In an opinion filed August 5, 2014, the Florida First District Court of Appeal held that under Florida’s unclaimed property law, life insurance proceeds are not “due and payable,” and the dormancy period does not begin to run, until the life insurance company receives proof of the insured’s death and surrender of the policy. The court further held that life insurance companies do not have an affirmative duty under Florida law to search death records to determine whether an insured has died. To view the court’s opinion in Thrivent Financial for Lutherans v. State of Florida, Department of Financial Services, click here.
The decision stems from efforts by Thrivent Financial for Lutherans (Thrivent) to obtain an interpretation from the Department of Financial Services (DFS) of the provision of Florida’s unclaimed property laws applicable to life insurance policies — section 717.107 — that would inform Thrivent’s obligations to escheat to the state funds that are unclaimed. As alleged by Thrivent, after DFS refused to provide such an interpretation in response to informal requests, Thrivent filed with DFS a petition for declaratory statement that requested DFS’s interpretation of section 717.107. In response, DFS issued a declaratory statement finding that life insurance funds are “due and payable” under subsection 717.107(1) upon the death of the insured, at which time the five-year “dormancy period” is triggered. Therefore, in DFS’s view, life insurance proceeds escheat to the state of Florida five years after the insured’s death, whether or not a claim for benefits is made or the insurer is aware of the insured’s death. The department also suggested that section 717.107 imposes an affirmative duty on life insurers to search databases such as the Social Security Administration’s Death Master File (DMF) to determine if any of its insureds has died.
Thrivent appealed the declaratory statement to the First District Court of Appeal, which heard oral argument on the matter on July 15, 2014. The court reversed, holding that the department’s interpretation of Florida’s unclaimed property law was “contrary to the plain language of the statute and, therefore, clearly erroneous.” (Slip. Op. at 5.) The court noted that subsection 717.107(1) states that life insurance proceeds “become due and payable as established by the records of the insurance company,” and that, as a matter of Florida insurance law, life insurance funds are not due and payable until the insurer receives proof of death and surrender of the policy. The court reasoned that Florida’s unclaimed property laws and Florida’s insurance laws dictate that “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.” (Id.) As a result, the court held that the five-year dormancy period does not begin until those events occur. The court rejected DFS’s interpretation, holding that “nothing 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 further recognized that the statute includes alternative triggers of the dormancy period, whereby contracts “not matured by actual proof of the death” under 717.107(1) are “deemed matured and the proceeds due and payable” if the insurer either (1) “knows that the insured … has died,” or (2) if the insured “has attained, or would have attained if he or she were living, the limiting age.” (Id.) The court stressed that any reading of the statute that life insurance proceeds become due and payable at the moment the insured dies “would render meaningless” the alternate dormancy triggers under subsection 717.107(3). (Id.)
Additionally, the court expressly rejected DFS’s argument that section 717.102 — a general provision of Florida’s unclaimed property law stating that property is payable for the purposes of Florida’s unclaimed property laws “notwithstanding the owner’s failure to make demand or to present any instrument or document required to receive payment” — overrides section 717.107, the specific provision applicable to determining when life insurance proceeds are due and payable. (Id. at 6.)
The court concluded its opinion by rejecting the department’s assertion that section 717.107 requires insurers to search death records, such as the DMF, Google and LexisNexis, to determine if its insureds have died. The court held that “nothing in the plain language of section 717.107 imposes an affirmative duty on insurers to search these death records.” The court expressed its view that DFS was asking the court “to rewrite the statute based on policy considerations,” and the court made clear that it would “not rewrite statutes contrary to their plain language,” as DFS’s argument would require. Instead, any policy concerns must be addressed by the legislature. (Id. at 7.)
The court’s opinion comes amidst a time of heightened regulatory activity in the unclaimed property arena, both with respect to scrutiny of life insurance companies and more broadly. DFS is certainly not the only state agency that has urged an expansive interpretation of unclaimed property statutes in an effort to maximize the escheatment of unclaimed property. In the life insurance context, one common method has been to interpret uniform unclaimed property laws to hold that the dormancy period is triggered at the date of an insured’s death. As a result, state regulators have advocated this interpretation in connection with reaching high-profile settlements with life insurance companies that are claimed to have an aggregate value of at least $2.4 billion.1 The impact of the court’s decision in the Thrivent case in connection with ongoing regulatory activity remains to be seen.
Additionally, other judicial opinions addressing related matters are expected in the coming months. While the Thrivent case marks the first time a state appellate court has addressed the time at which insurance proceeds become due and payable under a statute modeled after the uniform unclaimed property laws, other lawsuits regarding state unclaimed property laws are now at the appellate stage. Among them, in West Virginia v. Nationwide Life Insurance Co., Civil Action No. 12-C-287 (W.V. Cir. Ct. Dec. 27, 2013) the trial court dismissed a complaint filed by the West Virginia treasurer that alleged insurance companies had a duty to search the DMF. That case is now before the West Virginia Supreme Court of Appeals. Other courts have recently addressed related questions and issued decisions consistent with the court’s opinion in the Thrivent case. See, e.g., Feingold v. John Hancock Life Ins. Co., No. 12-10185, 2013 U.S. Dist. LEXIS 117070 (D. Mass. Aug. 20, 2013); Andrews v. Nationwide Mut. Ins. Co., No. 12-97891, 2012 WL 5289946 (Ohio Ct. App. Oct. 25, 2012). On the other hand, no court has issued a decision that supports the position articulated by DFS in the Thrivent case, that the dormancy period is triggered immediately upon the insured’s death.
While the court’s opinion only directly relates to unclaimed property laws applicable to life insurance companies, it may have implications for other holders of unclaimed property as well. As state unclaimed property regulators continue to expand their audit activity and target all types of financial services companies and other holders, the First District Court of Appeal’s decision shows that courts will not allow regulators to rewrite unclaimed property laws in connection with their audits and retroactively apply new rules to holders.