A federal district court judge in Massachusetts has called into question the very basis for the aggressive efforts of states to collect the unclaimed proceeds of life insurance policies.
In a decision handed down Tuesday, Judge Joseph Tauro said that Massachusetts and Illinois allow insurance companies to require a beneficiary to furnish proof of death before paying policy proceeds.
The case is Richard Feingold v. John Hancock Life Insurance Co.
The judge acted in dismissing a class action lawsuit against John Hancock Life Insurance Co.
A lawsuit filed last month in California against state Comptroller John Chiang makes a similar claim.
An industry lawyer who asked not to be named noted that the Feingold decision is the second recent instance where a court has rejected a plaintiff’s attempt to impart liability on a life insurer for breach of an alleged obligation to engage in efforts to determine whether insureds have died before a claim for death benefits is submitted.
The first was in Andrews v. Nationwide Mutual Insurance Company, another putative class action, where, in October 2012, Ohio’s Court of Appeals affirmed dismissal of the complaint, holding that the defendant companies did not have a duty under the insurance contract to search the Social Security Death Master File for potentially deceased insureds, the lawyer said.
All courts addressing this issue have ruled that insurers do not have a duty to search the Social Security Administration’s Death Master File. The law provides no support for a “duty to search” in states which have not adopted NCOIL type legislation,” said Phillip E. Stano, a partner at Sutherland, Asbill & Brennan in Washington. Stano represents a number of clients in litigation and negotiations with state regulators on this issue.
In this most recent decision, Tauro relied on “established principles of insurance law,” including that an insurance policy may require a beneficiary to furnish proof of death before paying policy proceeds, according to an alert on this decision issued by Jorden Burt LLP’s Unclaimed Property Task Force.
The alert said that the court found that “Hancock’s practice of requiring the life insurance policy beneficiary to submit proof of death before payment comports with both Massachusetts and Illinois law.”
As a result, the judge held that “plaintiff’s claim that Hancock engaged in unfair and deceptive conduct in violation of state consumer protection laws failed,” according to the alert.
It also said Tauro concluded that the same established principles of insurance law undermined the unjust enrichment, conversion, and declaratory relief claims.
Because the insurance policy and state law permitted Hancock to hold policy proceeds until proof of death was provided, plaintiff could not establish that Hancock’s actions violated “fundamental principles of justice, equity and good conscience” sufficient to state an unjust enrichment claim, Tauro said in his decision.