LOS ANGELES (Legal Newsline) - A California appeals court ordered a new trial for a lawsuit that produced a state Supreme Court decision exposing life insurance companies to billions of dollars in damages, by ruling a 2013 law applied to retroactively to every policy sold in the state.
The retroactivity of that law wasn’t actually much of an issue in McHugh v. Protective Life, since a Protective executive testified the company incorporated the law’s new requirements into the policy at issue in the case. The decision by California’s Fourth Appellate District hinged on the jury’s “hopelessly ambiguous” verdict, which the court said made it impossible for the trial judge to properly apply the law.
Overshadowing the facts in McHugh is the larger question of whether life insurance companies should pay for tens of thousands of policies that were canceled due to nonpayment of premiums. Under the 2013 law, which the California Supreme Court ruled applies retroactively, insurers must notify not only the policyholder, but any beneficiaries, before canceling a policy for nonpayment. The penalty under the law is the face value of the policy.
Life insurers recently won a partial victory when a federal judge refused to certify a class action of present and former policyholders, ruling their individual circumstances were too diverse.
In the McHugh case, William Patrick McHugh took out a $1 million policy in 2005 with premiums set at $310 for the first 10 years, then escalating sharply after that. The policy included a 31-day grace period before it could be cancelled for nonpayment. McHugh paid through January 2012, meaning his policy would remain in force until Feb. 9, 2013, 31 days after his January 2013 premium was due.
The insurance company warned McHugh twice it would cancel the policy if he didn’t pay by Feb. 9, 2013. It canceled the policy on that date but sent another letter explaining he could reinstate it if he paid by March 12. McHugh called the company twice, seeking to reinstate the policy, but didn’t pay before he died in June of that year.
The trial court ruled that the revised Insurance Code applied retroactively to McHugh’s policy but that didn’t matter too much, since a Protective executive testified the company had incorporated the law into its policies. The jury returned a convoluted verdict, ruling that McHugh had McHugh hadn’t done everything required of him under the contract, but that he was excused. The jury also found Protective hadn’t failed to do anything required under the contract, yet answered “yes” to the question of whether it had done something prohibited under the contract. The jury awarded no damages.
The plaintiffs appealed and the Fourth District upheld the verdict, while reversing the trial judge’s ruling on the retroactivity of the 2013 law. The California Supreme Court then reversed the appeals court’s decision, sending the case back for further proceedings. In this latest decision, the Fourth District ruled that the jury’s contradictory findings of fact required a new trial to determine whether Protective violated the terms of the insurance contract, making McHugh’s policy intact when he died.