In McHugh v. Protective Life Ins., 40 Cal. App. 5th, 1166 (2019), the Court of Appeal affirmed a jury verdict in favor of a life insurance company, holding that statutes extending the required grace period before a policy can be terminated for nonpayment of premium do not apply retroactively to policies issued before the effective date of the statutes.
Protective Life Insurance ("Protective Life") issued a 60-year term life insurance policy to William Patrick McHugh in 2005. The policy provided for a 31-day grace period before Protective Life could terminate it for failure to pay the premium.
On January 1, 2013, Insurance Code sections 10113.71 and 10113.72 (the "Statutes") came into effect, requiring life insurance policies to provide for a 60-day grace period before they could be terminated for nonpayment of premium.
On January 9, 2013, McHugh failed to pay his premium. The policy lapsed 31 days later. In June 2013, McHugh passed away.
McHugh's wife, Trysta Henselmeier, and his daughter and designated beneficiary on the policy, Blakely McHugh (collectively, "Plaintiffs"), then sued Protective Life for breach of contract and bad faith on grounds that Protective Life had failed to comply with the Statutes' requirement of a 60-day grace period before termination of the policy. The trial court denied Protective Life's motion for a directed verdict on grounds that the Statutes did not apply to the policy, finding that they did apply to McHugh's policy. At trial, the jury nevertheless returned a verdict in favor of Protective Life. On appeal by the Plaintiffs, Protective Life again argued that the verdict should be affirmed on the additional grounds that the Statutes do not apply to the policy.
In affirming the verdict, the Court of Appeal held that the Statutes do not apply retroactively to policies issued before the January 1, 2013, effective date of the Statutes. In reaching its decision, the appellate court relied heavily on the Department of Insurance's ("Department") interpretation of the Statutes, which had been consistently communicated by the Department in response to inquiries about the Statutes by the insurance industry, noting that the court is "required to give deference to the Department's interpretation, as long as it is reasonable and consistent with the language of the statutes."
In examining the language of the Statutes, the court found that they did not contain express language making them retroactive.
Assembly Bill No. 1747's provisions indicate the new law applies only to term life insurance policies issued or delivered after January 1, 2013. Specifically, section 10113.72, subdivision (a) states the policy "shall not be issued or delivered" until the "applicant has been given the right to designate at least one person, in addition to the applicant, to receive notice of lapse of termination of a policy for nonpayment of premium." This provision clearly does not apply to policies issued before the statute's effective date because an existing policyholder is not—and by definition cannot be—an "applicant."
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Section 10113.71, subdivision (b)(1) provides: "A notice of pending lapse and termination of a life insurance policy shall not be effective unless mailed by the insurer to the named policy owner, a designee named pursuant to Section 10113.72 for an individual life insurance policy, and a known assignee or other person having an interest in the individual life insurance policy, at least 30 days prior to the effective date of termination if termination is for nonpayment of premium." The use of the term "designee" indicates a notice of pending lapse and termination only applies to term life insurance policies issued after January 1, 2013 because the "right to ... designate" exists only in policies issued after that date.
Further, subdivision (a) of each of the Statutes refers to policies "issued or delivered," terms which California law holds must refer to the original issuance and delivery of the policy. As McHugh's policy was issued or delivered in 2005, "it could not incorporate the statutory amendments that became effective in 2013." The court further reasoned that had the Legislature intended the Statutes to apply retroactively, it could have provided that the Statutes applied to all policies "in force," yet it chose not to use that language. For these reasons, the appellate court concluded that "the Department's interpretation that the statutes apply only to term life insurance policies issued after January 1, 2013, is reasonable and correct."
In reaching its decision, the court rejected an amicus curiae brief which argued that the intent of the author of Assembly Bill No. 1747 – which created the Statutes – was to have the Statutes apply to all term life insurance policies. The court reasoned that the author's intent was irrelevant; all the court must determine is the Legislature's intent in drafting the Statutes.
Legislative intent and the intent of the author are not necessarily the same. It is clear from the legislative history that the author's intent—in many respects—was not followed by the Legislature as there were many deletions from and amendments to the original bill. It is noteworthy that the amicus brief fails to analyze any of the statutory language or address the case law governing when statutes will be deemed to apply retroactively. We see no reason to ignore the wording of the statutes as enacted based solely on the author's purported intent.
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