California Supreme Court Applies Life Policy Termination Rules to Pre-2013 Policies

The law applies to how an insurer handles new skipped payments, and the date of the new skipped payments does not depend on the policy issue date, Cuéllar says.

Moreover, applying the grace period and policy termination notice rules retroactively would not "impinge on a contracting party's substantial rights or unfairly upset the bargain memorialized in the insurance policy, for example, by requiring an insurer to provide substantially expanded coverage without also giving it an opportunity to raise premiums," Cuéllar adds.

The majority sent the case back to lower courts for further review.

Reactions

Jack Winters Jr., a member of the team of lawyers that represented McHugh's beneficiaries, welcomed the ruling.

"We are pleased with the well-reasoned decision which we believe is consistent with existing California law and will result in preservation of thousands of valuable life insurance policies that would otherwise have been lost," Winters said in a statement.

John Neiman, a lawyer with Maynard Cooper and a member of the legal team that has represented Protective, said in a statement that the company cares deeply about its customers.

"It has a strong history of providing important consumer safeguards in its policies, such as lapse notices and grace periods, which are the focus of the 2013 statute at issue in the McHugh opinion," Neiman said. "Protective disagrees, however, with the California Supreme Court's decision, which creates uncertainty on how to apply a new law to existing contracts. A San Diego jury already ruled in favor of Protective in this case, and we expect that verdict to be upheld on remand."

Protective Life representatives were not immediately available to comment on the ruling.

Nicholas and Tomasevic, a San Francisco-based law firm that helps consumers fight life insurance policy cancellations, and that submitted a brief supporting McHugh's position, put out a press release predicting that the ruling will help thousands of consumers in California overturn policy terminations.

Possible Broader Effects

Justice Martin Jenkins writes, in a concurring opinion representing his views and those of Justice Carol Corrigan, that he and Corrigan agree that the California grace period and policy termination notice rules should apply to the McHugh policy, but that he believes the majority has taken an unusual approach to analyzing whether the rules could apply retroactively.

Jenkins says California courts usually analyze two separate retroactivity-related questions: whether the courts should stick with their usual presumption against applying laws retroactively, and whether applying a law retroactively would have enough of an impact to unconstitutionally impair contractual rights.

California courts usually consider the size of the impact during the constitutionality analysis, not when looking at whether to apply the presumption against retroactivity, Jenkins observes.

Considering the size of the effect of retroactivity during the presumption analysis, rather than during the constitutionality analysis, could have unforeseen consequences, Jenkins concludes.

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