Treasure chest on white.

In 2016, the Florida legislature amended its unclaimed property law to require life insurance companies to conduct annual Death Master File (“DMF”) searches on active and terminated policies dating back to 1992. Fla. Stat, § 717.107.  One life insurer immediately filed suit against Florida’s Chief Financial Officer and the Florida Dept. of Financial Services to overturn the law on constitutional grounds, most notably its retroactive application.  United Ins. Co. of Am. v. Jeff Atwater, No. 2016-CA-1009 (Fla. Cir. Ct. 2d Dist. Leon Cty).   On May 16, 2017, the life insurer voluntarily dismissed one of its two counts in that lawsuit and now seeks declaratory and injunctive relief from the retroactive application of the amended statute on due process grounds alone.  The due process claim alleges that the statute adversely affects vested rights, imposes new obligations regarding DMF searches and beneficiary outreach, and imposes additional penalties for failure to perform the new obligations.

Many life insurance companies are watching this case with great interest, not only for court guidance on the constitutionality of retroactive obligations and penalties, but also because of the asymmetric application of those provisions.  The newly amended law exempts a certain class of insurers from the retroactive burdens. For example, if by June 30, 2016, a life insurer (i) had entered into a regulatory settlement agreement with the Florida Office of Insurance Regulation or (ii) had received a targeted market-conduct examination report regarding claims-handling and DMF use, the insurer is not obligated to conduct annual searches of lapsed or terminated policies back to 1992. It only has to search in force policies.

Of course, most life companies conduct regular DMF searches of their policyholder data, all the while maintaining direct control over the security of those highly sensitive consumer data.  The Florida law fails to recognize both the reality of the insurer searches and the data privacy risk of requiring an insurer to turn over this sensitive data to the Florida treasurer’s third-party auditor for the purpose of conducting the search.

The outcome of the United Insurance litigation will address the retroactive application of an unclaimed property law, but the context of the litigation could determine more.  If Florida prevails, it will underscore yet another shift of the claims process from departments of insurance to the state treasurers.  If state insurance departments remain silent to treasurers’ efforts to expedite the life insurance claims process for budgetary gain, life insurers are left as the only voice of reason.