• Recent Court Decisions Concerning Unclaimed Life Insurance Benefits Can Assist Insurers in Defending Regulatory Audits and Future Litigation
  • November 11, 2013 | Authors: William T. Bogaert; Sandy M. McDermott
  • Law Firms: Wilson Elser Moskowitz Edelman & Dicker LLP - Boston Office ; Wilson Elser Moskowitz Edelman & Dicker LLP - Albany Office
  • Regulatory Background
    Perhaps the most significant litigation, regulatory and compliance issues facing life insurance companies can be found in the unclaimed property audits, multi-state regulatory settlements and class action lawsuits surrounding unclaimed life insurance benefits. With the assistance of third-party audit firms, state regulators have conducted market conduct examinations of several large insurers and entered into multi-state regulatory settlements requiring, among other things, regular searches of the Social Security Death Master File (DMF) and procedures to search for policies and locate beneficiaries. These market conduct examinations and unclaimed property audits are ongoing and involve multiple states and dozens of insurance companies. On the legislative front, several states have enacted new laws that essentially codify the terms of these multi-state regulatory settlements by mandating periodic DMF searches, policy match criteria and beneficiary due diligence as part of an overall unclaimed life insurance benefits compliance program.

    Recent Decisions
    Against this regulatory and legislative backdrop comes the recent case of Richard Feingold v. John Hancock Life Insurance Company, Case No. 13-cv-10185, U.S. District Court Massachusetts, Boston. In Feingold, the plaintiff instituted a putative class action claiming that Hancock had violated Massachusetts consumer protection laws by withholding payment of a death claim until the company received due proof of death. Additionally, Feingold alleged that Hancock had failed to investigate whether plaintiff’s mother had died and that the company had several resources that could have provided this information, including the DMF. In finding for Hancock, the Court reasoned that the insurance contract and Massachusetts law permitted Hancock to require the beneficiary to provide due proof of death prior to making payment of the policy proceeds.

    A similar result was reached earlier this year by the Court of Appeals in Ohio in Andrews v. Nationwide Mutual Insurance Company, 2012-Ohio-4935 (Ohio Ct. App. Oct. 25, 2012). In that case, the plaintiff alleged that Nationwide had breached its duty of good faith and fair dealing in failing to take reasonable steps to ascertain when a beneficiary had a right to death benefits. The plaintiff argued that Nationwide was obliged to search the DMF to make this determination. In upholding the trial court’s dismissal of the plaintiff’s complaint, the Court of Appeals found that the terms of the insurance contract as well as Ohio law placed the burden of providing proof of death on the beneficiaries or claimants to the life insurance proceeds. Specifically, the Court of Appeals reasoned that “a finding obligating Nationwide to solicit and gather information pertaining to an insured’s death would be contrary to the terms contained in the insurance policy.”

    Indeed, state regulators have traditionally approved insurance contracts containing a provision that requires that due proof of death be provided to the insurer in order to make a valid life insurance claim. The courts in Feingold and Andrews recognized that Hancock and Nationwide were merely following the language in their regulator-approved insurance policies by requiring the beneficiary to notify the company and provide sufficient proof that benefits were due and owing.

    These judicial determinations are in sharp contrast to the tenor and findings of the multi-state settlement agreements that regulators have recently imposed on life insurance companies, including Hancock and Nationwide. As referenced above, these settlements require the implementation of claims investigation processes, such as quarterly or monthly sweeps of the DMF, policy match procedures and standards surrounding the search for beneficiaries. Interestingly, the plaintiff in Feingold attempted to claim that these types of settlement terms changed Hancock’s obligations as to the investigation of his mother’s insurance policy. The court denied this argument in finding that Feingold was not a party to the Hancock settlement and that he could not therefore enforce its terms.

    Life insurers currently subject to unclaimed property audits and market conduct investigations should point to the decisions and reasoning in Feingold and Andrews as justification for their position that they acted properly in paying death claims based on the language in their insurance contract and general insurance law principles. While there is little doubt that the tide has moved in the direction of mandating proactive identification of death claims and beneficiaries, these decisions may assist life insurers in their settlement negotiations with state regulators.

    Additionally, life insurers who find themselves in litigation based on allegations that they failed to identify that death benefits were due and owing should look to the courts’ findings in Feingold and Andrews to defend their actions.