The Ohio Court of Appeals recently ruled that a life insurer has no affirmative duty to search the Social Security Death Master File (“DMF”)1 to independently determine whether insureds have died where neither the underlying policy nor law imposes such an obligation. See Andrews v. Nationwide Mut. Ins. Co., No. 97891 (Ohio Ct. App. Oct. 25, 2012).
On May 31, 2011, plaintiffs-appellants, two individual insureds, filed a putative class action lawsuit seeking injunctive and declaratory relief against Nationwide Mutual Insurance Company (“Nationwide”) in the Cuyahoga County Court of Common Pleas. The complaint alleged that Nationwide breached its duty of good faith and fair dealing by failing to make reasonable attempts to determine when beneficiaries were entitled to death benefit proceeds. On January 23, 2012, the trial court granted Nationwide’s motion to dismiss, finding that plaintiffs-appellants lacked the requisite standing to file the action, and that the claims alleged in the complaint were barred by the plain language of the two insurance policies.
Plaintiffs-appellants, subsequently appealed the judgment, raising three assignments of error: (1) the trial court erred in concluding that the terms of the life insurance policies create a clear and unambiguous condition precedent which precludes the use of readily available electronic databases; (2) the trial court erred in concluding that plaintiffs-appellants lack standing to seek declaratory and injunctive relief as to Nationwide’s refusal to make the same inquiry of its life insureds as it does for payees of its annuities; and (3) the trial court should have allowed for a complete development of the record.
Focusing primarily on the contract provisions in the two insurance policies at issue, the Ohio Court of Appeals affirmed the trial court’s decision. The appellate court found no ambiguity in the policies and ruled that the terms “receipt” and “receiving” clearly demonstrate “Nationwide’s passive role in establishing an insured party’s proof of death; they do not connote an obligation to procure such information.” (emphasis added). Moreover, the appellate court held Ohio law provides that the burden of furnishing Nationwide with proof of death lies with beneficiaries or claimants. The appellate court also rejected plaintiffs-appellants’ contention that life insurance policies are distinguishable from other forms of insurance policies because the triggering event (i.e., death of the insured) is certain to occur, reasoning that such certainty does not place “an additional duty on Nationwide beyond what is expressed in the [policies].”
The Ohio Court of Appeals similarly found meritless plaintiffs-appellants’ allegation that Nationwide breached its implied covenant of good faith and fair dealing by failing to utilize the DMF for the benefit of its insureds. Although Ohio law provides that an insurer has a duty to act in good faith in handling claims, the appellate court found that Nationwide did not breach its duty by failing to incorporate the DMF into its servicing practices when it was neither contractually nor legally obligated to do so.
Significantly, the appellate court was aware that Nationwide allegedly utilized the DMF to selectively terminate annuity payments. The appellate court nonetheless refused to look beyond the terms of the insurance policies to find that Nationwide was required to use the DMF to determine beneficiary payments. Specifically, the appellate court held that “[i]n the absence of legislative or administrative regulatory action, we will not import additional unspoken duties and obligations onto Nationwide that will conflict with the parties’ contracted terms.”
Nationwide Financial Services, Inc. agreed in October 2012 to pay more than $150 million to unclaimed death beneficiaries and state regulators. As reported by the Hartford Courant, the settlement requires Nationwide to run the DMF, or a similar database, monthly to determine whether life insurance policyholders, annuity owners or holders of retained-asset accounts are deceased. If Nationwide learns that a policyholder is deceased, the insurer must search for beneficiaries using all records, online searches and other methods. Should Nationwide fail to find a beneficiary, it must transfer funds to the appropriate state authority as unclaimed property.
A copy of the decision can be found here.