McHugh v. Protective Life Ins. Co.

• Decision Date: 30 August 2021
• Docket Number: S259215
• Citation: 283 Cal.Rptr.3d 323,12 Cal.5th 213,494 P.3d 24
• Court: California Supreme Court
• Parties: Blakely MCHUGH et al., Plaintiffs and Appellants, v. PROTECTIVE LIFE INSURANCE COMPANY, Defendant and Respondent.

12 Cal.5th 213

494 P.3d 24

283 Cal.Rptr.3d 323

Blakely MCHUGH et al., Plaintiffs and Appellants,

v.PROTECTIVE LIFE INSURANCE COMPANY, Defendant and Respondent.

S259215

Supreme Court of California.

August 30, 2021

Winters & Associates, Jack B. Winters, Jr., Georg M. Capielo, Sarah D. Ball ; Williams Iagmin and Jon R. Williams, San Diego, for Plaintiffs and Appellants.

Law Offices of Daniel D. Murphy and Daniel D. Murphy for California Advocates for Nursing Home Reform, Inc., as Amicus Curiae on behalf of Plaintiffs and Appellants.

Glick Law Group and Noam Glick for California Retired County Employees Association as Amicus Curiae on behalf of Plaintiffs and Appellants.

Neil Granger, in pro. per., as Amicus Curiae on behalf of Plaintiffs and Appellants.

Grignon Law Firm, Margaret M. Grignon, Long Beach; Maynard Cooper & Gale, C. Andrew Kitchen, Alexandra V. Drury, San Francisco, John C. Neiman, Jr. ; Noonan Lance Boyer & Banach and David J. Noonan, San Diego, for Defendant and Respondent.

Alston & Bird and Thomas A. Evans, San Francisco, for American Council of Life Insurers as Amicus Curiae on behalf of Defendant and Respondent.

Quinn Emanuel Urquhart & Sullivan and Kathleen M. Sullivan, Los Angeles, for Chamber of Commerce of the United States of America as Amicus Curiae on behalf of Defendant and Respondent.

Matthew Rodriguez, Acting Attorney General, and Lucy F. Wang, Deputy Attorney General, for Ricardo Lara, Insurance Commissioner, as Amicus Curiae, upon the request of the Supreme Court.

Opinion of the Court by Cuéllar, J.

Millions of California consumers manage financial risks for their families by purchasing life insurance. Through these policies, Californians ensure that their families and other designated beneficiaries are protected by a financial safety net — and are able to plan for contingencies — in the event of the policy owners’ untimely death. But there's a cost: In exchange for continuing coverage, consumers pay regular premiums to their insurers. If consumers fail to do so, insurers have the right to end the policies.

In 2012, the Legislature created certain protections to shield consumers from losing life insurance coverage because of a missed premium payment. Codified in sections 10113.71 and 10113.72 of the Insurance Code,¹ these protections went into effect on January 1, 2013. Soon thereafter, the defendant terminated one of the life insurance policies at issue in this case because the policy owner had failed to make a payment. Plaintiffs claim that the defendant had no right to terminate these policies without complying with the newly codified statutory protections against termination. The Court of Appeal reasoned that sections 10113.71 and 10113.72 did not apply because they appeared to affect only policies issued or delivered after the sections’ January 1, 2013 effective date, and the policy at issue here predated the sections. In reaching this construction of the statutes, the court cited — among other considerations — its deference to Department of Insurance (DOI) staff correspondence and electronic instructions for policy forms.

We conclude that 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. This interpretation fits the provisions’ language, legislative history, and uniform notice scheme, and it protects policy owners — including elderly, hospitalized, or incapacitated ones who may be particularly vulnerable to missing a premium payment — from losing coverage, consistent with the provisions’ purpose. This interpretation does not depend on extending deference to DOI staff correspondence or electronic instructions, neither of which represent the agency's official interpretation of sections 10113.71 and 10113.72 nor otherwise reflect the agency's carefully considered, long-standing, and consistent interpretive viewpoint on the sections. Accordingly, we reverse the judgment of the Court of Appeal and remand for proceedings consistent with this opinion.

I.

In March 2005, Chase Life Insurance Company, the predecessor in interest to defendant Protective Life Insurance Company (Protective Life), issued a $1 million term life insurance policy to William McHugh. The policy named McHugh's daughter, Blakely McHugh, as the designated beneficiary and Trysta Henselmeier, Blakely's mother and McHugh's successor in interest, as a contingent beneficiary.

The policy was for a 60-year term, and it set out a schedule of annual premiums to keep the policy in force. For the first 10 years of the policy, the insurance policy set the annual premium at $310; after that, the premium steadily increased each year. The policy included a provision for a 31-day grace period before the policy could be terminated for the failure to pay the premium.

McHugh paid all the yearly premiums through January 2012. That meant his policy was, by its terms, "in force" until February 9, 2013, 31 days after the January 9, 2013 due date for that year's payment. On December 20, 2012, Protective Life sent McHugh a letter reminding him of the January 9 deadline and that nonpayment by February 9 would cause his policy to lapse or terminate. McHugh failed to pay the premium by the due date. Protective Life sent him a second letter on January 29, which stated that it had not received his premium payment for the year and warned that his policy would lapse if he did not make the payment by February 9, the end of the grace period. McHugh again failed to make the payment, and the policy lapsed. On February 18, Protective Life sent McHugh a letter informing him the grace period had expired, but that he could reinstate the policy if it received his payment by March 12, during his lifetime. McHugh did not pay, and Protective Life formally terminated his policy.

At some point close to when Protective Life sent its last letter, McHugh suffered a serious fall that left him disabled, caused him continuing physical pain, and required surgery. McHugh passed away in June 2013. Henselmeier contacted Protective Life to inquire about the status of McHugh's policy and whether a claim could be made. Protective Life advised that the policy had been terminated. Thereafter, Henselmeier and Blakely (plaintiffs) sued Protective Life for breach of contract and breach of the implied covenant of good faith and fair dealing. Plaintiffs argued that sections 10113.71 and 10113.72, which came into effect on January 1, 2013, applied to policies issued before this effective date, and that Protective Life failed to comply with the statutes’ requirements before it terminated McHugh's policy.

In various filings, including its motion for a directed verdict, Protective Life argued the statutes did not apply to policies issued before January 1, 2013. In making this argument, Protective Life relied at times on purported agency interpretations of the statutes. The trial court rejected Protective Life's argument, concluding that the statutes applied to McHugh's policy. Ultimately, the jury found for Protective Life. It concluded that: (1) Protective Life and McHugh entered into an insurance contract; (2) McHugh failed to do all, or substantially all, of what the contract required him to do, but he was excused from doing so; (3) all conditions required for Protective Life's performance occurred and were not excused; (4) Protective Life did something the contract prohibited; but (5) plaintiffs were not harmed by Protective Life's failure.

Plaintiffs appealed from the special verdict in favor of Protective Life and the denial of plaintiffs’ judgment notwithstanding the verdict motion. What they argued, among other things, is that the trial court erred by declining to decide as a matter of law whether Protective Life had complied with Insurance Code sections 10113.71 and 10113.72, and instead permitting the jury to decide that issue. ( McHugh v. Protective Life Ins. (2019) 40 Cal.App.5th 1166, 1171, fn. 4, 253 Cal.Rptr.3d 780 ( McHugh ).) Under Code of Civil Procedure section 906, Protective Life requested the Court of Appeal affirm the judgment on the additional ground that Insurance Code sections 10113.71 and 10113.72 do not apply retroactively to McHugh's policy, and the trial court erred as a matter of law when it ruled otherwise in denying the directed verdict motion. ( McHugh , at pp. 1170–1171, 253 Cal.Rptr.3d 780.) The Court of Appeal affirmed the judgment on this additional ground. ( Id . at p. 1171, 253 Cal.Rptr.3d 780.) In reaching this holding, the court first relied on two sets of DOI documents that it held indicated that sections 10113.71 and 10113.72 applied only to policies issued after January 1, 2013: private correspondence between DOI counsel and insurers, and DOI's System for Electronic and Form Filing (SERFF) " ‘Instructions for Complying with [Assembly Bill No.] 1747.’ " ( McHugh , at p. 1172, 253 Cal.Rptr.3d 780.) It then determined that the statutes’ language supported DOI's purported interpretation. ( Id. at pp. 1175–1177, 253 Cal.Rptr.3d 780.)

We granted review to resolve whether (1) sections 10113.71 and 10113.72 apply to all life insurance policies in force as of January 1, 2013 — regardless of when those policies had originally been issued — or only to policies that went into effect after this date; and (2) the Court of Appeal properly deferred to DOI guidance in its analysis.

II.

The grace period and notice requirements governing life insurance policies issued before January 1, 2013 depend on whether sections 10113.71 and 10113.72 apply to such policies. To understand the effects of these provisions, we begin by surveying the mechanics of life insurance and the broad legal framework governing such policies.

A.

A life insurance policy "is a contract of indemnity under which, in exchange for the payment of premiums, the insurer promises to pay a sum of money to the designated beneficiary upon the death of the named insured." ( Fairbanks v....