Insurance companies have been the subject of intense scrutiny by state unclaimed property administrators over the industry's historic asynchronous use of the Social Security Death Master File and similar databases to stop payments on annuity contracts while not using the same databases to determine that an insured under a life insurance contract may have died, and thus triggering a payment obligation. Many states, generally led by California and Florida, teamed up with Verus Financial, an unclaimed property audit firm, began requiring insurers to search the SSDMF as a condition of the audit settlement.
The West Virginia State Treasurer John Perdue sued 69 life insurers for failure to turnover life insurance proceeds after requiring them to search the SSDMF for deceased insureds. In December 2013, the trial court dismissed the actions saying that West Virginia statutes did not contain an affirmative obligation that the insureds search the SSDMF. The trial court said that the life insurers had no obligation to pay on an insurance contract until they were in receipt of due proof of death or the insured had reached the limiting age (typically 95 years old), as defined by state statute. The Treasurer appealed the circuit court's order.
The West Virginia Supreme Court has now reversed the circuit court, saying that "the circuit court's interpretation failed to give force and effect to the plain meaning of the words used in the Act, thereby frustrating the clear legislative intent." The Court said the dormancy period leading to the presumption of abandonment commences with the death of the insured. It is up to each insurer to determine how it will investigate whether the insured is still living. Insurers may determine that it is most economical to contact insureds directly or through its networks of agents or to search the SSDMF. The Court did not mandate that the insurers use the SSDMF but did say that this is one way that they may comply with the statute. Justice Ketchum, in a concurring opinion, would have taken the additional step of requiring the insurers to search the SSDMF.
The Court remanded the case to the circuit court and instructed that court to permit the Treasurer to audit the insurers' records for compliance with the Act.