Over the last couple of years numerous class actions have been filed against life insurance companies alleging that the companies should be required to perform searches of the Social Security Death Master File database to ascertain whether death benefits may be due that have not been claimed by beneficiaries. This has also been the focus of regulatory action by some insurance departments. In one of the first appellate decisions on this issue, the Ohio Court of Appeals recently upheld a trial court’s decision dismissing the complaint for failure to state a claim upon which relief could be granted. This decision likely will be quite helpful to insurers litigating this issue in other cases.
In Andrews v. Nationwide Mutual Insurance Company, 2012 Ohio 4935, 2012 Ohio App. LEXIS 4318 (Ohio Ct. App. Oct. 25, 2012), the plaintiffs brought a putative class action alleging that Nationwide breached the duty of good faith and fair dealing under life insurance policies by failing to take reasonable steps to ascertain whether insureds had died and death benefits were due but unclaimed. The trial court dismissed the complaint both on the ground that the plaintiffs lacked standing and because the claims alleged were barred by the plain language of the policies. Id. at *3-6.
The Ohio Court of Appeals assumed that the plaintiffs had standing and affirmed the dismissal based on the policy language. One of the policies provided that:
We agree to pay the Death Proceeds to the Beneficiary upon receiving proof that the Insured has died while this Policy is in force and before the Maturity Date.
* * *
[Nationwide] will pay the Death proceeds to the Beneficiary after we receive at our Home Office proof of death satisfactory to us and such other information as we reasonably require.
Id. at *11-12 (emphasis added by court). The opinion indicated that this form of policy language was required in Ohio by statute. Id. at *2-3 n.1. The court reasoned that “[t]he terms ‘receipt’ and ‘receiving’ demonstrate Nationwide’s passive role in establishing an insured party’s proof of death; they do not connote an obligation to procure such information,” and “[t]hus, a finding obligating Nationwide to solicit or gather information pertaining to an insured’s death would be contrary to the terms contained in the insurance policy.” Id. at *12-13. The plaintiffs argued that because death is inevitable, the duty of good faith and fair dealing requires proactive action by a life insurer. The court of appeals rejected that position , explaining that “[w]hile we understand that the death of an insured party is an inevitable fact, we are not persuaded that such certainty places an additional duty on Nationwide beyond what is expressed in the life insurance contracts, and appellants provide no case law to support such a proposition.” Id. at *15. The court further reasoned that “[i]n the absence of legislative or administrative regulatory action, we will not import additional unspoken duties and obligations onto Nationwide that will conflict with the parties’ contracted terms.” Id. at *16.
In some jurisdictions, a statute or regulation requires a life insurer to conduct searches of the Social Security Death Master File. But absent such a legislative or regulatory requirement, and where a putative class action attempts to retroactively impose such a requirement before the statute or regulation took effect, this decision should be helpful to insurers in defending against this type of class action litigation. This decision will be especially helpful where the insurer’s policy language is analogous to the provision quoted above.