Almost a year after the California Supreme Court decision to make a 2013 insurance law apply retroactively, industry officials have concerns over an explosion of resulting litigation.
In departing from the typical start time for a law, California’s high court ruled in McHugh v. Protective Life Insurance that AB 1747, which became effective Jan. 1, 2013, can still apply to policies in place before then.
The language of the law, AB 1747, lengthened the California Insurance Code’s grace period for missed premium payments. The legislation doesn’t say AB 1747 should apply retroactively, yet the high court states in its ruling that they view it as a threshold issue: “Applying the presumption against retroactivity, the [appeals] court emphasized what it took to be the principle’s requirements — that “ ‘a statute may be applied retroactively only if it contains express language of retroactivity or if other sources provide a clear and unavoidable implication that the Legislature intended retroactive application.’ ” (McHugh, supra, 40 Cal.App.5th at p. 1174, quoting Myers, supra, 28 Cal.4th at p. 844, italics added by Myers.) It then concluded that there was no basis to rebut the presumption. (McHugh, at p. 1174.)”
But since the Supreme Court reversed the appeals court, there has been a glut of class action litigation, and the state hasn’t provided clarification on how the law was intended to be applied.
As noted by Insurance Commissioner Ricardo Lara in a bulletin issued shortly after the McHugh ruling, “The California Supreme Court in in McHugh v. Protective Life Insurance Company (2021) 12 Cal. 5th 213 unanimously determined that Insurance Code sections 10113.71 and 10113.72 ‘apply to all life insurance policies in force when these two sections went into effect, regardless of when the policies were originally issued.’ In other words, the court held that Insurance Code sections 10113.71 and 10113.72 apply not only to policies issued or delivered after the effective date of those statutes, but also to policies in force on the effective date of the laws: January 1, 2013.”
With little to no warning, insurance companies had to pivot.
“Life insurance companies are aware of the decision and are following the guidance of the Insurance Commissioner per this bulletin,” Whit Cornman, a spokesperson for the American Council of Life Insurers told the Northern California Record by email.
The McHugh lawsuit involves an insurance policy issued in 2005.
John F. Finston, who is former General Counsel for the California Department of Insurance and now senior counsel with McDermott Will & Emery, told the Record by email that how the McHugh decision will impact consumers and companies and the scope of the decision in future litigation are issues yet to be decided.
“I was surprised by the Court’s decision because I believe the absence of a retroactivity clause usually makes a statute prospective in nature such that it applies only to contracts issued after the effective date of the law,” Finston said.
AB 1747, sponsored by former Democrat Assemblymember Mike Feuer, was signed into law by Gov. Jerry Brown in the fall of 2012 and became effective on Jan. 1, 2013.
Bill consultants did not reply to the Record’s request for comment.