Florida Supreme Court Weighs Insurance Search Law

The Florida Supreme Court on Wednesday waded into a battle about the constitutionality of a 2016 state law that put new requirements on life-insurance companies to determine whether policyholders have died.

Four insurers are fighting a requirement that they retroactively search what is known as the “Death Master File” to determine whether policyholders have died. The Death Master File is a database run by the federal Social Security Administration.

While the insurers — United Insurance Company of America, The Reliable Life Insurance Company, Mutual Savings Life Insurance Company and Reserve National Insurance Company — do not challenge the requirements for new policies, they argue that their rights are violated by having to conduct retroactive searches.

A divided 1st District Court of Appeal last year upheld the law, spurring the insurers to go to the Supreme Court.

“What this statute does is (it) imposes upon us a huge obligation that is going to have to be carried out manually in a lot of cases,” Robert Hochman, an attorney for the insurers, said during Supreme Court arguments Wednesday. “You are talking about policies going back decades.”

But at least some justices appeared skeptical of the insurers’ arguments. Justice Carlos Muniz, for example, said the law does not change the relationship between policyholders and insurers, who are required to pay claims.

After Hochman said the law affects insurers’ actuarial calculations and “flow of payments,” Muniz questioned whether insurers “essentially planned for ignorance, as to whether people are alive or not.”

The Supreme Court typically takes months before ruling in such cases.

The law requires life insurers to use the Death Master File to conduct searches for policies dating back to 1992. If they find matches between policyholders and people in the Death Master File, they are required to try to find beneficiaries. If beneficiaries cannot be found, insurers are supposed to remit the money to the state as unclaimed property.

“Once there is a death of the insured, then what happens to the money?” Joe Jacquot, an attorney for the Florida Department of Financial Services, said Wednesday in defending the law. “Does it get paid out to the beneficiaries? The new statute says that there is an obligation to go in and enhance your records and check the Death Master File to identify that death.”

Then-Leon County Circuit Judge Terry Lewis in 2018 sided with the insurers, finding that the law violated their constitutional due-process rights. But in a 2-1 decision, a panel of the 1st District Court of Appeal said insurers’ “selective use” of the Death Master File spawned investigations and lawsuits. Companies were accused of routinely using the Death Master File to identify people whose deaths would end annuity payments, while not as promptly identifying people whose deaths would require payouts of insurance policies.

“As to insurance proceeds, it is clear that some, if not many, insurers nationwide and in Florida were not complying with their pre-existing obligations to ensure that life insurance contracts were handled with consumers’ interests in mind,” the appeals-court opinion said. “Rather than vigilantly using the DMF (or some other equivalent or substitute) to track possible deaths of holders of life insurance, many insurers used the DMF only as a means to curtail annuity payments when an annuity recipient died. The investigations, litigation, and settlements in the industry nationwide over the past decade about the practices at issue in this case, which need not be recounted in detail, provide the foundation for remedial statutes enacted in many states, including in Florida, to formally rectify industry practices harmful to consumers.”

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