What's Happening In California After McHugh?

• Published date: 11 April 2022
• Subject Matter: Insurance, Insurance Laws and Products
• Law Firm: Cozen O'Connor
• Author: Mr Michael J. Miller, Laura Zulick and Ilya Schwartzburg

On August 30, 2021, the California Supreme Court held in McHugh v. Protective Life Insurance Company, 12 Cal. 5th 213, 243, 494 P.3d 24, 43 (2021), that California Insurance Code sections 10113.71 and 10113.72 - which extended grace periods in life insurance policies to 60 days and mandated annual notice of the new right for policyholders to designate a person to receive notice of lapse or termination of the policy for failure to pay premiums - apply not only to policies issued or delivered after the effective date of those statutes, January 1, 2013, but also to policies already in force on that date.

Based on McHugh, on October 6, 2021, the Ninth Circuit decided Thomas v. State Farm Life Insurance Company, No. 20-55231, 2021 WL 4596286 (9th Cir. Oct. 6, 2021)(unpub.), holding that "[a]n insurer's failure to comply with these statutory requirements means that the policy cannot lapse" and an insurer could be liable for a death benefit. Shortly thereafter, on October 25, 2021, the California Department of Insurance issued guidance acknowledging McHugh, but deferred to "future court decisions" on how to apply it.

By our count, there are now over 50 cases pending against life insurers in California state and federal courts based on alleged violations of Sections 10113.71 and 10113.72. Although many cases were stayed pending McHugh and Thomas, those cases are now active again, and new cases are being filed regularly.

Typically in these cases, plaintiffs assert claims for death benefit proceeds, claims for damages, and claims for reinstatement, and plaintiffs bring the cases individually or as proposed class actions. Below, we discuss three recent opinions that provide insight into how these cases are progressing post-McHugh.

There has been one significant decision denying class action certification. In Siino v. Foresters Life Ins. & Annuity Co., 340 F.R.D. 157 (N.D. Cal. 2022), the named plaintiff claimed that a $100,000 policy was improperly terminated by the defendant insurer. The court found "commonality" satisfied despite the insurer's claim that "class members will still need to prove their own performance, the materiality of the insurer's breach, and actual harm or damage." However, the court agreed with the insurer that the class failed the "predominance" test because the plaintiff could not produce a cognizable class-wide damages model for all but two death benefit claims. The plaintiff has since dropped her damages claims and intends to file a...