Patronis v. United Ins. Co. of Am., No. 1D18-2114

CourtCourt of Appeal of Florida (US)
Writing for the CourtMakar, J.
Citation299 So.3d 1152
Parties Jimmy PATRONIS, in his official capacity as Chief Financial Officer of the State of Florida, and the Florida Department of Financial Services, Appellants, v. UNITED INSURANCE COMPANY OF AMERICA; The Reliable Life Insurance Company; Mutual Savings Life Insurance Company; and Reserve National Insurance Company, Appellees.
Docket NumberNo. 1D18-2114
Decision Date03 June 2020

299 So.3d 1152

Jimmy PATRONIS, in his official capacity as Chief Financial Officer of the State of Florida, and the Florida Department of Financial Services, Appellants,
v.
UNITED INSURANCE COMPANY OF AMERICA; The Reliable Life Insurance Company; Mutual Savings Life Insurance Company; and Reserve National Insurance Company, Appellees.

No. 1D18-2114

District Court of Appeal of Florida, First District.

June 3, 2020
Rehearing Denied August 3, 2020


John W. Terwilleger of Gunster, Yoakley & Stewart, P.A., Tallahassee; Peter Penrod, General Counsel, Department of Financial Services, Tallahassee, for Appellants.

M. Drew Parker of Radey Law Firm, Tallahassee, and Lynden Lyman, pro hac vice, Unclaimed Property Advisor, Concord, MA, in support of Appellants by Amici Curiae the National Association of Unclaimed Property Administrators.

M. Hope Keating of Greenberg Traurig, P.A., Tallahassee; Nicole M. Ryan, pro hac vice and Carol Lynn Thompson, pro hac vice of Sidley Austin, LLP, San Francisco, CA, for Appellees.

Katherine E. Giddings and Diane G. DeWolf of Akerman, LLC, Tallahassee, in support of Appellees by Amici Curiae American Council of Life Insurers; Christine Davis Graves of Carlton Fields, Tallahassee, in support of Appellees by Amici Curiae The National Alliance of Life Companies; Thomas P. Crapps, Timothy J. Meenan, and Kirsten Matthis of Meenan, P.A., Tallahassee, in support of Appellees by Amici Curiae Florida Insurance Council; Timothy G. Schoenwalder of Meenan, P.A., Tallahassee, and Andrew B. Kay, pro hac vice and P. Randolph Seybold, pro hac vice of Venable, LLP, Washington, DC, in support of Appellees by Amici Curiae Thrivent Financial for Lutherans.

Makar, J.

299 So.3d 1154

This case involves life insurance, unclaimed property, and the ominous sounding "Death Master File," which is a federal electronic database administered by the Social Security Administration that includes the agency's records of the names, social security numbers, dates of birth and, of course, dates of death for individuals, going back many decades. Over the past two decades, the insurance industry's selective use of the DMF spawned numerous investigations and reports, litigation by state attorneys general, insurer settlements over disputed practices, and ultimately nationwide reforms. The controversy arose because insurers were routinely using the DMF to identify and stop paying annuities to deceased annuity holders, but they were not using it to identify deceased insurance policyholders, resulting in an asymmetric practice that benefited insurers and disadvantaged consumers of life insurance. Failing to promptly identify a policyholder's death has many detrimental effects: beneficiaries are not notified or paid benefits, premiums continue to be deducted from the deceased's accounts, and the five-year "dormancy" period before unclaimed death benefits are transferred to the State of Florida's custody isn't triggered (i.e., insurers continued to hold and invest hundreds of millions of funds for a longer period of time). See § 717.107(1), Fla. Stat. (2020) ("Funds held or owing under any life or endowment insurance policy or annuity contract which has matured or terminated are presumed unclaimed if unclaimed for more than 5 years after the date of death of the insured, the annuitant, or the retained asset account holder ....").

In response to industry practices and their adverse effects on consumers, the Florida Department of Financial Services (Department) issued a declaratory statement October 2013 that concluded that under existing law a life insurance policy "becomes a claim upon the death of the insured" and that insurers have a duty to search accessible databases to determine whether policyholders had died. That determination was ultimately invalidated in substantial part in Thrivent Financial for Lutherans v. State, Department of Financial Services , 145 So. 3d 178, 182 (Fla. 1st DCA 2014), which held that the Department's declaratory statement as to when proceeds are due and payable was erroneous. Under the then-existing version of section 717.107(1), Florida Statutes, this Court concluded that life insurance proceeds became "due and payable as established from the records of the insurance company " only when the insurer receives proof of death and the surrender of the policy in their official records. Id. at 180 (emphasis added). In other words, an insurer—though having statutory duty to act with due diligence—could passively await the arrival of documents placed in its records

299 So.3d 1155

before taking any action, sometimes decades after a policyholder's death.

In response to Thrivent and the ongoing industry practices, the Florida Legislature in 2016 removed the language that allowed insurers to passively rely on their company records and, instead, imposed a statutory duty on insurers to use the DMF (or its equivalent) at least annually (or as often as they use the DMF to check on annuity contracts) to compare DMF death records against holders of their life insurance policies and annuities. Ch. 2016-219, § 1, Laws of Fla. (codified at § 717.107(8), Fla. Stat. (2016) ). The requirement to use the DMF applied to all "life or endowment insurance policies, annuity contracts that provide a death benefit, and retained asset accounts that were in force at any time on or after January 1, 1992" and the DMF was required to be used for all "future comparisons." Id. Upon discovering an insured is listed in the DMF, an insurer has 120 days to undertake various tasks to confirm the insured's death, to determine whether benefits may be due, and to make efforts to locate beneficiaries. Id. at § 1 (codified at § 717.107(9) ). Finally, the 2016 act also changed the date upon which the five-year dormancy period was triggered to the date of an insured's death rather than the date the insurer received in its records proof of death of the insured (or the date the insured, if living, would reach the so-called mortality limiting age, i.e., an age in the applicable mortality table at which an insured is presumed dead). Id. at § 1 (codified at § 717.107(1) ).

These three related amendments to the unclaimed property statute have been dubbed the "search amendment," the "contact amendment," and the "escheat amendment." The Legislature directed that the "amendments made by this act are remedial in nature and apply retroactively" and that any applicable fines, penalties, or additional interest would not be imposed for failures to report or remit an "unclaimed life or an endowment insurance policy, a retained asset account, or an annuity contract with a death benefit" if such assets are "reported and remitted to the Department of Financial Services on or before May 1, 2021." Id. at § 2. The effect of the 2016 amendments was to override this Court's decision in Thrivent by requiring a process that insurers must follow to make insurance proceeds more readily available to beneficiaries upon the death of an insured and to change and generally shorten the timeframe for the escheat of unclaimed insurance proceeds.

In May 2016, four insurance companies challenged these amended portions of the 2016 act, seeking a declaration that retroactive application violates their state constitutional rights. No claim was made that the three amendments, applied prospectively, are invalid. The insurers’ initial complaint alleged two counts, one claiming a denial of due process under article I, section 9, of the state constitution, and another claiming that the 2016 act was an unconstitutional impairment of contract under article I, section 10, of the state constitution. The latter count was subsequently voluntarily dismissed and eliminated in their last-amended complaint, leaving only the due process claim for adjudication, one the insurers stressed repeatedly throughout the litigation was only a facial challenge to the new statutory provisions ("The Second Amended Complaint as amended by dismissal of Count II asserts a single facial Due Process claim.") that required no discovery ("Because Plaintiffs’ claim is a facial challenge to the Act involving no issues that require factual development, no discovery is necessary to resolve the fundamental legal questions presented.").

The insurers moved for summary judgment on their facial due process claim.

299 So.3d 1156

Based solely on the parties’ legal memoranda, the trial judge ruled in the insurers’ favor, concluding that the three challenged aspects of the act violated due process and could only be applied prospectively. It held that the DMF search amendment, beneficiary contact amendment, and escheat-five-years-from-time-of-death amendment are substantive (rather than procedural or remedial), and that retroactive application of them (a) adversely affected the insurers’ vested rights and (b) imposed new obligations and duties in connection with past transactions or considerations (it found it unnecessary to rule on whether they insurers were subject to new penalties). This appeal ensued.

I.

The theory of the insurers’ case is that the three challenged portions of the 2016 act are facially unconstitutional under the state due process clause, meaning they have no possible lawful applications. Fraternal Order of Police, Miami Lodge 20 v. City of Miami , 243 So. 3d 894, 897 (Fla. 2018)...

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