Opinion: California class action lawyers are now targeting the life insurance industry

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hearing hammer
A hearing gavel. File photo

After a brief two-year hiatus, the “Golden State” once again reclaimed the top spot in the latest Judicial Hellholes list in December 2021. The annual report released by the American Tort Reform Foundation highlights the worst justice climates civilian across the country.

California has little hope of dropping off the top of this list as it continues to adopt new theories of liability that significantly undermine the state’s business environment and economic growth.

The widespread abuse of lawsuits continues to wipe out billions of dollars of economic activity every year. The most recent economic data reports that every California resident pays a “tort tax” of $1,917 due to the state’s failing civil justice system. Unfortunately, for California residents and businesses, their tort taxes may get worse before they get better.

For years, the California bar has taken advantage of the state’s lucrative financial incentives to launch frivolous class action lawsuits. Now they are turning to a new target: expired life insurance policies.

The California Supreme Court created a rush of litigation by applying the terms of a 2013 law to all life insurance policies in effect at the time the law took effect, regardless of when initial issue of policies.

Assembly Bill 1747 “establishes a new minimum grace period for life insurance policies to remain in force after non-payment of premiums and provides for certain additional notice requirements”. Despite the fact that the law did not explicitly cover existing policies, in August of last year the California Supreme Court ruled in McHugh v. Protective life insurance company that the legislator “intended” to introduce this requirement retroactively.

In this clear example of judicial activism and overbreadth, the California Supreme Court overturned the judgment of the State Insurance Board, which originally interpreted AB 1747 as prospective only and provided indications for several years to the insurance companies that this was the case.

In 2013, Chief Counsel for the Department of Insurance’s Office of Policy Approvals, Leslie Tick, said, “Generally, new laws come into effect in such a way that everyone knows what the law is when they makes a deal, like an insurance policy. If the laws had retroactive effect, they would have the effect [sic] acts which have already occurred and which were lawful at the time, making them retroactively illegal. Parties to a contract would have no certainty about the terms of their agreement if the legislator could change those terms retroactively.

Following the 2021 edition McHugh decision, the trial bar seized the opportunity to score a major new payday by opening the door to class action lawsuits against life insurance companies. So far, more than 20 class action lawsuits have been filed across the state seeking to hold insurance companies accountable for expired policies, despite the fact that many consumers voluntarily let policies expire and suffered no real harm.

What many fail to realize is that these class action settlements all too often provide little or no benefit to class members, but instead serve to enrich the litigators who bring these lawsuits. According to research published by Jones Day, in 2019 and 2020, plaintiffs’ attorneys filing class actions received on average 10% more than the groups they represented. In claims-based settlements, class members as a whole received on average less than 30% of any monetary award.

Moreover, if the theory currently advanced by the Plaintiff Bar in these class actions is allowed, a viable claim can be brought against an insurer for an “expired” life insurance policy years after the fact – whether it has was or was not planned or not. Any policy purchased may be subject to one of these lapse claims unless the insurer actually pays for it.

This is an extremely dangerous precedent that will lead to skyrocketing premiums for California consumers as the trial bar continues to profit from baseless lawsuits. At a minimum, California courts must require plaintiffs to show that they were actually harmed by an insurance company’s violation of law and not allow baseless class actions to proceed.

Corporate litigation like this ultimately only serves the interests of the trial bar and would further cement California’s dubious status as America’s premier legal hellhole.

Tiger Joyce is the president of the American Tort Reform Association.

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