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California Supreme Court Applies Life Policy Termination Rules to Pre-2013 Policies

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What You Need to Know

  • Protective Life, the respondent, said the termination rules should apply to policies issued on or after Jan. 1, 2013.
  • The California Supreme Court concluded that the rules apply to a policy termination process started after Jan. 1, 2013, no matter when the policy was issued.
  • Two judges on the court say the majority opinion could change the way applying California laws retroactively works.

A new ruling by the California Supreme Court could help some slow-paying life insurance policyholders keep their policies.

Two judges on the seven-judge court say the ruling also could lead to broader changes when new California state laws apply retroactively.

The court ruled 7-0 Monday that California’s life insurance policy termination law applies to all policies involved in policy termination processes starting on or after the statute’s Jan. 1, 2013, effective date — whether or not the policies were issued before the effective date.

The ruling on the case, Blakely McHugh et v. Protective Life Insurance (Case Number S259215), means that the beneficiaries of the policyholder, William McHugh, may have an easier time persuading California courts to keep a life insurance policy in force.

The Policy

The case involves a 60-year, $1 million term life insurance policy issued by Chase Life Insurance Company to William McHugh in 2005.

William McHugh named his daughter, Blakely McHugh, as the beneficiary, and Trysta Henselmeier, McHugh’s mother, as a contingent beneficiary.

The policy required William McHugh to pay $310 in premiums per year for 10 years. The annual premium could then increase.

The policy included a provision for a 31-day grace period, meaning that the insurer would give McHugh 31 extra days to pay his premiums before canceling his policy.

McHugh paid his yearly premiums through January 2012 but then failed to pay his premium for 2013. He then fell and became disabled. He died in June 2013.

Meanwhile, a California life insurance policy grace period provision and policy termination notice provision took effect Jan. 1, 2013.

Legal Reasoning

Blakely McHugh and Trysta Henselmeier have asserted that applying the California grace period and policy termination notice provisions to William McHugh’s life insurance policy would keep the William McHugh policy in force and help Blakely McHugh or her mother collect death benefits.

Protective Life — a company that acquired Chase Life in 2006 — argued that the courts should not apply the California grace period and policy termination notice provisions retroactively, in part because the provisions did not include any language indicating that the rules should apply retroactively.

A jury and a state appeals court sided with Protective.

Justice Mariano-Florentino Cuéllar writes, in an opinion expressing the view of the majority, that the California grace period and policy termination notice rules should apply to the McHugh term life policy.

The law applies to how an insurer handles new skipped payments, and the date of the new skipped payments does not depend on the policy issue date, Cuéllar says.

Moreover, applying the grace period and policy termination notice rules retroactively would not “impinge on a contracting party’s substantial rights or unfairly upset the bargain memorialized in the insurance policy, for example, by requiring an insurer to provide substantially expanded coverage without also giving it an opportunity to raise premiums,” Cuéllar adds.

The majority sent the case back to lower courts for further review.


Jack Winters Jr., a member of the team of lawyers that represented McHugh’s beneficiaries, welcomed the ruling.

“We are pleased with the well-reasoned decision which we believe is consistent with existing California law and will result in preservation of thousands of valuable life insurance policies that would otherwise have been lost,” Winters said in a statement.

John Neiman, a lawyer with Maynard Cooper and a member of the legal team that has represented Protective, said in a statement that the company cares deeply about its customers.

“It has a strong history of providing important consumer safeguards in its policies, such as lapse notices and grace periods, which are the focus of the 2013 statute at issue in the McHugh opinion,” Neiman said. “Protective disagrees, however, with the California Supreme Court’s decision, which creates uncertainty on how to apply a new law to existing contracts. A San Diego jury already ruled in favor of Protective in this case, and we expect that verdict to be upheld on remand.”

Protective Life representatives were not immediately available to comment on the ruling.

Nicholas and Tomasevic, a San Francisco-based law firm that helps consumers fight life insurance policy cancellations, and that submitted a brief supporting McHugh’s position, put out a press release predicting that the ruling will help thousands of consumers in California overturn policy terminations.

Possible Broader Effects

Justice Martin Jenkins writes, in a concurring opinion representing his views and those of Justice Carol Corrigan, that he and Corrigan agree that the California grace period and policy termination notice rules should apply to the McHugh policy, but that he believes the majority has taken an unusual approach to analyzing whether the rules could apply retroactively.

Jenkins says California courts usually analyze two separate retroactivity-related questions: whether the courts should stick with their usual presumption against applying laws retroactively, and whether applying a law retroactively would have enough of an impact to unconstitutionally impair contractual rights.

California courts usually consider the size of the impact during the constitutionality analysis, not when looking at whether to apply the presumption against retroactivity, Jenkins observes.

Considering the size of the effect of retroactivity during the presumption analysis, rather than during the constitutionality analysis, could have unforeseen consequences, Jenkins concludes.

(Image: USGS)