Legislation requiring the life insurance industry to conduct searches of the Social Security Administration’s Death Master File (DMF) and set the trigger for the escheatment dormancy period at the date of an insured’s death is unconstitutional in violation of due process if applied retroactively, according to an April 20, 2018 decision by the Circuit Court for Leon County, Florida in United Insurance Company of America, et al. v. Jeff Atwater et al.
Like several states in recent years, Florida enacted legislation in 2016 addressing unclaimed property in the form of life insurance benefits. Florida’s 2016 legislation amended the section of its Disposition of Unclaimed Property Act (DUPA) specifically relating to life insurance. Despite the “small textual changes” involved with these amendments, the Court concluded that the legislature made four substantive changes to the law that could not be applied retroactively.
These changes include the following: (1) the trigger for the dormancy period for escheating unclaimed life insurance benefits is the date of the insured’s death, not the date an insurance company receives proof of death or when the insured reaches the mortality age; (2) insurance companies must search the DMF or other comparable database to seek out information about deaths of insureds; (3) insurance companies must contact the beneficiary of a policy after learning of a death through a DMF search and must inform the beneficiary about the benefits; and (4) some companies must apply these amendments to all in-force policies while others must apply them to policies in force any time after January 1, 1992.
Despite express language in the enacting legislation stating that the amendments were remedial in nature and should apply retroactively, the Court analyzed the amendments to determine whether applying them retroactively would be unconstitutional as the insurers argued. Applying familiar principles regarding remedial and procedural enactments as opposed to substantive ones, the Court concluded that all three of those categories could apply to different aspects of the amendments. But because “a law that creates a substantive right can be considered to be remedial[,] . . . [t]he issue [was] whether due process prevents this act from being applied retroactively.”
Under the Due Process Clause, a law cannot be applied retroactively if it “(1) adversely affects or destroys a vested right, (2) imposes or creates a new obligation or duty in connection with a previous transaction or consideration, or (3) imposes new penalties,” according to the Court. The Court then analyzed each amendment under this framework. With regard to the amendments requiring searches and contact with beneficiaries, the Court rejected the State’s argument that the amendments codify legal obligations insurance companies already had under the law. The Court reiterated that there was no implied duty in prior law for insurers to search for death records and no requirement to pay benefits to beneficiaries until receiving proof of death, citing a 2014 Florida appellate decision favorable to the insurance industry in Thrivent v. Florida. Thus, these amendments to the DUPA impose or create new obligations or duties in connection with previous transactions.
With regard to the change in the trigger date for the dormancy period for escheatment, the Court determined that it created a new obligation to escheat funds at an accelerated rate and makes insurers “now liable to the State for certain funds for which they would have not been liable before.” Thus, the amendment could not be applied retroactively.
On the third element of the due process inquiry—whether retroactive application of the act imposes new penalties—the Court noted that “penalizing companies for violating new obligations or duties may constitute an impermissible penalty, even with a grace period” but declined to affirmatively rule on the issue due to its other findings.
Florida is one of approximately 28 states that have adopted legislation requiring life insurance companies to search the Social Security Administration’s Death Master File or other comparable database in the last few years. Insurers should stay apprised of these types of legislative developments and consult their counsel regarding compliance.