Mchugh v. Protective Life Insurance Company - S259215 - 08/30/2021

 

In Mchugh v. Protective Life Insurance Company, the California Supreme Court construed a statute that required insurance companies to provide a grace period and certain types of notice notice before terminated a life insurance policy.  It held the statues applied to policies that were issued before the law was enacted.

As of January 1, 2013, California Insurance Code sections 10113.71 and 10113.72 provide that a life insurance policy cannot be cancelled for nonpayment until a 60-day grace period has passed and 30 days’ notice of termination has been provided. 

In Mchugh v. Protective Life Insurance Company, the insured failed to pay a life insurance premium in February 2013, the policy was terminated, and in June 2013, the insured died.  Plaintiff claimed that the defendant insurer did not properly terminate the policy because it did not comply with the required grace period and notice.  An appellate court upheld a jury verdict in favor of the insurance company on the ground that the policy at issue was issued prior to 2013 and the new statutory requirements should not be applied retroactively to policies that were issued before 2013.

The majority opinion spends considerable time asking whether the grace and notice requirements applied “retroactively” in a manner that created a presumption the Legislature did not intent to have the statute apply to policies issued before 2013.  The Court reasoned the statutes were not invoke the presumption because that the grace period and notice provisions only dictated the procedures for terminating policies going forward.  They did not impose new liabilities based upon past conduct, and the statutes did not unfairly upset the bargain of the insurance policy by requiring an insurer to provide substantially expanded coverage without giving it an opportunity to raise premiums.

The insurer argued that the grace period was an important part of the bargain, and the insurer was unable to change premiums to account for the new rules; the Court rejected this argument on the ground that the insurance industry is so heavily regulated that further regulation was a risk of doing business, and the insurer did not identify how the bargain was substantially upset by the change in cancellation procedures.

Construing the language of the statutes, the Court found arguments in favor and against applying the statutes to existing policies issued prior to 2013.  The Court then turned to legislative history that suggested the Legislature expected the statutes to apply to presently existing policies.  Weighing these considerations, the Court concluded the statutes applied to policies existing at the time of enactment.