The U.S. Court of Appeals for the First Circuit has confirmed that proof of death is a reasonable requirement for payment under a life insurance policy, and is a prerequisite to monies becoming “payable” under unclaimed property laws governing such policies. On May 27, a three-judge panel affirmed dismissal of a putative class action over an insurer’s alleged failure to timely pay life insurance policy death benefits to beneficiaries. Feingold v. John Hancock Life Insurance Co., No. 13-2151 (1st Cir.). Click here for the opinion. 

The lawsuit sought to challenge the insurer’s alleged practice of holding policy proceeds until receiving proof of the insured’s death, arguing that the insurer acted unreasonably in failing to investigate whether the beneficiary’s mother had died. The insurer paid the death benefit to the beneficiary shortly after it had received the proof of death required under the policy’s terms. The federal court in Massachusetts granted the insurer’s motion to dismiss the beneficiary’s state consumer protection claims, as well as his claims for conversion, unjust enrichment, breach of fiduciary duty and declaratory relief, holding that the insurer’s practice of requiring the policy’s beneficiary to submit proof of death before payment under the policy comported with both Massachusetts and Illinois law. Click here for our previous Legal Alert on the district court’s dismissal.

On appeal, the First Circuit affirmed the insurer’s practice of requiring life insurance policy beneficiaries to submit proof of death before making any payments under the policy at issue. Citing Illinois precedent for the proposition that the proof of death requirement was a “reasonable requirement in an insurance policy,” the Court of Appeals held that this “proof of death notice requirement complies with Illinois law.” The Court further concluded that this requirement “is also in accord with Illinois’s unclaimed property statute, which acknowledges that life insurance proceeds are not payable without proof of death.”

The court rejected the beneficiary’s assertion that the insurer’s entry into a regulatory settlement—the Global Resolution Agreement (GRA)—with unclaimed property administrators of 30 states and the District of Columbia altered the company’s payment obligations under established law. Observing that the beneficiary only had authority to enforce the terms of the GRA if he were a third-party beneficiary of that contract, the court noted the absence of language showing that “the GRA was intended directly to benefit anyone other than the signatory states negotiating Hancock’s obligations with respect to their unclaimed property programs.”

In affirming the district court’s dismissal, the First Circuit rejected the beneficiary’s argument that the insurer was required to consult the Social Security Administration’s Death Master File (DMF) to check whether life insurance policy holders were deceased. The beneficiary alleged that the insurer was required to use the DMF for insureds under life policies because it allegedly consulted the same database to check whether annuity holders had died. In the court’s view, however, the beneficiary had not identified “any source outside of the GRA, whether it be a statute or common law, that requires Hancock proactively to search public death records for policyholders’ names rather than wait for submission of proof of death in accordance with its insurance policy provisions.”