Maryland Court Upholds DMF Law

A 2013 Maryland insurance law requiring insurance companies to check the latest version of a death master file, or DMF, is applicable to in-force policies issued before the law became effective, a state court ruled.

Insurers United Insurance Company of America and Reliable Life Insurance sued the Maryland Insurance Administration, arguing that the law could not be applied to policies issued before the law's Oct. 1, 2013 effective date.

The Maryland Court of Special Appeals, the second-highest court in the state, disagreed and said the insurance companies had delivered a “strained reading” of the statute.

“We are not persuaded, and hold that the constitutional exception is inapplicable,” as the insurers don’t challenge the constitutionality of the law but instead the constitutionality of retroactive enforcement to in-force policies, wrote Judge Michele D. Hotten, in a 37-page opinion.

As of December 2011, the two insurers had about 135,000 policies on the books to lower-income policyholders. The policies had relatively small face values, averaging about $5,000 each, and with policyholders paying average monthly premiums of $7.

Not only would the 2013 law applied retroactively affect the economic assumptions upon which premiums were based, the law was also a violation of the Maryland Declaration of Rights and the U.S. Constitution, the insurers argued.

Under Section 16-118 of the Maryland code, it is the duty of insurers to compare in-force life insurance policies and annuity contracts against the latest version of the Social Security Administration’s DMF.

When Maryland insurance officials announced in early 2013 that they would enforce the law effective later that year, the insurance companies sued.

The law was passed in response to the growing concern of questionable and unfair settlement practices by life insurance companies, which often led to beneficiaries receiving benefits years after the death of the policyholder, or sometimes not at all.

Before the 2013 law, Maryland insurers were under no obligation to research whether a policyholder had died and over the past five years. Dozens of life insurers nationwide have settled with regulators over the use of the DMF.

States accused insurance companies of not bothering to cross-reference the DMF when it came to life insurance benefit payouts, yet companies were more than happy to dig through the same data to stop annuity payments to deceased beneficiaries, regulators pointed out.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].