer is appealing a preliminary injunction issued by a California Superior Court ordering the company to turn over to state auditors all data and documents requested by the state in the course of an unclaimed property audit. Chiang v. American National Insurance Company, Case No. 34-2013-00144517 (Sup. Ct. Sacramento Cal. Oct. 9, 2013). The California Court of Appeal will consider the question of what information must be turned over to the state in an audit. Rulings in these cases could have a substantial impact on ongoing unclaimed property audits and market conduct examinations.