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Thrivent Wins Huge Florida Unclaimed Property Ruling

    Thrivent Financial has won a stunning court victory in Florida that overturns the Department of Financial Services position on when life insurance unclaimed property benefits are due and payable.
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    The DFS had issued a declaratory statement finding that life insurance funds are due and payable under subsection 717.107(1) upon the death of the insured, even if no claim is made. The department further said that section 717.107 created an affirmative duty on insurers to use due diligence in searching databases, such as the Social Security Administration’s Death Master File, in order to determine if any of its insureds has died.
    But Thrivent, in Thrivent Financial for Lutherans v. Florida Department of Financial Services, sought a declaratory statement that life insurance funds become “due and payable as established from the records of the insurance company” when the insurer receives proof of the insured’s death and surrender of the policy.
    Thrivent’s argument carried the day.
    “We find DFS’ interpretation of section 717.107 is clearly erroneous because it ignores the plain language of the statute,” Florida’s First District Court of Appeal ruled.  “Accordingly, we reverse.”
    As the court said in its ruling, “The plain language of subsection 717.107(1) states that life insurance funds ‘become due and payable as established by the records of the insurance company.’ Section 627.461 states that payment ‘shall be made upon receipt of due proof of death and surrender of the policy.’
    “Therefore, the records of the insurance company do not establish funds as ‘due and payable’ under subsection 717.107(1) until the insurer receives proof of death and surrender of the policy,” the court concluded.
    As to the DFS argument that proceeds are payable upon death, the court said it could find nothing in the plain language of the statute to support DFS’ interpretation that funds become due and payable at the moment the insured dies.
    The court also said that if life insurance funds were automatically due and payable at the time of death, that would render meaningless another section of the rule that provides alternate means by which a contract “not matured by actual proof of the death” may be “deemed matured and the proceeds due and payable.”
    Finally, the court addressed Florida’s contention that the court should impose an affirmative duty on insurers to search death records in order to ascertain whether any insured has died. But the court said there is nothing in the statute that imposes an affirmative duty on insurers to search death records, and public policy prohibits courts from rewriting statutes contrary to their plain language.
    The net effect is that Florida’s unclaimed property law does not make life insurance proceeds due and payable at the time of the insured’s death and insurers don’t have an affirmative duty to search death records to see if a policyholder or an annuity owner has died.
    In Florida, life insurance proceeds are due and payable when:
    • the insurer receives proof of death and surrender of the policy;
    • the insurer knows that the insured has died; or
    • when the insured attained or would have attained the limiting age.
    Sutherland Asbill & Brennan said in a law alert that the 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 Death Master File in Florida.
    Additionally, the West Virginia Supreme Court of Appeals is expected to consider similar issues in appeals of 63 separate lawsuits filed against life insurers and dismissed by a West Virginia circuit court late last year.
    Also, a federal appeals court recently affirmed a decision in Feingold v. John Hancock Life Ins. Co. that life insurance companies are within their rights to ask for a proof of death before paying a death claim (ICI, June 2, 2014). In the ruling is a declaration that such proof is also a prerequisite to money becoming payable under unclaimed property laws governing such policies.
    More recently, Sutherland points to an Illinois court ruling in United Insurance Company, et al. v. Boron. The trial court in that case issued an oral ruling saying, in effect, that the Insurance Department doesn’t have authority to compel insurers to provide policy records to enable a Death Master File comparison or to require insurers to do the comparison themselves.
    Elsewhere, United Ins. Co. of Am. v. Kentucky, now on appeal to the Kentucky Court of Appeals, is challenging the constitutionality of recent legislation imposing a DMF search requirement.
    Insurers are also closing watching a California court case, Chiang v. American National Insurance Company. The insurance company is appealing a preliminary injunction ordering it to turn over to state auditors all data and documents requested by the state in the course of an unclaimed property audit. The California Court of Appeal will decide 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,” Sutherland noted.
Copyright 2014 ProBusiness Publishing LLC All Rights Reserved
Aug. 11, 2014
Insurance Compliance Insight is a general circulation weekly publication focused on insurance compliance and regulatory issues. Nothing within it should be interpreted as offering investment advice, legal counsel or other professional services.
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