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Florida Regulator Fires Salvo In Unclaimed Property Controversy

The latest salvo in the ongoing unclaimed property controversy between regulators and life insurers has come in the form of a Declaratory Statement issued by Florida’s Department of Financial Services.  The Department asserts that the dormancy period for life insurance policies under the Florida Unclaimed Property Act is triggered by the death of the insured, and the Department strongly implies that life insurers must search the Social Security Administration’s Death Master File to obtain the date of death.

Thrivent Seeks Department’s Interpretation of Applicable Law

Thrivent Financial for Lutherans, a Wisconsin-based fraternal benefit society, was selected for audit by the Department.  Thrivent met with the Department and its auditor, Kelmar Associates, LLC.  In that meeting, Thrivent requested clarification of the Department’s interpretation of the Act as it applies to life insurance policies, but the Department refused to provide clarification until Kelmar completed its audit.  This prompted Thrivent to petition the Department formally for a Declaratory Statement that life insurance policies become “due and payable as established from the records of the insurance company” under § 717.107 of the Act only when Thrivent receives proof of death and a claim for benefits.[1]

Department’s Declaratory Statement

On October 4, 2013, the Department issued a Declaratory Statement in response to Thrivent’s petition.  Characterizing the issue as whether an insurer “has the right under Florida law to retain indefinitely unclaimed proceeds of a life insurance policy taken out by a deceased Floridian,” the Department concluded that life insurance policies become “due and payable” upon death of the insured.  The Department thus concluded that the dormancy period begins to run from the date of death.

The Department noted that Florida’s insurance statute requires all life insurance contracts to contain a provision stating that, “when a policy becomes a claim by the death of the insured, settlement shall be made upon receipt of due proof of death and surrender of the policy.”  SeeFlorida Statutes § 627.461.  The Department reasoned that if a policy “becomes a claim by the death of the insured,” the claim is “due” under the insurance statute as well as the unclaimed property statute, which refers to policy proceeds that are “due and payable.”  SeeFlorida Statutes § 627.461.  While the insurance provision expressly requires that “settlement shall be made upon receipt of due proof of death and surrender of the policy,” the Department ruled that the unclaimed property statute – which states that “[p]roperty is payable or distributable for the purpose of this chapter notwithstanding the owner’s failure to make demand or to present any instrument or document required to receive payment,” see § 717.102(2) – essentially eliminates this requirement. 

Department’s Erroneous Interpretation of Dormancy Trigger

The Department did not explain how the date of death of the insured as a dormancy trigger can be squared with § 717.107’s provision that “actual proof of death of the insured . . . according to the records of the company” (emphasis added) is the relevant dormancy trigger.  Nor did the Department explain how, under its interpretation, either of the Act’s alternative dormancy triggers – i.e., knowledge of death, or when the insured would have attained the limiting age under the mortality table if he or she were living – could serve any purpose.  The insured’s date of death necessarily precedes the insurer’s knowledge of that death; and if proceeds are payable upon the insured’s death, then they would never be payable upon the insured’s having attained the limiting age “if he or she were living.” 

Department’s Requirement that Insurers Regularly Search DMF

The Department also strongly implied that life insurers have an obligation to search the DMF.  The Department suggested that due diligence, which includes “reasonable and prudent methods under particular circumstances to locate apparent owners of inactive accounts . . . using a nationwide database,” creates an obligation to search the DMF to determine when an insured has died.

Contrary to the Department’s assertion, the Act defines “due diligence” only for purposes of remediation efforts prior to the remittance of presumed unclaimed property to the state, not for the purpose of determining whether property is presumed unclaimed in the first place.  This was of little moment to the Department, which expressed its public policy view as follows: “In an age when an unprecedented volume of information is readily available in digital form, the Department sees no reason why an insurance company . . . should balk at making reference to a publicly accessible digital database that would easily reveal whether any of its insureds had died.  A simple exercise of due diligence – reference to the DMF maintained by the Social Security Administration or comparable national databases – would reveal whether there was any potential for benefits to be due under an existing life insurance contract.”

The Department’s Declaratory Statement is directly contrary to a recent decision from Leon County two months ago.  On August 20, 2013, the Florida Circuit Court for Leon County dismissed a putative whistleblower complaint on the grounds, inter alia, that Florida law does not require life insurers to search the DMF.  The plaintiff in that case has appealed to the Florida First District Court of Appeal.  Assuming the Department’s Declaratory Statement is appealed, it too would go to the Florida First District Court of Appeal.

[1] § 717.107 of the Act also provides that a life insurance policy not matured by actual proof of death of the insured according to the records of the company is deemed matured and the proceeds due and payable (1) if the insurer knows that the insured has died, or (2) where the “[t]he insured has attained, or would have attained if he or she were living, the limiting age under the mortality table on which the reserve is based.”  Thrivent took the position that the “knowledge” trigger was not implicated in any way because Thrivent does not perform DMF searches to attempt to determine if its insureds are deceased.

© 2020 Faegre Drinker Biddle & Reath LLP. All Rights Reserved.


About this Author

Jason P. Gosselin, Commercial Litigation Lawyer, Drinker Biddle

Jason P. Gosselin is a veteran litigator and trial attorney whose national practice involves a wide range of civil litigation, including insurance coverage, commercial disputes, and constitutional freedoms. He has served as lead counsel in multiple jury trials and dozens of arbitrations. Jason also has an active appellate practice and has argued numerous cases in federal and state appellate courts.

Jason represents clients in a wide range of insurance coverage disputes, including claims involving life, health, disability,...

Timothy O'Driscoll Insurance Litigation Lawyer Drinker Biddle

Timothy J. O’Driscoll counsels clients on a broad range of insurance litigation and regulatory matters.

Tim’s insurance litigation experience includes coverage and extra-contractual disputes in state and federal courts across the country, involving life, long-term care, annuity and property and casualty policies. He has successfully resolved many cases, winning jury trials, dispositive pre-trial motions and appeals, prevailing at arbitrations and obtaining favorable settlements.

Tim also advises insurer and broker clients and regularly speaks to organizations across the country on a wide variety of matters, including cost of insurance, structured settlements, the secondary life insurance market, unclaimed property and insurer insolvency issues.

(215) 988-2865
Stephan A. Serfass, Insurance attorney, Drinker Biddle

Stephen A. Serfass concentrates his practice on financial services issues, principally related to long term care insurance, life insurance, environmental insurance and debt collection matters. He also has significant experience resolving privacy and security compliance and breach issues related to personally identifiable health and financial information. He is nationally recognized as a leader in the long term care insurance community and leads Drinker Biddle’s 20 lawyer long term care insurance team. In that arena, Steve’s work spans the product life...