The West Virginia Supreme Court of Appeals recently issued an opinion in Purdue v. Nationwide Life Insurance Company, a case presenting the issue of whether a life insurer is required to undertake periodic investigations to determine whether any of its policyholders are deceased.
The case began in 2012, when West Virginia State Treasurer John D. Purdue sued ten life insurers, claiming that they failed to report and deliver unclaimed insurance policies in accordance with the West Virginia Unclaimed Property Act. Specifically, the Treasurer alleged that because the insurers did not regularly review in-force policies against the Social Security Death Master File (DMF) to determine whether the policyholder was deceased, they failed to report property when due. The Treasurer's office sued dozens of additional insurers in 2013, making similar allegations against a total of 69 separate companies. The insurers contested the Treasurer's theory, generally arguing that as a contractual matter, the policies at issue were payable upon notice and proof of the insured's death. The insurers further noted that they were under no statutory obligation under the West Virginia Unclaimed Property Act or otherwise to undertake searches of the DMF.
In December of 2013, a West Virginia court dismissed the Treasurer's lawsuits, siding with the insurers and ruling that there was no affirmative legal duty to search the DMF. The Treasurer appealed the decision to the West Virgina Supreme Court, which ruled in favor of the Treasurer and sent the case back to the lower court for further proceedings.
In the Supreme Court's view, it was undisputed that unclaimed life insurance policies were escheatable three years after the insurer's obligation to pay arose; rather, the case boiled down to when the obligation to pay arose. According to the Treasurer, the obligation to pay arises when the policyholder dies. According to the insurers (and the lower court) the obligation to pay does not arise until proof of the insured's death is provided to the insurer.
The Supreme Court began its analysis by reviewing Section 2(e) of the West Virginia Act, which generally provides that property is payable "not withstanding the owner's failure to make [a] demand" for payment. That language, the Court explained, undercut the insurers' argument that an insurance policy cannot be payable until such time as a claim is filed. In so doing, the Court distinguished cases in other states requiring a claim on the grounds that those cases simply held that an insurer had no obligation to search the DMF, not that the obligation to pay doesn't arise until a claim is made.
Having made that distinction, however, the Court was left with the following question: How is an insurer to obtain information regarding policyholder deaths if there is no affirmative duty to search the DMF? Indeed, the Court explicitly held that the West Virginia Unclaimed Property Act "imposes no specific duty on insurers to search the [DMF] or any comparable data source." The Court largely punted back to the insurers on this issue - holding that the dormancy period commences with the death of the insured and that the insurers could do whatever they want to determine when a policyholder death takes place. Of course, the insurers could search the DMF, the Court explained, but they could also "contact its insureds directly" (e.g., call them every year), farm the task out to agents, or do whatever else the found "the most economical" so long as they obtained the required information.
The Supreme Court sent the case back to the lower court to allow the Treasurer's office to continue its examination of the insurers' records.