A Kentucky state trial court has rejected a challenge to a state statute requiring life insurers to search the Social Security Administration Death Master File (DMF) and attempt to locate potential beneficiaries, holding that the law is a valid exercise of the legislature’s powers to regulate the insurance industry. In its April 1, 2013 decision, the trial court ruled in the state’s favor on cross motions for summary judgment, holding that the statute neither violated any rules against retroactive application nor impaired any vested contractual rights. United Ins. Co. of Am. v. Kentucky (Ky. Cir. Ct. April 1, 2013).
The Kentucky statute at issue, which took effect January 1, 2013, mandates that insurers search the DMF on a quarterly basis for potential deaths of their insureds. The statute further requires insurers to follow up on matches by making good faith efforts to confirm deaths, determine whether benefits are due, locate the beneficiaries, and facilitate claims submissions. The Kentucky statute is based on a Model Unclaimed Life Insurance Benefits Act prepared by the National Conference of Insurance Legislators (NCOIL). A version of the NCOIL Model Act or legislation having a similar effect has been enacted in six states — Kentucky, New York, Alabama, Maryland , and most recently Montana and New Mexico — and legislation has been introduced in several other states.
Before the statute took effect, three insurers filed a declaratory judgment action challenging the constitutionality of certain aspects of the new Kentucky statute. The plaintiff insurers sought a declaration that the statute applies only prospectively to policies issued after the statute’s effective date and not retroactively to in - force policies. The complaint alleged that “[t]he Act effects a significant change in the manner in which life insurers acquire proof of an insured’s death and settle and pay the resulting claims” and that it “impos[es] for the first time [an] affirmative duty to seek out evidence that insureds have died where no claim has been received from a beneficiary or the insured’s estate.” The insurers sought declaratory relief on three grounds: (1) that the Act only applies prospectively, consistent with a state law presumption against the retroactive operation of new statutes; (2) that if the Act were construed to have retroactive effect, it substantially impairs insurers’ contractual rights under in - force policies and thereby violates the Contract Clauses of the Kentucky and United States Constitutions; and (3) that the Act only applies to life insurance policies issued in the Commonwealth and not those issued in other jurisdictions. The suit did not challenge the Act’s prospective effect on newly issued policies, but instead contested its potential retrospective interference with insurers’ legitimate contractual expectations, including the pricing of in-force policies and the costs and administrative burdens of searching for deaths where no claim has been received. The parties filed cross motions for summary judgment.
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