Amendments to the Florida Disposition of Unclaimed Property Act in 2016 made significant changes to unclaimed property presumptions and insurance company obligations. See § 717.107, Fla. Stat. (2016) (the Act). Among other things, the Act: (a) revises conditions of when certain insurance policies or annuity contracts are deemed matured and the proceeds are due and payable; (b) requires  insurance companies to compare their records of life or endowment insurance policies, annuity contracts, and retained asset accounts against the United States Social Security Administration Death Master File (DMF) to determine whether a death is indicated, to update certain records, and to remit to the State of Florida any unclaimed funds within five years after a policyholder’s date of death; and (c) provides for a presumption of death for individuals whose names are contained in the DMF. Importantly, the Act specifies that it is remedial and applies to all policies entered into after July 1, 1992. Ch. 2016-219, § 2, Laws of Fla. (2016). 

Existing life insurance policies typically require beneficiaries to provide their insurance companies with proof of death before the insurance companies are required to investigate and pay any claims. Under section 627.410, Florida Statutes, the Florida Office of Insurance Regulation has been responsible for reviewing and approving this policy language to ensure that it was consistent with the statutory requirements applicable at the time the policies were sold. See § 627.461, Fla. Stat. Before the Act became effective, insurance companies were required to remit unclaimed funds to the State of Florida five years after the date the funds became due as determined from the insurance company’s records. Under the Act, insurance companies must remit the unclaimed funds five years after a policyholder’s date of death, and the insurance companies must cross-check their policyholder lists with the death records in the DMF, investigate and determine whether any benefits are due to their policyholders (i.e., verify if any of their policyholders have died), and notify any beneficiaries on how to submit a claim for benefits. According to the bill analysis, the Florida Department of Financial Services estimates the Act will result in the remittance of funds “far exceeding $100 million” to the Bureau of Unclaimed Property.

Shortly after passage of the Act, four insurance companies (the plaintiffs) – United Insurance Company of America, The Reliable Life Insurance Company, Mutual Savings Life Insurance Company, and Reserve National Insurance Company – filed suit in Leon County challenging the constitutionality of the Act. United Ins. Co. v. Atwater, Case No. 2016-CA-1009 (Fla. 2d Jud. Cir. Ct.) They asked the court to invalidate that portion of the Act that provides that the Act applies to insurance contracts entered between July 1, 1992 and April 12, 2016 (the Act’s effective date). In other words, the plaintiffs want the court to determine that the Act’s retroactive application is unconstitutional – not that the entire Act is unconstitutional. The plaintiffs argue the Act is unconstitutional because: (1) retroactive application of the Act violates the plaintiffs’ due process rights under Article I, Section 9 of the Florida Constitution; and (2) the Act operates as a substantial impairment of contract in violation of Article I, Section 10 of the Florida Constitution.

The plaintiffs allege that the Florida Office of Insurance Regulation approved their insurance contracts, all of which contain a provision requiring claimants under life insurance policies to provide the plaintiffs with “due proof of death in the form of a certified death certificate or court order as a condition precedent” to plaintiffs’ duties to investigate and pay claims. Under these contractual provisions, the plaintiffs argue that their obligation to investigate and pay a claim is triggered not by a policyholder’s death, but by plaintiffs’ receipt of due proof of death. According to the plaintiffs, approximately 150,000 of these policies are still in force.

The plaintiffs claim they entered the policies in reliance on the contractual provision requiring policyholders to provide proof of death and the then-applicable statutes addressing escheatment of funds held or owing under any life insurance policies. According to the plaintiffs, the retroactive application of the Act will cause them significant monetary damages because of increased administrative costs necessary to comply with the Act and reduced cash flow from the earlier escheatment of funds to the State of Florida.

Filing of the litigation does not stay the effective date of the Act, but there is a statutory grace period until May 1, 2021 before the State can impose fines, penalties, or interest for an insurer’s failure to report and remit unclaimed funds. In addition, even if plaintiffs win, the result may apply only to their insurance policies and may not apply to other companies’ policies. Companies with life insurance coverage of Florida residents should closely review the Act’s requirements to make sure they are in compliance. They may also want to consult counsel and closely follow this litigation to determine whether they should file similar actions.