Court: Life insurance can’t be cut off without notice

In a ruling that could restore life insurance payments to thousands of Californians, the state Supreme Court said Monday that insurers had to provide a grace period and other protections before cutting off coverage to policyholders who missed a payment, starting in 2013.

A state law that took effect in January 2013, passed without a single opposing vote and signed by Gov. Jerry Brown, ended life insurers’ previous authority to end coverage, after 30 days’ notice, to policyholders who failed to pay their annual premium. Instead, the new law allowed a cutoff only after a 60-day grace period, notification of a second person designated by the policyholder, and then a 30-day notice that the policy would be terminated.

Many insurers refused to apply the new law to life insurance policies that had been issued before 2013. Lower courts agreed with the companies that the law did not apply retroactively, and allowed them to cancel coverage for a missed payment without a 60-day grace period or notice to the policyholder’s designated representative.

But the state’s high court ruled unanimously Monday that the law applied to all policies that were in effect in 2013.

“The Legislature enacted the grace period and notice protections in part to protect existing policy owners from losing the important life insurance coverage they had spent years paying for,” Justice Mariano-Florentino Cuéllar said in an opinion signed by five of the seven justices.

He said the court’s interpretation of the law “protects policy owners — including elderly, hospitalized, or incapacitated ones who may be particularly vulnerable to missing a premium payment — from losing coverage.”

Cuéllar said the ruling did not actually make the law retroactive, because it did not affect insurance companies’ decisions to cancel coverage on similar grounds before 2013. In a separate opinion, Justice Martin Jenkins, joined by Justice Carol Corrigan, said lawmakers had intended for the law to be applied retroactively to existing insurance policies.

Otherwise, Jenkins said, citing legislative staff analyses of the measure while it was under consideration, “policy-holders — especially seniors — could easily lose coverage after many years of paying premiums if they accidentally missed making even a single premium payment.”

The ruling is “lifechanging” and should enable thousands of Californians to reinstate their policies or obtain the benefits that were denied when the policyholder died, said Craig Nicholas, a San Diego attorney whose firm has filed 17 suits against insurers over the issue.

After paying life insurance premiums for decades, Nicholas said, a policyholder might miss a payment because of illness or infirmity, then fail to receive a cutoff notice while in the hospital. He said the 2013 law protected aging and mentally disabled policyholders by providing notice to a designated representative.

The justices revived a suit by relatives of a San Diego county man who missed a $310 premium payment in 2013 and then had his coverage terminated. He died shortly afterward.

“The law should treat life insurance policies as the most sacred of all insurance policies,” said the relatives’ lawyer, Jack Winters.

John Neiman, the insurance company’s lawyer, said a jury had already found the company’s actions to be proper under the law. He said the ruling would require trials in many similar cases.

The case is McHugh vs. Protective Life Insurance Co., No. S259215.