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Thomas v. State Farm Insurance Co.

United States District Court, S.D. California

December 10, 2019

Sarah Aislinn Flynn Thomas, Plaintiff,
State Farm Insurance Company, Defendant.


          Hon. Cynthia Bashant United States District Judge

         Before the Court are the parties' cross-motions for summary judgment. In the underlying action, which was removed to this Court on April 13, 2018 from San Diego Superior Court, Plaintiff Sarah Aislinn Flynn Thomas alleged that Defendant State Farm General Insurance Company (“Defendant” or “State Farm”) breached the terms of two life insurance policies issued to Plaintiff's brother, James Flynn, by unreasonably denying life insurance benefits to Plaintiff upon her brother's death. (Compl., Ex. 1 to Notice Of Removal, ECF No. 1-2.)[1]

         In its Motion for Summary Judgment, Defendant states that, as a matter of law, it is entitled to judgment on Plaintiff's claims because both life insurance policies had lapsed due to non-payment of premiums before Mr. Flynn's death. (Def.'s Mot. for Summ. J., ECF No. 24.) Plaintiff contends in her summary judgment motion that Defendant's termination of the policies due to lapse violated two California Insurance Code statutes, §§ 10113.71 and 10113.72 (the “Statutes”), which went into effect five years after Defendant issued the two life insurance policies to Mr. Flynn. (Plf.'s Mot. for Summ. J., ECF No. 25.) The dispute on summary judgment is solely whether the Statutes govern the two policies at issue in this case.

         For the reasons stated below, the Court DENIES Defendant's Motion for Summary Judgment and GRANTS Plaintiff's Motion for Summary Judgment.

         I. BACKGROUND

         A. Statement of Facts

         The relevant facts are not in dispute. (See generally, Stipulated Material Facts (“SMF”), ECF No. 25-4.) On February 11, 2008, Defendant issued a life insurance policy insuring the life of James' Flynn in the amount of $500, 000. (SMF No. 1, Ex. 1, Policy No. LF-2471-3363 (“Policy 3363”) at 2.) On October 5, 2015, Mr. Flynn made Plaintiff, his sister, the primary beneficiary of the policy. (SMF No. 4, Policy 3363 at 15.) Defendant issued a second life insurance policy to Mr. Flynn in the same amount, effective March 23, 2008. (SMF No. 5, Ex. 2, Policy No. LF-2528-3142 (“Policy 3142”) at 29.)[2]Mr. Flynn made Plaintiff the primary beneficiary of this policy on October 5, 2015 as well. (SMF No. 8, Policy 3142 at 41.) In 2011, Mr. Flynn authorized premium payments for both policies to be made by electronic funds transfers through a State Farm Payment Plan (“SFPP”). (SMF No. 9.)

         SFPP collected the last premium payments for both policies on February 16, 2016. (SMF Nos. 10, 12.) Coverage on Policy 3363 continued until March 11, 2016 and coverage for Policy 3142 continued until March 23, 2016. (SMF Nos. 11, 13.) In March 2016, SFPP's attempt to collect further premium payments for both policies failed. (SMF No. 14.) On March 17, 2016, SFPP mailed a notice to Mr. Flynn notifying him of the balance due on his policies and explaining that coverage under both policies would end after a grace period if no further payments were made. (SMF Nos. 15-16, Ex. 3, March 17, 2016 Notice.) The Policies define the “Grace Period” as 31 days “allowed from the payment of a premium after its due date” during which “policy benefits continue.” (Policy 3363 at 11; Policy 3142 at 37.)

         As of April 16, 2016, SFPP received no further payments from Mr. Flynn. (SMF No. 17.) State Farm then mailed a notice to Mr. Flynn indicating that Policy 3363 had lapsed, and that Mr. Flynn could make a late payment of $200.16 by May 2, 2016 to have his coverage reinstated. (SMF No. 18-19, Ex. 4, Notice of Policy 3363 Lapse.) Similarly, SFPP notified Mr. Flynn that Policy 3142 had lapsed after receiving no further premium payments as of April 28, 2016, and offered Mr. Flynn an opportunity to reinstate this Policy by paying $1, 150.00 by May 14, 2016. (SMF No. 20-22, Ex. 5, Notice of Policy 3142 Lapse.) SFPP received no payments to reinstate either policy by their respective deadlines. (SMF Nos. 23-24.)

         The parties stipulate that there is “no known evidence” that State Farm “communicated with Mr. Flynn about designating a third party to receive notice of lapse or termination of Policy 3363 or Policy 3142 for nonpayment of premium or that [State Farm] gave Mr. Flynn a form to make such a designation.” (SMF No. 28.)

         Mr. Flynn passed away on January 24, 2017. (SMF No. 32, Ex. 8, Letter from Maher Law Firm.) On January 31, 2017, the attorney for Mr. Flynn's estate inquired about the status of the life insurance policies in his name. (SMF No. 29, Ex. 6, Letter from John L. Thomas.) State Farm informed the attorney about two weeks later that no active life insurance policies in Mr. Flynn's name existed in State Farm's records. (SMF No. 30, Ex. 7, February 17, 2017 Letter from State Farm Life Claims (“SFLC”).) Plaintiff's attorneys then requested copies of Policies 3142 and 3363 and “any and all documentation as to the reason why the policy limits were not paid out to the intended beneficiary.” (SMF. No 31- 32, Ex. 8, June 6, 2017 Letter from Jason R. Fraxedas.) State Farm obliged and mailed copies of the policies on July 5, 2017. (SMF Nos. 33-34, Ex. 9, July 5, 2017 SFLC Letter.) In response, the firm sent another letter to SFLC requesting documents that reflected all monthly premium payments made by Mr. Flynn, the dates of his last premium payments, dividend payments and accumulations, and information and correspondence about Mr. Flynn's nonpayment and lapse. (SMF No. 34-35, Ex. 10, August 21, 2017 Letter from Jason R. Fraxedas.) State Farm sent the responsive documents to the firm on September 12, 2017. (SMF No. 37-38, Ex. 11, Letter from Traci McKenzie.)

         B. Legal Landscape

         The resolution of this dispute depends wholly on whether the Statutes, effective January 1, 2013, are applicable to Mr. Flynn's Policies, issued in 2008. Below, the Court summarizes the applicable law, including a recent state appellate decision, to preface its analysis of the legal question presented in this case.

         1. Cal. Ins. Code §§ 10113.71 and 10113.72

         Both § 10113.71 and § 10113.72 impose additional requirements on insurers regarding nonpayment of premiums and lapse and termination notifications for life insurance policies. The first of these Statutes creates two new requirements: (1) that all life insurance policies in California to include a provision for minimum 60-day grace period from the premium due date to allow for late premium payments; and (2) that notices of nonpayment of premium, lapse of policy, and termination of policy, must be sent to the policy owner, a designee named pursuant to § 10113.72 for an individual policy, and “a known assignee or other person having an interest” in the policy, within a 30-day period. Cal. Ins. Code § 10113.71(a), (b)(1), and (b)(3).[3]

         The second statute requires insurers to: (1) give policyholders the right to designate a third person to receive notice of a lapse or termination of a policy for nonpayment of a premium by providing policyholders with a designation form; and (2) notify policyholders annually of their right to change the designation or designate multiple people. Cal Ins. Code § 10113.72(a), (b). This statute also prohibits policies from lapsing or terminating for nonpayment of a premium unless the insurer provides notice 30 days before lapse or termination to policyholders and their designees by first-class mail. Id. § 10113.72(c).[4]

         It is undisputed that Defendant did not provide Mr. Flynn a 60-day grace period to pay his premium after the premium due date on either policy and did not give Mr. Flynn an opportunity to designate a third party to receive notice of nonpayment, lapse, or termination. (See SMF Nos. 18-21, 28.) Thus, the only issue to be decided on summary judgment is whether the above statutes, effective 2013, govern Mr. Flynn's two life insurance policies issued in 2008 and terminated in 2016.

         2. McHugh v. Protective Life Insurance

         On October 14, 2019, Defendant filed a Notice of Supplemental Authority enclosing an opinion by California's Fourth District Court of Appeal, McHugh v. Protective Life Insurance, 40 Cal.App. 5th 1166');">40 Cal.App. 5th 1166 (Ct. App. 2019), squarely addressing the retroactive application of the aforementioned statutes. (ECF No. 34.) The Court takes judicial notice of this decision under Federal Rule of Evidence 201. See Harris v. Cty. of Orange, 682 F.3d 1126, 1132 (9th Cir. 2012) (noting that a court may take judicial notice of “undisputed matters of public record”); see also United States ex rel. Robinson Rancheria Citizens Council v. Borneo, 971 F.2d 244, 248 (9th Cir. 1992) (“[W]e may take ...

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