West Virginia’s highest court has ruled that life insurance companies doing business in that state are bound by the state’s Uniform Unclaimed Property Act of 1997 and not by the contractual terms of insurance policies to circumvent the obligation to comply with the law.
In 2013, a lower court had ruled that insurance companies were under no obligation to pay the proceeds of unclaimed property until proof of an insured’s death had been submitted to the insurer, a ruling that was challenged by the state treasurer.
In the latest ruling in Purdue v. Nationwide Life Insurance Co., Justice Brent D. Benjamin of the Supreme Court of Appeals, West Virginia’s highest court, said the state’s unclaimed property law requires insurers to turn over unclaimed death benefits to the state within three years.
The judge wrote that the insurance company is required to pay the unclaimed death benefits to the state, even if the policy requires a claim. But the court also found that insurance carriers are under no “affirmative duty” to search death master file (DMF) or other external databases to check whether a policyholder has died.
The decision said in a footnote that insurance carriers offer two opposing arguments with regard to using the DMF.
With regard to paying life insurance death benefits, the court noted that carriers cite errors that appear in the DMF. Carriers point to how in some cases deaths never show up on the list and in other cases the DMF lists people as dead when they are actually alive, the court noted.
Yet, when it comes to annuities, instruments which require a reqular payout, usually until death, insurance carriers find the DMF "reliable enough to support their efforts to cease payments on lifetime annuities," the court noted.
The decision also said carriers are free to contact insureds directly or can choose to farm the task out to agents to find out of policyholders have died. Still other insurance companies might prefer to review the DMF and external databases.
Whichever method carriers choose, they must comply with deadlines in 1997’s Unclaimed Property Act or face fines.
Mike Rato, a partner at McElroy, Deutsch, Mulvaney & Carpenter in Morristown, N.J., and author of blog on unclaimed property law said that the West Virginia high court went further than courts in other states.
The West Virginia Supreme Court of Appeals found that while there may be no duty to search DMFs and no duty on insurers to use it, insurers have an obligation to determine when the policyholder dies and to report it, he said in an interview with InsuranceNewsNet.
In 2012, Treasurer John D. Perdue sued 63 companies doing business in the state on the grounds that the insurers not only withheld life insurance proceeds unclaimed by policyholders, but that the carriers had made no effort to dig through DMFs and other databases to find out if policyholders had died.
Insurance companies, however, sought to dismiss Purdue’s claim and in 2013 the circuit court agreed, reasoning that until proof of an insured’s death had been submitted, the carriers had no obligation to follow the Unclaimed Property Act.
Purdue appealed the circuit court’s decision.
The high court sent the case back to the circuit court indicating that the treasurer would have the right to examine the insurer’s records for compliance with the Unclaimed Property Act.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at email@example.com.
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