California Supreme Court rules life insurance stoppage requires proper notice

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This decision would restore policy premium payments to thousands of people across the state.

The California Supreme Court has ruled that a life insurance grace period and other protections must be provided to consumers in the state before insurers are allowed to cut off coverage due to a missed payment.

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The ruling could restore life insurance payments to affected customers dating back to 2013.

In 2013, the state governor at the time, Jerry Brown, signed a law that had passed without any opposition, ending the previous authority that life insurance companies had for ending coverage following 30 days’ notice in the case of policyholders who missed payments on their annual premiums. The new law put into place a 60-day grace period and a requirement that a second person – designated by the policyholder – be notified, before a 30-day notice could be issued informing the policyholder that the policy would be cut off.

Many insurers in the state decided not to change their regulations to comply with the California law when those policies had been issued prior to 2013. Lower courts had agreed that the law was not retroactive and that policies written before the law became effective could be cancelled when a missed payment occurred, without having to apply the 60-day grace period or to inform the second party as designated by the policyholder.Life Insurance Policy - Binders

The California Supreme Court has overturned the earlier ruling about life insurance cancellations.

“The Legislature enacted the grace period and notice protections in part to protect existing policy owners from losing the important life insurance coverage they had spent years paying for,” said Justice Mariano-Florentino Cuéllar in an opinion that five of the seven justices signed. The justice said that the interpretation the court has made of the law “protects policy owners — including elderly, hospitalized, or incapacitated ones who may be particularly vulnerable to missing a premium payment — from losing coverage.”

According to the judge, the ruling itself did not make the law retroactive. The reason was that it did not impact the decision of the insurers to cancel coverage on similar grounds before that law went into place. Justice Martin Jenkins wrote a second opinion signed by Justice Carol Corrigan, in which they stated that the intention of the law by its lawmakers had been for the retroactive application to life insurance policies already in existence.

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