Scrutiny over the life insurance industry’s “asymmetric” use of the Social Security Administration’s Death Master File has come primarily from the regulatory community in the form of unclaimed property audits and market conduct examinations, where life insurers do not have the benefit of a neutral arbiter of the law. In the few instances where insurers have been able to defend their practices in court, however, they have fared well. The life insurance community scored another victory this week in Feingold v.John Hancock Life Insurance Co., No. 13-10185 (D. Mass.).
In January 2013, Richard Feingold brought a putative class action against John Hancock alleging that it acted unreasonably in failing to search the DMF to determine whether his mother had died. Feingold alleged that “John Hancock regularly uses this database to determine when it may stop paying death benefits but never to determine whether to start.” As a result, according to Feingold, John Hancock was able to collect and use the interest on unclaimed policy proceeds for its own benefit. Feingold alleged that John Hancock’s so-called asymmetric use of the DMF violated Massachusetts’ consumer protection laws and also resulted in unjust enrichment.
On August 19, 2013, Judge Joseph L. Tauro of the United States District Court for the District of Massachusetts granted John Hancock’s motion to dismiss Feingold’s complaint. At the core of the order dismissing the case was an endorsement of the “established principle of insurance law” that John Hancock could require a beneficiary to submit proof of an insured’s death before payment of a death benefit. The Court analyzed Feingold’s various claims and rejected each of them, noting that “John Hancock’s practice of requiring the life insurance policy beneficiary to submit proof of death before payment comports with both Massachusetts and Illinois law.”
This decision builds on the industry’s victory last year in Andrews v. Nationwide Mut. Ins. Co., No. 97891 (Ohio App. Ct. Oct. 25, 2012). In that decision, an Ohio appellate court similarly found that life insurers have no obligation to seek out potential claims by searching the DMF or other public databases.
Despite the fact that two courts have now rejected the notion that an insurer’s use of the DMF for life insurance business, but not for annuity or other pay-out business, does not constitute an unfair claim practice, it is doubtful that regulators will reconsider the merits of their campaign against life insurers. Nevertheless, these decisions should encourage life insurers to take a stand against overly aggressive regulators and to defend their practices.