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California Supreme Court:
New Insurance Statutes Apply to Policies Already in Effect
Justices Also Decide Hearsay May Not Be Considered at SVPA Hearing
By a MetNews Staff Writer
Statutes making it harder for an insurer to cancel a policy for nonpayment of premiums apply to policies that went into effect before the legislation was passed, the California Supreme Court held yesterday.
In an unrelated opinion, it declared that a court may not take into account hearsay contained in psychological evaluation reports in determining whether there is probable cause to order the involuntary commitment of individuals under the individuals Sexually Violent Predator Act (“SVPA”).
Justice Mariano-Florentino Cuéllar wrote for the majority in the insurance case. Justice Martin J. Jenkins wrote a concurring opinion in which Justice Carol Corrigan joined.
The policy in question, issued in March 2005 by Chase Life Insurance Company—now Protective Life Insurance Company—provided for a $1 million payment upon the death of William Patrick McHugh. It contained this language:
“A grace period of 31 days will be allowed for payment of each premium after the first. This policy will continue in force during the grace period. If the premium remains unpaid at the end of the grace period, coverage will cease.”
McHugh became ill and failed to pay the premium that was due on Jan. 9, 2013. Under its terms, the policy lapsed 31 days later.
The insured died in June 2013.
Insurance Code Provisions
His daughter, Blakely McHugh, the beneficiary under the policy, and his widow, Trysta M. Henselmeier, the contingent beneficiary, sued, alleging breach of contract and bad faith in disclaiming a duty to pay the benefits. They pointed to Insurance Code §10113.71 and §10113.72, effective Jan. 1, 2013, requiring life insurance policies to provide for a 60-day grace period.
Protective Life, arguing that the statutes could not be retroactively applied to policies that were already in existence, moved for a directed verdict. San Diego Superior Court Judge Judith F. Hayes denied the motion. But the jury sided with the insurer, and Div. One of the Fourth District Court of Appeal, in an Oct. 9, 2019 opinion by Justice Terry B. O’Rourke, affirmed the judgment pursuant to that verdict. O’Rourke quoted the California Supreme Court as having observed in its 2002 opinion in Myers v. Philip Morris Companies, Inc.:
“As the United States Supreme Court has consistently stressed, the presumption that legislation operates prospectively rather than retroactively is rooted in constitutional principles.”
Cuéllar’s Opinion
In his opinion reversing the Court of Appeal, Cuéllar said:
“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.”
He noted that at the time the policy was issued, there was no mandate in the Insurance Code for any grace period. Cuéllar recited that under the legislation enacted in 2012, §10113.71(e) provides:
“Each life insurance policy issued or delivered in this state shall contain a provision for a grace period of not less than 60 days from the premium due date. The 60-day grace period shall not run concurrently with the period of paid coverage. The provision shall provide that the policy shall remain in force during the grace period.”
Secs. § 10113.71 and 10113.72 require notification of impending cancellation to the insured and beneficiaries 30 days before termination.
Issue of Retroactivity
Contrary to the Court of Appeal’s view, he declared that “it’s not clear” that the statute in question “operate ‘retroactively’ at all,” pointing out:
“Nothing in these sections compels insurers to reinstate any policy cancelled preenactment less than 60 days after a missed premium payment. Nor do the changes otherwise 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.”
He went on to say:
“The grace period and notice provisions at issue here simply dictate the procedures for terminating policies after January 1, 2013.” The jurist explained: “[T]his case may be viewed as not involving ‘retroactivity’ as our cases have generally defined the term, or alternatively as involving retroactivity only in a narrow sense— one different from the type of preenactment impact at the heartland of the presumption’s concerns and at issue in cases applying the presumption. We need not choose between the two views. Under either, we decline to give the presumption such weight that it determines the outcome of this case.”
Taking into account that persons, particularly seniors, who have paid premiums over a period of years would face a hardship in gaining reinstatement of policies that have been cancelled for failure to make a payment, Cuéllar said, “[i]t would certainly be consistent with the Legislature’s awareness and concern for it to seek to protect all policy owners from losing coverage.”
Deference to Agency
Another issue was whether the Court of Appeal was correct in lending deference to the interpretation of the statutes by the Department of Insurance (“DOI”). O’Rourke recited:
“We are required to give deference to the Department’s interpretation, as long as it is reasonable and consistent with the language of the statutes.” No deference is due, Cuéllar said, 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.”
In his concurring opinion, Jenkins said “the statutory language and relevant legislative history” of the provisions in question “are sufficiently clear to overcome the presumption” against retroactivity, “assuming it applies.”
The case is McHugh v. Protective Life Insurance, 2021 S.O.S. 4825.
Sexually Violent Predators
In Walker v. Superior Court (People), 2021 S.O.S. 4813, also decided yesterday. The high court reversed a determination by Div. Four of the First District Court of Appeal that a judge, in determining whether a sexual predator should be confined for treatment after serving a sentence for crimes, may rely on psychological evaluation reports.
Reversal came in an opinion by Cuéllar, who wrote:
“Contrary to the Court of Appeal’s reasoning, section 6602, subdivision (a) does not create an exception that allows hearsay regarding nonpredicate offenses to be introduced via evaluation reports. What we hold is that nothing in the statutory language, its legislative history, its place in the broader SVPA statutory scheme, or comparisons to other statutory provisions indicates the existence of a hearsay exception for such hearsay in expert evaluations. Nor does anything in the SVPA or our case law indicate that the Legislature—in creating the hearing as a safeguard for SVP candidates to test the sufficiency of the evidence supporting the state’s petition and prevent meritless ones from proceeding to trial—must have created an exception for hearsay on nonpredicate offenses to be introduced via evaluations. Under these circumstances, we decline to find that the Legislature explicitly or implicitly created a hearsay exception in section 6602, subdivision (a), for this evidence.”
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