Florida Court Considers Law Forcing Life Insurers To Try To Find Beneficiaries

By John Hilton

The Florida Supreme Court will hear a constitutional challenge to a 2016 state law that put new requirements on life-insurance companies to determine whether policyholders have died and to contact beneficiaries.

Four insurers went to the Supreme Court last year after a divided 1st District Court of Appeal upheld the law. The Orlando Sentinel reported this week that the Supreme Court issued an order Monday that it will take up the case.

Former Gov. Rick Scott signed the bill requiring companies to try to track down beneficiaries within 120 days of learning of a death. It also requires companies to search a Social Security database at least once a year to see whether their policyholders have died.

According to an April 2016 report, thousands of Floridians received a combined $362 million after a multistate probe found life-insurance companies were sitting on billions of dollars that should have gone to beneficiaries. About $122 million more awaited disbursement to beneficiaries who hadn't been located.

In some cases, the companies continued to pay themselves premiums by draining the cash value of whole-life policies before finally canceling them, bill sponsor Rep. Bill Hager, R-Delray Beach, testified before a House committee in February 2016.

But the law has created an unfair burden on the life insurance industry, a trade group said in a court filing.

"These new obligations—if imposed retroactively over a period spanning multiple decades—will especially burden ACLI’s small- and mid-sized members, which lack the resources to perform the required labor-intensive search and contact processes," the American Council of Life Insurers said in a court filing. "This is especially true regarding older policies issued before modern technology was available to store information required to complete the new search and contact requirements. Complying with the Act’s requirements as applied to these older policies will be impracticable, if not impossible for many of ACLI’s members."

The four insurers challenging the law -- United Insurance Company of America, The Reliable Life Insurance Company, Mutual Savings Life Insurance Company and Reserve National Insurance Company -- say that retroactive application of the law violates their due-process rights.

A multistate task force began investigating in 2011 after the founders of a Connecticut-based auditing firm, Verus Financial, discovered the problem. Dozens of states passed legislation to curb the abuses. Florida's law, which requires insurers to retroactively check death records to Jan. 1, 1992, is the most stringent, state insurance officials have said.

Twenty of the nation's top 40 insurance companies by market share, including major players such as MetLife, Prudential, New York Life, John Hancock and Nationwide, agreed to pay billions in death benefits.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.