On June 16, 2015 the West Virginia Supreme Court of Appeals issued its decision reversing the decision of the West Virginia Circuit Court holding that life insurers have no duty under the West Virginia Unclaimed Property Act (UPA) to search the Social Security Administration’s Death Master File (DMF), but that the insurers still have an obligation to report unclaimed life insurance benefits three years after the owner dies. The case has now been sent back to the lower court and ordered to proceed.
In concluding that insurers have an obligation to report unclaimed life insurance benefits three years after the policy owner’s death, the Court did not look to the West Virginia’s Insurance Code to determine when life insurance property becomes payable and, in fact, held that the lower court’s decision to do so was in error. Instead, the Supreme Court of Appeals relied solely on the provision contained the West Virginia Unclaimed Property Act which states that “property is payable or distributable . . . notwithstanding the owner’s failure to make demand or present an instrument or document otherwise required to obtain payment.”
The Court also held that the UPA does not impose a duty on the insurers to search the DMF. However, the Court concluded that, in the case of life insurance policy proceeds, the three-year dormancy period leading to the presumption of abandonment commences with the death of the insured. As such, the insurers must determine death. While the Court states that “[e]ach insurer is free to determine how it will investigate and discover whether its insureds are yet living” it is essentially sending the insurers to the DMF.
This decision is the latest event in a series of events that started in May 2013, when the West Virginia State Treasurer filed lawsuits against 69 individual life insurance companies alleging the carriers failed to comply with unclaimed property laws by not reporting and escheating insurance proceeds when named beneficiaries were unable to be located. The lawsuits further alleged that the carriers should have performed regular comparisons of the DMF to identify deceased policyholders. The West Virginia Circuit Court ruled against the State Treasurer in December 2013, prompting the escalation of the case to the Supreme Court of Appeals.