United States District Court, S.D. California
ORDER: (1) DENYING DEFENDANT'S MOTION FOR SUMMARY
JUDGMENT [ECF NO. 24]; AND (2) GRANTING PLAINTIFF'S
MOTION FOR SUMMARY JUDGMENT [ECF NO. 25]
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 ...