McHugh v. Protective Life Ins. Co.

IN THE SUPREME COURT OF

CALIFORNIA

BLAKELY MCHUGH et al.,

Plaintiffs and Appellants,

v.

PROTECTIVE LIFE INSURANCE COMPANY,

Defendant and Respondent.

S259215

Fourth Appellate District, Division One

D072863

San Diego County Superior Court

37-2014-00019212-CU-IC-CTL

August 30, 2021

Justice Cuéllar authored the opinion of the Court, in which

Chief Justice Cantil-Sakauye and Justices Liu, Kruger, and

Groban concurred.

Justice Jenkins filed a concurring opinion, in which Justice

Corrigan concurred.

MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

S259215

Opinion of the Court by Cuéllar, J.

Millions of California consumers manage financial risks

for their families by purchasing life insurance. Through these

policies, Californians ensure that their families and other

designated beneficiaries are protected by a financial safety

net — and are able to plan for contingencies — in the event of

the policy owners’ untimely death. But there’s a cost: In

exchange for continuing coverage, consumers pay regular

premiums to their insurers. If consumers fail to do so, insurers

have the right to end the policies.

In 2012, the Legislature created certain protections to

shield consumers from losing life insurance coverage because of

a missed premium payment. Codified in sections 10113.71 and

10113.72 of the Insurance Code,1 these protections went into

effect on January 1, 2013. Soon thereafter, the defendant

terminated one of the life insurance policies at issue in this case

because the policy owner had failed to make a payment.

Plaintiffs claim that the defendant had no right to terminate

these policies without complying with the newly codified

statutory protections against termination. The Court of Appeal

reasoned that sections 10113.71 and 10113.72 did not apply

because they appeared to affect only policies issued or delivered

after the sections’ January 1, 2013 effective date, and the policy

1

All unspecified section references are to the Insurance

Code.

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Opinion of the Court by Cuéllar, J.

at issue here predated the sections. In reaching this

construction of the statutes, the court cited — among other

considerations — its deference to Department of Insurance

(DOI) staff correspondence and electronic instructions for policy

forms.

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. This interpretation does not

depend on extending deference 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.

Accordingly, we reverse the judgment of the Court of Appeal and

remand for proceedings consistent with this opinion.

I.

In March 2005, Chase Life Insurance Company, the

predecessor in interest to defendant Protective Life Insurance

Company (Protective Life), issued a $1 million term life

insurance policy to William McHugh. The policy named

McHugh’s daughter, Blakely McHugh, as the designated

beneficiary and Trysta Henselmeier, Blakely’s mother and

McHugh’s successor in interest, as a contingent beneficiary.

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Opinion of the Court by Cuéllar, J.

The policy was for a 60-year term, and it set out a schedule

of annual premiums to keep the policy in force. For the first 10

years of the policy, the insurance policy set the annual premium

at $310; after that, the premium steadily increased each year.

The policy included a provision for a 31-day grace period before

the policy could be terminated for the failure to pay the

premium.

McHugh paid all the yearly premiums through January

2012. That meant his policy was, by its terms, “in force” until

February 9, 2013, 31 days after the January 9, 2013 due date for

that year’s payment. On December 20, 2012, Protective Life

sent McHugh a letter reminding him of the January 9 deadline

and that nonpayment by February 9 would cause his policy to

lapse or terminate. McHugh failed to pay the premium by the

due date. Protective Life sent him a second letter on January

29, which stated that it had not received his premium payment

for the year and warned that his policy would lapse if he did not

make the payment by February 9, the end of the grace period.

McHugh again failed to make the payment, and the policy

lapsed. On February 18, Protective Life sent McHugh a letter

informing him the grace period had expired, but that he could

reinstate the policy if it received his payment by March 12,

during his lifetime. McHugh did not pay, and Protective Life

formally terminated his policy.

At some point close to when Protective Life sent its last

letter, McHugh suffered a serious fall that left him disabled,

caused him continuing physical pain, and required surgery.

McHugh passed away in June 2013. Henselmeier contacted

Protective Life to inquire about the status of McHugh’s policy

and whether a claim could be made. Protective Life advised that

the policy had been terminated. Thereafter, Henselmeier and

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MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Opinion of the Court by Cuéllar, J.

Blakely (plaintiffs) sued Protective Life for breach of contract

and breach of the implied covenant of good faith and fair dealing.

Plaintiffs argued that sections 10113.71 and 10113.72, which

came into effect on January 1, 2013, applied to policies issued

before this effective date, and that Protective Life failed to

comply with the statutes’ requirements before it terminated

McHugh’s policy.

In various filings, including its motion for a directed

verdict, Protective Life argued the statutes did not apply to

policies issued before January 1, 2013. In making this

argument, Protective Life relied at times on purported agency

interpretations of the statutes. The trial court rejected

Protective Life’s argument, concluding that the statutes applied

to McHugh’s policy. Ultimately, the jury found for Protective

Life. It concluded that: (1) Protective Life and McHugh entered

into an insurance contract; (2) McHugh failed to do all, or

substantially all, of what the contract required him to do, but he

was excused from doing so; (3) all conditions required for

Protective Life’s performance occurred and were not excused; (4)

Protective Life did something the contract prohibited; but (5)

plaintiffs were not harmed by Protective Life’s failure.

Plaintiffs appealed from the special verdict in favor of

Protective Life and the denial of plaintiffs’ judgment

notwithstanding the verdict motion. What they argued, among

other things, is that the trial court erred by declining to decide

as a matter of law whether Protective Life had complied with

Insurance Code sections 10113.71 and 10113.72, and instead

permitting the jury to decide that issue. (McHugh v. Protective

Life Ins. (2019) 40 Cal.App.5th 1166, 1171, fn. 4 (McHugh).)

Under Code of Civil Procedure section 906, Protective Life

requested the Court of Appeal affirm the judgment on the

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MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Opinion of the Court by Cuéllar, J.

additional ground that Insurance Code sections 10113.71 and

10113.72 do not apply retroactively to McHugh’s policy, and the

trial court erred as a matter of law when it ruled otherwise in

denying the directed verdict motion. (McHugh, at pp. 1170–

1171.) The Court of Appeal affirmed the judgment on this

additional ground. (Id. at p. 1171.) In reaching this holding, the

court first relied on two sets of DOI documents that it held

indicated that sections 10113.71 and 10113.72 applied only to

policies issued after January 1, 2013: private correspondence

between DOI counsel and insurers, and DOI’s System for

Electronic and Form Filing (SERFF) “ ‘Instructions for

Complying with [Assembly Bill No.] 1747.’ ” (McHugh, at p.

1172.) It then determined that the statutes’ language supported

DOI’s purported interpretation. (Id. at pp. 1175–1177.)

We granted review to resolve whether (1) sections

10113.71 and 10113.72 apply to all life insurance policies in

force as of January 1, 2013 — regardless of when those policies

had originally been issued — or only to policies that went into

effect after this date; and (2) the Court of Appeal properly

deferred to DOI guidance in its analysis.

II.

The grace period and notice requirements governing life

insurance policies issued before January 1, 2013 depend on

whether sections 10113.71 and 10113.72 apply to such policies.

To understand the effects of these provisions, we begin by

surveying the mechanics of life insurance and the broad legal

framework governing such policies.

A.

A life insurance policy “is a contract of indemnity under

which, in exchange for the payment of premiums, the insurer

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MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Opinion of the Court by Cuéllar, J.

promises to pay a sum of money to the designated beneficiary

upon the death of the named insured.” (Fairbanks v. Superior

Court (2009) 46 Cal.4th 56, 61.) There are two main categories

of life insurance. (See Fairbanks v. Farmers New World Life Ins.

Co. (2011) 197 Cal.App.4th 544, 547–548 & fn. 3 (Fairbanks);

Kaldenbach v. Mutual of Omaha Life Ins. Co. (2009) 178

Cal.App.4th 830, 834.) Cash value life insurance provides

“ ‘insurance’ ” in the form of a death benefit for designated

beneficiaries upon the policy owner’s death, as well as “ ‘cash

value’ ” savings that accumulate and are available during the

policy owner’s lifetime. (Kaldenbach, at p. 834.) Term life

insurance, which McHugh purchased, provides only a death

benefit, and it does so only for a set duration of years.

(Fairbanks, at p. 547.) It does not accrue and pay out a cash

value. (Estate of Logan (1987) 191 Cal.App.3d 319, 324; see also

Logue, The Current Life Insurance Crisis: How the Law Should

Respond (2002) 32 Cumb. L.Rev. 1, 17 [“A characteristic of term

life insurance is that if the insured fails to renew or cancels his

policy, the coverage will cease and any premiums that have been

paid (and earned) will not be refunded”].)

Despite the differences between term and cash value life

insurance, the importance of one aspect of insurance for the

larger public remains relatively constant across policy types:

Consumers often find it very difficult and costly to replace a

policy, including one that has been cancelled because of a missed

premium payment. They may need to spend money so they can

purchase a new policy; they may be forced to pay more expensive

premiums because they are being insured at an older age and

possibly after having developed health conditions; they may

need to pay commission charges and similar fees; they may be

forced to live with new incontestability or suicide clauses; and

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MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Opinion of the Court by Cuéllar, J.

they may be barred from accessing the cash value in their new

policy for a considerable time. (See, e.g., In re Prudential Ins.

Co. of Am. Sales Practice Litig. (3d Cir. 2001) 261 F.3d 355, 359,

fn. 2; Mahan v. Charles W. Chan Ins. Agency, Inc. (2017) 14

Cal.App.5th 841, 867, fn. 25; DOI, Life Insurance Guide <http://

www.insurance.ca.gov/01-consumers/105-type/95-guides/07-

life/life-ins-guide.cfm>2 [as of Aug. 30, 2021]; cf. Wilner v. Sunset

Life Ins. Co. (2000) 78 Cal.App.4th 952, 965–967.)

In part because of these consequences, the insurance

business is a matter of public interest. (Calfarm Ins. Co. v.

Deukmejian (1989) 48 Cal.3d 805, 830 (Calfarm); see also 20th

Century Ins. Co. v. Superior Court (2001) 90 Cal.App.4th 1247,

1265 & fn. 9.) So insurance contracts are subject to substantial

regulation under the state’s police power. (Calfarm, at p. 830.)

The state regulates insurance contracts primarily through the

Insurance Code. Policies may be required by the code to include

certain provisions, and these provisions are deemed to be

incorporated into every policy to which they pertain. (California

Fair Plan Assn. v. Garnes (2017) 11 Cal.App.5th 1276, 1305,

1309.) The laws in effect at the time of a policy’s issuance

generally govern the policy. (See Interinsurance Exchange of the

Auto. Club of Southern Calif. v. Ohio Cas. Ins. Co. (1962) 58

Cal.2d 142, 148 (Interinsurance Exchange); 2 Witkin, Summary

of Cal. Law (11th ed. 2017) Insurance, § 10, p. 44.) This general

rule promotes certainty in the commercial and legal relationship

between insurers and insureds. (See Swenson v. File (1970) 3

Cal.3d 389, 394–395.) Subject to certain constitutional

2

All Internet citations in this opinion are archived by year,

docket number, and case name at <http://www.courts.ca.gov/

38324.htm>.

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MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Opinion of the Court by Cuéllar, J.

guardrails, the state may exercise its police power to enact

legislation that affects existing policies. (Calfarm, at pp. 814–

815, 829–831.)

At the time Protective Life issued McHugh’s policy, the

Insurance Code provided (and continues to provide) that

insurers can cancel policies when policy owners fail to pay the

premium owed. (§ 484.) The code did not require life insurers

to provide notice when cancelling a policy, including for

nonpayment of a premium (see Stewart v. Life Ins. Co. of North

America (E.D. Cal. 2005) 388 F.Supp.2d 1138, 1142), even

though insurers were responsible for providing notice when

cancelling other forms of insurance (see, e.g., § 662, subd. (a) [for

automobile policies]; 2 Witkin, Summary of Cal. Law, supra,

Insurance, § 319, pp. 493–494). But the terms of the policy may

create a duty for insurers to provide cancellation notices, or

insurers may provide such notices as a general business

practice, as Protective Life did. (See 16 Williston on Contracts

(4th ed. 2014) § 49:85, pp. 728–731.) Such notice protects policy

owners from losing coverage due to their neglect (5 Couch on

Insurance (3d ed. 2012) § 76:23, p. 76-52) or enables them to

obtain insurance elsewhere before being subject to risk without

protection (2 Couch on Insurance (3d ed. 2010) § 32:1, p. 32-7).

Moreover, at the time Protective Life issued McHugh’s

policy, the Insurance Code did not require life insurers to

provide a grace period before cancelling a life insurance policy

for premium nonpayment. But life insurers could, as Protective

Life did, provide a grace period as a contractual provision and

business practice. (See 5 Couch on Insurance, supra, § 76:47, p.

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MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

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76-90.)3 A grace period offers an obvious benefit to policy

owners: time to pay a missed premium without an interruption

in coverage. (16 Williston on Contracts, supra, § 49:80, p. 699;

see Pediatricians, Inc. v. Provident Life & Acc. Ins. Co. (1st Cir.

1992) 965 F.2d 1164, 1168 (Pediatricians).) Grace periods can

also provide a business advantage to insurers. Of course,

insurers depend on the regular, timely payment of premiums in

order to pay death benefits and cover the cost of administering

policies. (See New York Life Ins. Co. v. Statham (1876) 93 U.S.

24, 30 [“[I]t must be conceded that promptness of payment is

essential in the business of life insurance. All the calculations

of the insurance company are based on the hypothesis of prompt

payments”]; 16 Williston on Contracts, supra, § 49:75, p. 655.)

But grace periods decrease the probability that policy owners

will terminate the policy accidentally or because of temporary

financial difficulties, and thus increase the likelihood that policy

owners will continue the insurance in effect, providing the

insurer not just with the premium then due but also future

premiums. (16 Williston on Contracts, supra, § 49:80, pp. 699–

700; Pickens v. State Farm Mut. Auto. Ins. Co. (S.C. 1965) 144

S.E.2d 68, 71; Pediatricians, at pp. 1168–1169.)

B.

In 2012, the Legislature enacted Assembly Bill No. 1747

(2011–2012 Reg. Sess.), grafting sections 10113.71 and 10113.72

onto the Insurance Code. (Stats. 2012, ch. 315, §§ 1, 2.) These

3

The 31-day grace period Protective Life provided typifies

the grace periods found in many policies. (16 Williston on

Contracts, supra, § 49:80, p. 699.) California regulations at the

time provided for a 31-day grace period. (Cal. Code Regs., tit.

10, § 2534.3.)

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MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Opinion of the Court by Cuéllar, J.

provisions, enacted after Protective Life issued McHugh’s policy

but before it cancelled the policy, changed the grace period and

notice requirements for life insurance policies in California.

Section 10113.71 established a 60-day grace period after a

missed premium. Subdivision (a) states: “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.” 4

(§ 10113.71, subd. (a).) The section also requires insurers to

notify policy owners, as well as persons designated by the policy

owners to receive notice (under section 10113.72), at least 30

days before terminating a policy due to a payment lapse.

(§ 10113.71, subd. (b)(1).) Subdivision (b)(1) states: “A notice of

pending lapse and termination of a life insurance policy shall

not be effective unless mailed by the insurer to the named policy

owner, a designee named pursuant to Section 10113.72 for an

individual life insurance policy, and a known assignee or other

person having an interest in the individual life insurance policy,

at least 30 days prior to the effective date of termination if

termination is for nonpayment of premium.” (Ibid.) And

subdivision (b)(3) mandates that the “[n]otice shall be given to

the policy owner and to the designee by first-class United States

4

As originally enacted, section 10113.71, subdivision (a)

began with “Every” instead of “Each.” (Stats. 2012, ch. 315, § 1.)

The Legislature amended the subdivision as part of a code

maintenance bill making “nonsubstantive changes” to various

provisions of law. (Legis. Counsel’s Dig., Assem. Bill No. 383

(2013–2014 Reg. Sess.); see also Stats. 2013, ch. 76, § 137.)

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MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Opinion of the Court by Cuéllar, J.

mail within 30 days after a premium is due and unpaid.”

(§ 10113.71, subd. (b)(3).)

Section 10113.72 requires life insurance policies to grant

policy owners the right to designate at least one other person to

receive a notice of an overdue premium and impending lapse or

termination of the policy. In subdivision (a), it provides that

“[a]n individual life insurance policy shall not be issued or

delivered in this state until the applicant has been given the

right to designate at least one person, in addition to the

applicant, to receive notice of lapse or termination of a policy for

nonpayment of premium.” (§ 10113.72, subd. (a).) It also

explains that “the insurer shall provide each applicant with a

form to make the designation,” and that this form must provide

the applicant with the opportunity “to submit the name,

address, and telephone number of at least one person, in

addition to the applicant, who is to receive notice of lapse or

termination of the policy for nonpayment of premium.” (Ibid.)

Subdivision (b) provides that insurers “shall notify the policy

owner annually of the right to change the written designation or

designate one or more persons,” and that policy owners may

elect to change the designation more often if they choose to do

so. (§ 10113.72, subd. (b).) Finally, subdivision (c) prevents an

insurer from ending a policy for an unpaid premium without

giving policy owners at least 30 days’ notice. It mandates that

no policy “shall lapse or be terminated” for an unpaid premium

“unless the insurer, at least 30 days prior to the effective date of

the lapse or termination, gives notice to the policy owner and to

the person or persons designated pursuant to subdivision

(a) . . . .” (§ 10113.72, subd. (c).)

Both of these sections went into effect on January 1, 2013.

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III.

Protective Life maintains that the two new statutes have

no effect on insurance contracts issued or delivered before

January 1, 2013. This case turns on whether the appellate court

was right to embrace that conclusion. To resolve this question,

we begin by reviewing de novo the Court of Appeal’s

interpretation of sections 10113.71 and 10113.72. (Kirby v.

Immoos Fire Protection, Inc. (2012) 53 Cal.4th 1244, 1250.) As

with any question of statutory construction, our core task here

is to determine and give effect to the Legislature’s underlying

purpose in enacting the statutes at issue. (California Teachers

Assn. v. San Diego Community College Dist. (1981) 28 Cal.3d

692, 698; Calatayud v. State of California (1998) 18 Cal.4th

1057, 1065; Goodman v. Lozano (2010) 47 Cal.4th 1327, 1332.)

We first consider the words of the statutes, as statutory

language is generally the most reliable indicator of legislation’s

intended purpose. (In re H.W. (2019) 6 Cal.5th 1068, 1073

(H.W.).) We consider the ordinary meaning of the relevant

terms, related provisions, terms used in other parts of the

statute, and the structure of the statutory scheme. (Larkin v.

Workers’ Comp. Appeals Bd. (2015) 62 Cal.4th 152, 157.) If the

relevant statutory language is ambiguous, we look to

appropriate extrinsic sources, including the legislative history,

for further insights. (H.W., at p. 1073.) We also extend some

deference to DOI’s interpretations of the Insurance Code, to the

extent that those interpretations are embodied in quasi-

legislative regulations or constitute long-standing, consistent,

and contemporaneous interpretations. (See, e.g., Yamaha Corp.

of America v. State Bd. of Equalization (1998) 19 Cal.4th 1, 12–

13 (Yamaha); Farmers Ins. Exch. v. Superior Court (2006) 137

Cal.App.4th 842, 859.)

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MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

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A.

The Court of Appeal framed its analysis by relying on a

general interpretive principle: the rebuttable presumption that

a statute does not operate retroactively, and instead operates on

a prospective basis only. (Myers v. Philip Morris Companies,

Inc. (2002) 28 Cal.4th 828, 844 (Myers).) The Court of Appeal

presupposed that applying sections 10113.71 and 10113.72 to

McHugh’s policy was, in fact, retroactive for purposes of

applying the presumption against retroactivity. Its only brush

with this threshold question came toward the end of its analysis,

where — seeking to tether its statutory analysis to

constitutional principles — the appellate court explained that

well-settled law dictated that “McHugh’s policy is governed by

the regulations in effect when it was issued in 2005, and the

subsequently enacted sections 10113.71 and 10113.72 are not

incorporated into the policy.” (McHugh, supra, 40 Cal.App.5th

at p. 1177.) The court’s assumption appears to have been that

applying the sections here was retroactive because they imposed

new grace period and notice obligations nowhere found in the

2005 regulations, which governed already-existing policies and

lacked these grace period and notice requirements.

Applying the presumption against retroactivity, the court

emphasized what it took to be the principle’s requirements —

that “ ‘a statute may be applied retroactively only if it contains

express language of retroactivity or if other sources provide a

clear and unavoidable implication that the Legislature intended

retroactive application.’ ” (McHugh, supra, 40 Cal.App.5th at p.

1174, quoting Myers, supra, 28 Cal.4th at p. 844, italics added

by Myers.) It then concluded that there was no basis to rebut

the presumption. (McHugh, at p. 1174.)

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Protective Life reiterates and expands upon the Court of

Appeal’s analysis. Regarding whether we face a question of

“retroactivity”: Protective Life invokes Interinsurance

Exchange, supra, 58 Cal.2d at page 148 to urge that reading the

grace period and notice protections into McHugh’s policy would

be a retroactive application, since insurance policies are

putatively governed by the law in effect when they are issued.

Because no statutory law pre-2013 created grace period and

notice requirements related to missed life insurance premiums,

what Protective Life is arguing, then, is that the absence of

regulation should be read into McHugh’s policy, and that

holding otherwise would be to rewrite the policy.

Plaintiffs argue, however, that this case involves an

entirely prospective statutory application because they seek no

more than application of the grace period and notice

requirements to missed premium payments occurring after

sections 10113.71 and 10113.72 went into effect. In other words,

plaintiffs argue that this case merely concerns Protective Life’s

postenactment conduct with respect to policies in force as of

January 1, 2013. They contend that this statutory application

is not “retroactive” at all because it does not materially alter the

contractual agreement memorialized in McHugh’s policy, and

similarly situated policies, in a way that unfairly undermines

the parties’ reliance interests. In the alternative, plaintiffs

argue that this statutory application does not implicate

principles of retroactivity because any retroactive effect here is

minimal and will not substantially impair any vested

contractual rights.

We find support for both of plaintiffs’ arguments. Our

previous decisions buttress plaintiffs’ understanding of the

presumption against retroactivity, and whether it even applies.

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We conclude that under either alternative theory, the

interpretive presumption does not vindicate Protective Life’s

position.

1.

The presumption against retroactivity is, at core, a canon

to facilitate interpretation rather than an inexorable command.

(People v. Superior Ct. (Lara) (2018) 4 Cal.5th 299, 307; see

Medical Board v. Superior Court (2001) 88 Cal.App.4th 1001,

1013.) In cases where the presumption is potentially implicated,

we must consider both its overall role — helping guide us in our

core endeavor of determining and giving full effect to a statute’s

underlying purpose — and the specific premise for applying it in

that particular case. (People v. Garcia (2016) 62 Cal.4th 1116,

1124; see Tapia v. Superior Ct. (1991) 53 Cal.3d 282, 301

(Tapia); Fox v. Alexis (1985) 38 Cal.3d 621, 629.) We apply the

presumption in the absence of explicit legislative indications of

retroactivity, doing so based on the fundamental fairness

considerations raised by “ ‘imposing new burdens on persons

after the fact.’ ” (McClung v. Employment Development Dept.

(2004) 34 Cal.4th 467, 475 (McClung); see id. at p. 476

[“ ‘Requiring clear intent assures that [the legislative body]

itself has affirmatively considered the potential unfairness of

retroactive application and determined that it is an acceptable

price to pay for the countervailing benefits’ ”].)

These considerations influence the threshold question

courts must answer before even applying the presumption

against retroactivity: Is the statutory change in question

“ ‘retroactive’ ” or “ ‘prospective’ ”? (Californians for Disability

Rights v. Mervyn’s, LLC (2006) 39 Cal.4th 223, 230 (Mervyn’s).)

In theory, these concepts are simple; in practice, they often

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prove more elusive. To distinguish between “retroactive” and

“prospective” statutory applications, we explained the need to

deploy the following standard: “We must consider ‘ “ ‘the nature

and extent of the change in the law and the degree of connection

between the operation of the new rule and a relevant past

event’ ” ’ ”; “ ‘ “ ‘familiar considerations of fair notice, reasonable

reliance, and settled expectations offer sound guidance.’ ” ’ ”

(Quarry v. Doe I (2012) 53 Cal.4th 945, 955 (Quarry).) In

keeping with these principles, we have generally explained that

a new law operates “retroactively” when it changes “ ‘ “the legal

consequences of past conduct by imposing new or different

liabilities based upon such conduct.” ’ ” (Mervyn’s, at p. 231.)

We have asked whether the new law “ ‘ “substantially affect[s]

existing rights and obligations.” ’ ” (Ibid., italics added.)

Plaintiffs advance this understanding of retroactivity. Yet some

of our cases can potentially be read to articulate a broader

definition of retroactivity, which Protective Life argues we

should apply. In Myers, for example, we stated that a statute

operates retroactively when it “ ‘ “affects rights, obligations,

acts, transactions and conditions which are performed or exist

prior to the adoption of the statute.” ’ ” (Myers, supra, 28 Cal.4th

at p. 839, quoting Aetna Cas. & Sur. Co. v. Ind. Acc. Com. (1947)

30 Cal.2d 388, 391 (Aetna).) This broader definition seems to

embrace any conceivable statutory impact on the terms of an

existing contract — including an insurance contract — as

Protective Life urges.

The two differing conceptions of “retroactivity” at play

underscore why the term and its antonym “are not always easy

to apply to a given statute.” (Quarry, supra, 53 Cal.4th at p.

955; see 2 Sutherland, Statutes and Statutory Construction (7th

ed. 2009) § 41:1, p. 385.) Established precedent nonetheless

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MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Opinion of the Court by Cuéllar, J.

helps us clarify any potential ambiguity and strongly favors

plaintiffs’ retroactivity approach.

Consistent with the presumption’s underlying logic, our

cases defining “retroactivity” have principally focused on

whether the statutory change in question significantly alters

settled expectations: by changing the legal consequences of past

events, or vitiating substantial rights established by prior law.

(See, e.g., Quarry, supra, 53 Cal.4th at p. 956; Strauss v.

Horton (2009) 46 Cal.4th 364, 472; Elsner v. Uveges (2004) 34

Cal.4th 915, 937; McClung, supra, 34 Cal.4th at p. 472; Tapia,

supra, 53 Cal.3d at p. 290; see also Western Security Bank v.

Superior Court (1997) 15 Cal.4th 232, 243 (Western) [a

retroactive statute “substantially changes the legal

consequences of past events,” and “[a] statute does not operate

retrospectively simply because its application depends on facts

or conditions existing before its enactment”]; Landgraf v. USI

Film Products (1994) 511 U.S. 244, 266, 269–270 (Landgraf)

[similar].) Even Myers, supra, 28 Cal.4th at page 839 followed

up its potentially more expansive articulation of “retroactivity”

by explaining that, “[p]hrased another way, a statute that

operates to ‘increase a party’s liability for past conduct’ is

retroactive.” Leading cases addressing “retroactive” legislation

have confronted such changes in settled expectations.

This was true, for example, of the amendments to title VII

of the Civil Rights Act of 1964 (42 U.S.C. § 2000e et seq.) at issue

in Landgraf, supra, 511 U.S. 244. The changes matched new

remedies to certain statutory violations. (Ibid.) Courts have

also turned to drawing the retroactivity-no retroactivity line

with respect to the new certificate requirement for Chinese

nationals’ reentry in Chew Heong v. United States (1884) 112

U.S. 536 (discussed in Landgraf, at pp. 271–272); the new

17

MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Opinion of the Court by Cuéllar, J.

liability rule added by Proposition 51 (adopted by voters in June

1986) in Evangelatos v. Superior Court (1988) 44 Cal.3d 1188;

the increased worker compensation benefits in Aetna, supra, 30

Cal.2d 388; and, finally, the repeal of statutory tort immunity

for tobacco companies in Myers, supra, 28 Cal.4th 828. The

changes wrought by sections 10113.71 and 10113.72, by

contrast, do not disrupt clearly settled expectations in such

fashion — so it’s not clear they operate “retroactively” at all.

To wit: The grace period and notice obligations added by

sections 10113.71 and 10113.72 do not impact a life insurer’s

liability for past, preenactment defaults. 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. (Cf.

Interinsurance Exchange, supra, 58 Cal.2d at p. 148

[“retroactive” statutory change would have repealed a rule

requiring a mandatory provision in automobile insurance

policies covering certain permittees; if applied to previously

negotiated contracts, this change would have upended the

bargain struck].) The grace period and notice rules make

relatively cabined, procedural changes to how insurers

administer policies routinely subject to public regulation — they

require insurers to provide policy owners with limited but

critical safeguards to avoid defaulting. These new rules affect

contractual relationships in a field pervasively “ ‘affected with a

public interest,’ ” and thereby already heavily regulated by the

state. (Calfarm, supra, 48 Cal.3d at p. 830.) And these rules do

18

MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Opinion of the Court by Cuéllar, J.

not unfairly “rewrite” existing policies, as Protective Life

suggests. They instead merely impose additional rules on

insurers as a condition of doing business in California — rules

that govern insurers’ conduct postenactment when, in the

future, one of their policy owners misses a premium payment.5

The context matters. Where a new law makes only

moderate, procedural-type adjustments to the rules for conduct

that will apply in the event of some future circumstance, in an

already highly regulated contractual relationship, the new law’s

application to existing contracts could be regarded as

prospective rather than retroactive for purposes of the

presumption. To say the least, this type of statutory application

falls well short of the quintessential understanding of

“retroactivity” — the disruption of settled expectations because

a statutory change “ ‘imposes a new or additional liability and

substantially affects existing rights and obligations’ ” — that

can be reasonably gleaned from leading cases such as Tapia,

supra, 53 Cal.3d at page 290. The concurrence fails to fully

grapple with this established body of law. (Conc. opn., post, at

5

Sections 10113.71, subdivision (b) and 10113.72,

subdivision (c) frame their notice obligations as requirements

insurers must observe before terminating policies. Section

10113.71, subdivision (a) arguably operates differently because

it mandates that policies include a 60-day grace period

provision. That particular way to frame the policies, and the

fact that McHugh’s policy already contained a 31-day grace

period, may imply to some observers that the subdivision

operates here by formally altering an existing contract. But

given that the provision does not operate on already-defaulted

policies before enactment, it’s not clear that it differs in any

substantive way from a provision simply requiring all insurers

to, going forward, observe a pretermination 60-day grace period.

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MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Opinion of the Court by Cuéllar, J.

pp. 8–9 [contending only that the majority fails to identify a

sufficiently analogous case].)

An analogous case drives home our conclusion. In

Mervyn’s, supra, 39 Cal.4th 223, we addressed whether

Proposition 64’s rule, which restricted standing to bring an

unfair competition law claim to plaintiffs who have suffered an

injury in fact and have lost money or property, applied to

pending cases. (Mervyn’s, at pp. 227–228 [law had previously

authorized any person acting for the general public to sue, and

Prop. 64, approved by voters in November 2, 2004, deleted this

language].) We held that applying the proposition to pending

cases “is not to apply [it] ‘retroactively,’ as we have defined that

term, because the measure does not change the legal

consequences of past conduct by imposing new or different

liabilities based on such conduct.” (Mervyn’s, at p. 232; see id.

at p. 231 [distinguishing Myers, supra, 28 Cal.4th at p. 240,

where the new law “subjected tobacco sellers to tort liability for

acts performed at a time when they enjoyed the protection of an

immunity statute”].)

So too here. The grace period and notice provisions at

issue here simply dictate the procedures for terminating policies

after January 1, 2013. Applying the provisions to policies

already in effect on that date does not appear to impose new or

different liabilities based on earlier conduct. (See also Pitts v.

Perluss (1962) 58 Cal.2d 824, 835 (Pitts) [similar reasoning with

respect to a regulation preventing substantial adverse selection

of risks by private insurance companies, as the “regulation looks

solely to the future; it provides that the future operation of the

plans comply with the standards. No sanction or penalty

attaches to any past act of the companies; the companies need

only discontinue one or more existing noncomplying plans or

20

MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Opinion of the Court by Cuéllar, J.

establish complying ones”]; see id. at p. 836 [distinguishing,

inter alia, Interinsurance Exchange, supra, 58 Cal.2d 142 and

Aetna, supra, 30 Cal.2d 388, because those cases involved

attempts “to apply the new law of today to the conduct of

yesterday”].)

Protective Life contends that some of our cases support a

different conclusion: that any impact on the terms of an existing

contract represents a retroactive change for purposes of

applying the presumption. Our precedent more readily

establishes a different proposition. The mere fact that a new

law somehow implicates an existing contract does not, by itself,

make the law retroactive. (See Western, supra, 15 Cal.4th at p.

243.) The key is the nature of the new law’s impact — whether

it works a substantial change in the contracting parties’ rights

or obligations. (See, e.g., Tapia, supra, 53 Cal.3d at p. 290.) It’s

far from clear that any of the effects identified by Protective Life

and industry amici curiae rise to this level.

Protective Life argues simply that applying the grace

period and notice requirements to McHugh’s policy and others

like it goes against contractual counterparties’ strong interests

in avoiding unexpected shifts in their legal relationship. It

asserts, as a general matter, that “[t]he agreed-to premium

pricing reflected, among other things, the grace period and

notice provisions in the policies.” Protective Life’s argument

ultimately boils down to an assertion of its expectations that

sections 10113.71 and 10113.72 would not apply to previously

enacted policies: It expected these policies to be governed by

“the old rules” and can’t now change premiums to account for

the new rules. We question the prudence of this expectation,

since, as we have previously observed, the “highly regulated”

nature of the insurance industry means that “further

21

MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Opinion of the Court by Cuéllar, J.

regulation” on policies by the Legislature “can reasonably be

anticipated.” (Calfarm, supra, 48 Cal.3d at p. 830.) Even

setting this aside, though, Protective Life’s argument fails to

persuade. The insurer’s generalized, amorphous allusion to

financial impact does not specifically identify any way in which

the bargain memorialized in the insurance contract would be

substantially upset by applying the grace period and notice

provisions to future cancellations of policies issued before

January 1, 2013.

Industry amici curiae’s further arguments, though more

substantiated, also fail to persuade. The Chamber of Commerce

emphasizes that insurers will have to “devote resources” to

complying with the notice provisions. But any such resources

would seem to be minimal. Notice of the designation right need

only be provided annually and can be sent together with a billing

statement. As to pretermination notice, it is standard industry

practice to provide some notice before terminating an insurance

policy for nonpayment of a premium. (Ante, at p. 8.) Indeed,

although McHugh’s policy did not require any pretermination

notice, Protective Life sent McHugh letters reminding him that

his payment was due, informing him that his payment was late,

and then informing him that his policy had lapsed but could be

reinstated. The American Council of Life Insurers points out

that if the insured dies during the extended grace period, the

insurer will be required to pay benefits for which it has not

received a premium. But this burden is at least somewhat

offset, since the insurer would be entitled to deduct the unpaid

premium payment from any life insurance benefits it pays out.

Under the circumstances presented, there appears to be

only one way an insurer could incur a significant unaccounted-

for loss because of sections 10113.71 and 10113.72: If the grace

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MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Opinion of the Court by Cuéllar, J.

period and notice provisions prevent inadvertent defaults that

the insurer had anticipated and baked into its rates — that,

after all, is the problem the provisions were designed to address.

If, however, insurers did not specifically account for a projected

rate of inadvertent default when setting their rates, then any

such default would result in a windfall to the insurer. As

amicus curiae California Advocates for Nursing Home Reform,

Inc., explains: A windfall, or “ ‘Lapse Profit,’ ” arises when a

policy owner’s missed premium payment allows the insurers to

“ ‘pocket’ years of premium[s],” potentially totaling several

thousands of dollars, and “simply walk away from any obligation

[to] pay anything to [its] ‘former client[].’ ” One additional

consideration for why a windfall may occur: Premiums in a

policy’s earlier years exceed the cost of providing coverage.

(Fairbanks, supra, 197 Cal.App.4th at pp. 547–548.)6

Here, neither Protective Life nor amici curiae argue that

insurers accounted for a particular rate of inadvertent default

in setting premiums before January 1, 2013. Though they

generally reference premium pricing and financial projections,

they do not specifically claim to have included in their rate-

setting calculations an anticipated percentage of policy owners

who, due to illness, incapacity, or other factors, would fail to pay

their premiums and lose coverage, thereby relieving the

insurers from the obligation to pay out death benefits. In fact,

Protective Life argued at trial — and the jury accepted — that

the notices and grace period it actually provided to McHugh

substantially complied with and largely replicated sections

6

We recognize that, theoretically, some number of policy

owners might deliberately allow a policy to lapse rather than

cancelling it to maintain coverage during the grace period.

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MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Opinion of the Court by Cuéllar, J.

10113.71 and 10113.72. Taken together, the arguments offered

fall short of clearly showing how the sections’ new protections

constituted a disruptive contract change of the sort that would

qualify as “retroactive” under our precedent.

2.

If it’s far from obvious that applying sections 10113.71 and

10113.72 to existing life insurance policies is retroactive under

well-settled case law, it’s also clear that Protective Life’s

argument about the scope of these two new sections still fails to

persuade us even if one considered the provisions in question to

have some retroactive effect. For some observers, the statutory

changes in question might be considered to go beyond nominal

or trivial alterations to existing contracts. To the extent some

of our cases can be read to suggest a broader understanding of

“retroactivity” — one potentially embracing any statutory

impact on an existing insurance contract (see Myers, supra, 28

Cal.4th at p. 839) — our precedent nonetheless still supports a

conclusion in plaintiffs’ favor.

As plaintiffs argue, even if applying sections 10113.71 and

10113.72 in this case is retroactive, it is retroactive only in a

relatively narrow sense. True: The sections, if applied to

preenactment policies, do create new rules for insurers in

administering these policies. Because the grace period and

notice provisions expand insurers’ pretermination requirements

beyond the bargained-for policy terms, they technically affect

“ ‘ “rights, obligations, acts, transactions and conditions” in

existence “prior to the adoption of the [sections].” ’ ” (Myers,

supra, 28 Cal.4th at p. 839.) But, for the same reasons that one

could conclude this case does not present a question of

retroactivity, we determine that any nominal retroactive effect

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MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Opinion of the Court by Cuéllar, J.

arguably at issue here plainly fails to present the type of concern

underlying the application of the presumption as we have

ordinarily understood it.

The retroactivity presumption is not a “straitjacket.” (In

re Estrada (1965) 63 Cal.2d 740, 746.) Nothing in our cases calls

on us to apply the presumption for any conceivable type of

preenactment impact, however slight. Instead, our case law

calls for application of the presumption where applying the new

law implicates fundamental fairness concerns, including by

“foist[ing] upon past conduct new and onerous legal

consequences.” (Pitts, supra, 58 Cal.2d at pp. 835–836.) In

Myers, supra, 28 Cal.4th 828, for instance, the retroactive legal

change in question subjected tobacco sellers to tort liability for

prior acts performed when they enjoyed the protection of an

immunity statute. (See also Tapia, supra, 53 Cal.3d at pp. 297–

299 [retroactive legal change subjected persons to increased

punishment for past criminal conduct, or to punishment for past

conduct not formerly defined as criminal].) By contrast, the new

grace period and notice requirements do not thrust new legal

consequences onto Protective Life’s preenactment policy

terminations or otherwise appear to cause the insurer to bear

significant and unanticipated costs for its pre-2013 policies.

Instead, the new rules simply updated how the regulatory

system governing life insurance terminations treats all policies

going forward. Therefore, insofar as these new rules operate

“retroactively,” that is not the type of retroactivity that warrants

our usual level of reluctance to construe statutes retroactively.

In summary, this 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

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MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Opinion of the Court by Cuéllar, J.

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.

B.

Having explored the presumption against retroactivity,

the broader interpretive question remains: whether sections

10113.71 and 10113.72 apply to McHugh’s policy and similarly

situated ones. We conclude that they do.

Before engaging in our interpretive analysis, we make one

brief observation: As the concurrence implies, our precedent

leaves open the possibility of simply assuming that this case

presents an instance of retroactivity and therefore merits

application of the presumption against retroactivity. (Conc.

opn., post, at pp. 6–7.) And if the presumption applies with its

ordinary weight, the indicia of legislative purpose here could

rebut it. (See, e.g., id. at pp. 3–4 [emphasizing the breadth of

the statutory language]; id. at pp. 5–6 [highlighting the

legislative history discussion of problems facing existing

policyholders]; cf. post, at pp. 33–37.)

But the most thorough approach, consistent with previous

cases, is to address a threshold question: whether sections

10113.71 and 10113.72 even create retroactive changes for

purposes of the presumption. (Ante, at p. 15.) That way, we

avoid having to apply the canon in a circumstance where it’s not

necessary, and where our cases do not definitively indicate that

the presumption has been rebutted. (Compare conc. opn., post,

at pp. 5–6 with McClung, supra, 34 Cal.4th at p. 475

[presumption not rebutted where legislative history lacked

retroactivity discussion].)

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MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Opinion of the Court by Cuéllar, J.

1.

We start with the statutory language. (H.W., supra, 6

Cal.5th at p. 1073.)

On the one hand, broadly applicable language found in

many of the sections’ subdivisions, and the absence of any

temporal qualifiers in this language, supports plaintiffs’

argument that the sections apply to all policies in force as of

January 1, 2013. On the other hand, different parts of the

provisions plausibly favor the interpretations urged by both

parties. One provision, section 10113.72, subdivision (a),

unmistakably applies only to new policies; but some provisions

likely seem to apply to both new and existing policies, and some

could be read either way. Because the parties’ linguistic parsing

at times plausibly cut in opposing directions, and because we

must interpret these provisions as a package, the net effect is

one of some potential statutory ambiguity. To see why, consider

each provision in turn.

Section 10113.72, subdivision (a) relates to the right to

designate at least one third party recipient to receive a missed

premium notice. This provision applies only to new,

postenactment policies. (McHugh, supra, 40 Cal.App.5th at pp.

1174–1175.) The language refers repeatedly to the “applicant”

making a written designation, rather than the “policy owner,”

clearly indicating it applies only to new policies. (§ 10113.72,

subd. (a).) Protective Life also persuasively argues that the

particular phrasing of subdivision (a)’s command — it instructs

that a policy “shall not be issued or delivered . . . until” an

applicant has been given the written designation right —

further supports that it applies only to new policies as of 2013,

since “shall be” commands often signify a statute’s forward-

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MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Opinion of the Court by Cuéllar, J.

looking nature. (Ibid., italics added; cf. Russell v. Superior

Court (1986) 185 Cal.App.3d 810, 818–819.)

But subdivision (b) of section 10113.72 does not refer to

“applicant[s],” nor does it use “shall be” language. The

subdivision requires insurers to annually notify “policy

owner[s]” for their right to update and change their third party

notice designation. (§ 10113.72, subd. (b).) It could easily apply

to both new policies and those already in force as of January 1,

2013. The subdivision provides an opportunity for the policy

owner on an existing policy with no designation to “designate

one or more persons” (ibid.) — a right that could apply

regardless of when the policy was issued. (See Bentley v. United

of Omaha Life Ins. Co. (C.D. Cal., June 22, 2016, No. CV15-7870-

DMG (AJWx)) 2016 WL 7443189, p. *4 (Bentley).) Indeed, as

plaintiffs persuasively argue, nothing in this language appears

to limit this right only to those “policy owners” who purchased

insurance postenactment. (See ibid.)

Even so, we can’t determine for sure from the isolated

language of section 10113.72, subdivision (b) that the

designation right unambiguously applies to all policies.

Protective Life counters plaintiffs’ plausible reading of

subdivision (b) with its own potentially tenable interpretation:

Subdivision (b) does not create a freestanding designation right,

but instead repeatedly refers back to and builds off its

immediately preceding provision, subdivision (a) — discussing

“[t]he insurer,” “the policy owner,” “the right,” “the designation,”

and “change[s]” to the designation. (§ 10113.72, subd. (b).) In

other words, subdivision (b) can be read to merely clarify the

scope of subdivision (a) by requiring that “applicant[s]” who are

now “policy owner[s]” be advised that they may exercise the

right to designate by changing or initially naming a designee.

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Opinion of the Court by Cuéllar, J.

Plaintiffs likely offer the better interpretation, as it gives full

effect to the several instances where subdivision (b) uses

meaningfully distinct language from subdivision (a). (See, e.g.,

Gomez v. Superior Court (2012) 54 Cal.4th 293, 304; Briggs v.

Eden Council for Hope & Opportunity (1999) 19 Cal.4th 1106,

1117.)7 Yet Protective Life also offers a tenable reading.

Far less ambiguity lurks in the notice provisions. Each

speaks universally, referring to “policy owner[s]” and describing

its requirement without any apparent limitation on the date of

issuance. (§§ 10113.71, subd. (b)(1), (3), 10113.72, subd. (c).)

Section 10113.71, subdivision (b)(1) states broadly that notice of

pending lapse and termination “shall not be effective unless

mailed by the insurer” to the policy owner, a designee, and a

known assignee “at least 30 days prior to the effective date of

termination.” Section 10113.71, subdivision (b)(3) also sweeps

broadly, requiring insurers to provide policy owners and

designees with notice “within 30 days after a premium is due

and unpaid.” Section 10113.72, subdivision (c) similarly

provides that “[n]o individual life insurance policy shall lapse or

be terminated for nonpayment of premium unless the insurer”

gives the requisite 30-day-minimum notice, and that “[n]otice

7

Section 10113.72, subdivision (b) differs from its precedent

subdivision in three ways: It (1) applies to a different

rightsholder (i.e., a policy owner, versus an applicant); (2)

describes the exercise of designation at a different point in time

(i.e., after the policy owner’s initial application, a timing which

permits both pre- and postenactment policy owners to exercise

their designation); and (3) creates a different obligation for

insurers (i.e., to notify policy owners annually regarding their

designation right, as opposed to providing applicants with a

designation form). (§ 10113.72, subds. (a), (b).)

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MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Opinion of the Court by Cuéllar, J.

shall be given . . . within 30 days after a premium is due and

unpaid.”

As Protective Life observes, however, the notice provisions

do include references to the designee for notice under section

10113.72, which suggests the two sets of provisions are meant

to work together. That introduces some ambiguity into our

reading of the notice provisions insofar as the designee

provisions can be considered ambiguous. If all of section

10113.72 were read to apply only to new contracts, that would

be some indication that the notice provisions apply only to new

contracts as well. But if the more likely reading is that

designations can also be made under existing contracts under

section 10113.72, subdivision (b), then we have little reason to

think that the notice provisions would be restricted to new

contracts. (We say little reason, rather than no reason, because

section 10113.72, subdivision (c)’s specific cross-reference to

subdivision (a) of the same section, and the absence of such a

specific cross-reference in section 10113.71, subdivision (b), does

slightly muddy the waters.) In any event, if no notice recipient

has yet been designated for a policy — which could, of course,

happen even in the case of a new policy — then the provisions

requiring notice to the designee are simply ineffective.

Finally, section 10113.71, subdivision (a) addresses the

grace period provision. Here too, we find support in its language

for both parties’ arguments.

Protective Life identifies language in section 10113.71,

subdivision (a) that appears future-oriented: The phrases “shall

contain” (each policy “shall contain a provision for a grace

period”) and “shall provide” (“The provision shall provide that

the policy shall remain in force during the grace period”) in

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MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Opinion of the Court by Cuéllar, J.

subdivision (a) suggest reference to a requirement for policies

yet to be issued. (See People v. Allied Architects’ Assn. (1927)

201 Cal. 428, 437.)

Plaintiffs reasonably respond, however, that “shall” in

10113.71, subdivision (a) represents a mandatory directive for

all policies (i.e., each policy must be read to contain a grace

period), rather than a temporal limitation on the policies to

which the grace period applies. (Evangelatos v. Superior Court,

supra, 44 Cal.3d at p. 1209, fn. 3; see People v. Ledesma (1997)

16 Cal.4th 90, 95 [“ ‘shall’ ” can be construed as either

mandatory or directory as well as denote future operation].)

Moreover, they persuasively analyze the past participle “issued

or delivered.” As used here in the phrase “[e]ach life insurance

policy issued or delivered in this state,” the reference to what’s

“issued or delivered” can simultaneously refer to past as well as

future events. (See Bernal v. NRA Grp. LLC (7th Cir. 2019) 930

F.3d 891, 895.)8

Considering section 10113.71, subdivision (a) in context

supports plaintiffs’ interpretation. (See People v. Garcia (2017)

2 Cal.5th 792, 805 (Garcia).) As Protective Life itself observes,

the grace period provision has an “intertwined” relationship

with the notice provisions. The Legislature evidently designed

8

The Court of Appeal relied on Ball v. California State

Auto. Assn. Inter-Ins. Bureau (1962) 201 Cal.App.2d 85, 87, to

read “ ‘issued or delivered’ ” as “customar[il]y” embracing only

postenactment policies. (McHugh, supra, 40 Cal.App.5th at p.

1176; see id. at p. 1175.) But nothing in our case law suggests

that Ball, which concerned a statute impacting automobile

liability policies, provides the type of “definitive judicial

construction” of the phrase “issued or delivered” that we can

presume the Legislature knew of and sought to adopt here.

(Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 675.)

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Opinion of the Court by Cuéllar, J.

the grace period to work in conjunction with the notice

provisions, which ensure policy owners and their designees

receive notification of a pending lapse and termination at least

30 days before the 60-day grace period has expired. (See Assem.

Com. on Insurance, Background Information Sheet for Assem.

Bill No. 1747 (2011–2012 Reg. Sess.) Feb. 27, 2012, p. 2.)

Indeed, it appears intentional that the two 30-day windows

provided by the notice provisions operate within and can add up

to the 60-day grace period: The insurer has up to 30 days after

a missed premium payment to give notice (§§ 10113.71, subd.

(b)(3), 10113.72, subd. (c)), and a separate 30 days that must

follow before a mailed notice becomes effective to terminate a

policy for nonpayment (see §§ 10113.71, subd. (b)(1), 10113.72,

subd. (c)). Given this relationship, it certainly seems sensible

that the grace period would, as the notice provisions appear to

do, apply universally.

Admittedly, the notice provisions can perhaps be capable

of operating independently of the grace period provision — the

former applying to all policies, the latter to new policies only.

The notice provisions themselves effectively establish a grace

period of 30 to 60 days. But it seems unlikely that the

Legislature meant for the notice provisions to drive the scope of

protections conferred for nonpayment in the class of cases

involving existing contracts, particularly since it did not draw

any express distinctions in any of the provisions on the basis of

policy issue date. It seems more reasonable to construe the

statutory provisions as a package, as either all applying to

existing contracts or not. That the provisions work together —

the notice provisions require sending notice to the policy owner

and an individual designated under the new designation

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MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Opinion of the Court by Cuéllar, J.

procedures, within the time frame established by the new grace-

period provision — reinforces our conclusion.

In view of how these provisions interact, the broadly

applicable language found in most of the relevant statutory

passages tends to cut in favor of plaintiffs’ interpretation. (Cf.

conc. opn., post, at pp. 3–4.) That said, Protective Life does

identify some language cutting in favor of its narrower

interpretation — and the statutory sections at issue stop short

of conclusively establishing precisely how the provisions work.

To resolve any potential ambiguity in the language, we must

look to other sources to determine whether, as plaintiffs argue,

the provisions’ intended purpose entails applying them to

existing contracts. (H.W., supra, 6 Cal.5th at p. 1073.)

2.

Other indicia of purpose, gleaned from context, resolve any

latent ambiguity in the language of sections 10113.71 and

10113.72. They indicate that the sections apply to all policies in

force as of January 1, 2013.

To begin with, the statutory sections appear to create a

single, unified pretermination notice scheme. This scheme

appears to include three components: (1) New and existing

policy owners must have the opportunity to designate additional

people to receive a notice of termination (§ 10113.72, subds. (a),

(b)); (2) policy owners and any designees must receive notice

within 30 days of a missed premium payment, and any

termination for nonpayment will not be effective unless insurers

send notice to these parties at least 30 days prior (§§ 10113.71,

subd. (b)(1), (3), 10113.72, subd. (c)); and (3) each policy has a

60-day grace period, which lines up with the two 30-day notice

windows (§ 10113.71, subd. (a)). In light of these new, detailed

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MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Opinion of the Court by Cuéllar, J.

statutory notice requirements, it seems doubtful the Legislature

contemplated that insurance companies would, going forward,

simultaneously implement two vastly different notice schemes:

one applying to pre-2013 policies that requires only 31-day

notices before termination and no right to designations, and a

post-2013 scheme as described. It thus seemed largely assumed

that insurance companies would implement the single, new

notice scheme, which would have the effect of benefitting both

new and existing policy owners.

The legislative history supports this conclusion. Those

involved in the legislative process seemed to take for granted a

single, standardized notice scheme. (See, e.g., Assem. Com. on

Insurance, 3d reading analysis of Assem. Bill No. 1747 (2011–

2012 Reg. Sess.) as amended May 9, 2012, p. 2.)

Moreover, the legislative history provides several

indications that 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. The Assembly and Senate materials on

Assembly Bill No. 1747 (2011–2012 Reg. Sess.) include purpose

and supporting argument statements like the following:

“According to the author, the bill provides consumer safeguards

from which people who have purchased life insurance coverage,

especially seniors, would benefit. Under existing law,

individuals can easily lose the critical protection of life

insurance if a single premium is accidentally missed (even if

they have been paying premiums on time for many years). If an

insured individual loses coverage and wants it reinstated, he or

she may have to undergo a new physical exam and be

underwritten again, risking a significantly more expensive,

possibly unaffordable premium if his or her health has changed

34

MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Opinion of the Court by Cuéllar, J.

in the years since purchasing the policy. Therefore, the

protections provided by [Assembly Bill No.] 1747 are intended

to make sure that policy owners have sufficient warning that

their premium may lapse due to nonpayment.” (Assem. Com. on

Insurance, Analysis of Assem. Bill No. 1747 (2011–2012 Reg.

Sess.) as amended Apr. 26, 2012, pp. 1–2, italics added

(hereafter Assem. Com. on Insurance Analysis); see also Sen.

Com. on Insurance, Analysis of Assem. Bill No. 1747 (2011–2012

Reg. Sess.) as amended June 7, 2012, p. 3 [longtime policy

owners may miss a payment “because they were being

hospitalized when the bill came, in others, as a result of a mail

mix-up or forgetfulness, etc.”].) Where, as here, the author’s

statements are part of committee materials — and are therefore

relayed not merely as personal views, but instead as part of the

Legislature’s consideration of the bill — they can serve as

salient reflections of legislative purpose. (See Carter v.

California Dept. of Veterans Affairs (2006) 38 Cal.4th 914, 928.)

Protective Life argues that the legislative history does not

clarify the statutory language, but we are not persuaded. True:

The materials do not explicitly consider the reach of the broadly

worded, but less than crystal clear, grace period and notice

provisions; and their references to protecting “seniors” could be

to the people whom the Legislature anticipated would benefit

from the new law down the line. But the insurer ignores the

clear guidance the materials do provide. At the very least, they

reflect lawmakers’ (a) awareness that consumers tend to hold

life insurance policies for long periods and to pay premiums for

many years; and (b) concern that policy owners, “especially

seniors” (Assem. Com. on Insurance Analysis, supra, at p. 1),

may lose the benefits of these extended payments by failing to

pay a single annual premium on time, and thereafter face

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MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Opinion of the Court by Cuéllar, J.

hardship to regain coverage. It would certainly be consistent

with the Legislature’s awareness and concern for it to seek to

protect all policy owners from losing coverage. (Cf. Calfarm,

supra, 48 Cal.3d at p. 827; conc. opn., post, at pp. 5–6.)

The consequences of Protective Life’s interpretation

strongly suggest, given the legislative history, that it wasn’t in

the ambit of the Legislature’s purpose for the statute to operate

as the insurer describes. (See Copley Press, Inc. v. Superior

Court (2006) 39 Cal.4th 1272, 1291 (Copley).) Indeed, the

insurer’s interpretation would produce results seemingly

incongruous with the legislation’s broader aims of preventing

forfeiture and its specific motivating concerns. As the

Legislature identified, policy owners may fail to make a

payment on time for a host of understandable reasons, including

some related to their age or health. But the very consumers the

Legislature identified as needing protection the most against

this risk — seniors and other longtime, potentially infirm or

incapacitated policy owners — would not presently be entitled

to the safeguards to help them maintain coverage they and their

beneficiaries depend on. They would face a host of adverse

financial consequences to resume coverage. (Ante, at p. 6.)

Meanwhile, those who arguably need protection the least —

younger policy owners, who recently purchased life insurance,

are less likely to miss a payment due to infirmity or

deteriorating health, and face a lower loss of past premium

investment and an easier time regaining coverage — are

protected, and with measures that will be likely consequential

to them only when they become “seniors” years down the line. If

a paradigmatic beneficiary of the new legislation was, say, a 70-

year-old life insurance policy owner who had paid premiums for

30 years before missing an annual payment, a new-policy-only

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MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Opinion of the Court by Cuéllar, J.

construction would mean that a person in this situation

wouldn’t garner protection from the new laws before 2043. Even

for a forward-thinking Legislature, this seems like a stretch.

(Cf. Bentley, supra, 2016 WL 7443189, at p. *4 [declining to give

effect to the “absurd result[s]” of Protective Life’s

interpretation].)

Assembly Bill No. 1747 (2011–2012 Reg. Sess.) also cuts

in favor of reading sections 10113.71 and 10113.72 broadly. The

bill not only added these sections to the Insurance Code, but also

amended section 10173.2, which concerns when life insurance

policies are assigned as security for a debt and the notice that

the insurer must give the assignee when the policy owner fails

to pay a premium. (§ 10173.2, as amended by Stats. 2012, ch.

315, § 3.) The Legislature amended section 10173.2 by changing

some deadlines and revising nonsubstantive language. More

notable is what section 10173.2 already said prior to

amendment: “When a policy of life insurance is, after the

effective date of this section, assigned in writing as security for

an indebtedness . . . .” (§ 10173.2, italics added.) The italicized

language by its terms cabins the statute’s application to

assignments after section 10173.2’s effective date. (Estate of

Coate (1979) 98 Cal.App.3d 982, 986–987; see also Mardirosian

v. Lincoln Nat. Life Ins. Co. (9th Cir. 1984) 739 F.2d 474, 477.)

In other words, when the Legislature added sections 10113.71

and 10113.72 to the Insurance Code, it knew that another

statute — indeed, a statute it amended in the very same bill —

used expressly future-oriented language. Despite this, the

Legislature did not add similar language to sections 10113.71

and 10113.72. This circumstance provides additional, if modest,

support for the conclusion that the grace period and notice

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Opinion of the Court by Cuéllar, J.

provisions apply universally. (Cf. Calfarm, supra, 48 Cal.3d at

p. 827 [similar]; conc. opn., post, at pp. 4–5.)

The various contextual arguments raised by Protective

Life and industry amici curiae fail to persuade.

First, Protective Life fails to substantiate its argument

that construing sections 10113.71 and 10113.72 to apply only to

postenactment policies gives effect to a key legislative

compromise. It’s well established that “compromises necessary

to [a statute’s] enactment may require adopting means other

than those that would most effectively pursue the main goal.”

(Landgraf, supra, 511 U.S. at p. 286.) But this general

proposition doesn’t mean we can strike a bargain the

Legislature never struck. (Cf. State Dept. of Public Health v.

Superior Court (2015) 60 Cal.4th 940, 956.) Here, Protective

Life identifies no indicia of compromise in the legislative history

or statutory language; instead, it simply invokes the

presumption against retroactivity, which we have determined

carries little if any weight in this case. (Ante, at pp. 25–26.)9

Protective Life also contends that the Legislature had

“good reasons” to restrict the application of sections 10113.71

and 10113.72 to postenactment policies: to avoid unfairly

altering the bargained-for grace period and notice rules, which

the agreed-to premium pricing had taken into account.

Similarly, amicus curiae Chamber of Commerce claims that

applying the new grace period to preenactment policies

“undermines insurers’ ability to prudently manage their

9

For this reason, we have no occasion to entertain another

of Protective Life’s arguments: that the Legislature’s failure to

enact the sections as part of urgency legislation cuts against

rebutting the presumption against retroactivity.

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MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Opinion of the Court by Cuéllar, J.

resources” and could leave insurers with “inadequate funds to

pay valid claims” statewide. Yet without evidence that

Protective Life or other insurers anticipated and accounted for

a projected rate of inadvertent defaults when setting their

premiums (ante, at p. 23), we have no basis to determine either

that (a) the new protections will create a significant financial

impact for insurers, or (b) the Legislature would have sought to

avoid such a policy outcome.

Moreover, we note that plaintiffs and supporting amici

curiae offer their own “good reasons” why the Legislature would

apply pretermination procedures to all policies: The procedures

(1) promote continuity in the insuring arrangement (cf. Bittinger

v. New York Life Ins. Co. (1941) 17 Cal.2d 834, 840 [“forfeitures

generally are not favored”]; People v. United Nat. Life Ins. Co.

(1967) 66 Cal.2d 577, 600 [“The insurance industry is regulated

primarily for the benefit of” insureds]); (2) place the burden on

the party who stands to gain financially from an early

termination; (3) create standardized rules governing policies;

and (4) help prevent payment disputes, which typically arise

after policy owners have died. We take into account these

considerations insofar as they plausibly counter the policy

arguments raised by Protective Life and industry amici curiae,

and they help us determine that plaintiffs’ construction “ ‘leads

to the more reasonable result.’ ” (Copley, supra, 39 Cal.4th at p.

1291.)

Finally, Protective Life briefly raises a constitutional

avoidance argument. (Garcia, supra, 2 Cal.5th at p. 804.) It

contends that the Legislature’s decision to restrict sections

10113.71 and 10113.72 to postenactment policies represented

an “especially sound” decision in light of contracts clause

concerns that would have flowed from altering the terms of

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MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Opinion of the Court by Cuéllar, J.

existing policies. (U.S. Const., art. I, § 10; see Cal. Const., art.

I, § 9.) What we conclude instead — relying on similar logic that

applies in our separate analysis of the presumption of

retroactivity (see Myers, supra, 28 Cal.4th at p. 841 [explaining

the presumption is rooted in constitutional principles]) — is that

requiring insurers to observe a 60-day grace period and give 30

days’ notice of impending lapse does not substantially impair

Protective Life’s contractual rights under an existing policy.

Calfarm, supra, 48 Cal.3d at pages 830–831 supports our

conclusion.

C.

The Court of Appeal held that insurance policies already

in effect when the Legislature reformed grace period and notice

requirements were not affected by sections 10113.71 and

10113.72. In reaching this conclusion, the appellate court cited

DOI guidance about these sections and claimed it had an

obligation to defer to these agency interpretations. We find

otherwise.

According to the Court of Appeal, two sources of DOI

guidance established the agency’s position that the sections

apply only to policies issued after January 1, 2013. First, the

court pointed to SERFF. (McHugh, supra, 40 Cal.App.5th at p.

1172.) SERFF is an internet-based system for insurers to

submit rate and form filings to the DOI for review and approval.

(Ibid.) According to the Court of Appeal, DOI “mandates the use

of SERFF and provides regulatory guidance to insurers through

SERFF, including guidance for compliance with the statutes.”

(Ibid.) As the court explained, DOI provided its determination

that sections 10113.71 and 10113.72 apply only to

postenactment policies with its SERFF “ ‘Instructions for

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MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Opinion of the Court by Cuéllar, J.

Complying with [Assembly Bill No.] 1747,’ ” which stated: “ ‘All

life insurance policies issued or delivered in California on or

after [January 1, 2013] must contain a grace period of at least

60 days.’ ” (McHugh, at p. 1172.) Second, the Court of Appeal

observed that senior DOI personnel consistently communicated

in written responses to inquiries from insurance industry

representatives that the requirements in Assembly Bill No.

1747 (2011–2012 Reg. Sess.) applied only prospectively.

(McHugh, at p. 1172.)

The Insurance Commissioner takes a different position in

his amicus curiae letter, arguing that the Court of Appeal erred

on both fronts. We agree. Neither the SERFF instruction nor

the correspondence represented official guidance on the agency’s

construction of sections 10113.71 and 10113.72, and as a result

neither merited any measure of presumptive deference (see

Yamaha, supra, 19 Cal.4th at pp. 7–8, 11); and Protective Life

offers no other good reason why we should defer (see id. at pp.

12–13 [contextual factors such as the agency’s expertise and

technical knowledge of the issue, and whether the agency’s

interpretation represents its carefully considered, long-

standing, and contemporaneous view, determine what level of

deference to give]).

In fact, the SERFF instruction does not appear to even

constitute an interpretation of sections 10113.71 or 10113.72.

The document simply instructs that policies issued on or after

January 1, 2013 must contain the 60-day grace period. That

instruction enables new, yet-to-be issued policy forms to align

with current law, in line with the electronic system’s function.

Contrary to the Court of Appeal’s view, the instruction provides

no view on whether the grace period or the other requirements

in sections 10113.71 and 10113.72 apply to existing policies. As

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MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Opinion of the Court by Cuéllar, J.

the Insurance Commissioner helpfully explains, SERFF is

simply a voluntary system for form and rate submissions, and

SERFF instructions like the one here “may include a brief

description of the relevant statutes,” but are “not intended to

serve as a formal legal opinion of the [DOI].”

Although agency correspondence may express an

interpretive view, it does not merit deference here. Although

courts should certainly consider the interpretations of an agency

advanced in litigation even if these are not associated with

formal administrative actions, we agree with the Insurance

Commissioner that ordinary agency correspondence provides us

with little assistance in our interpretive inquiry. As we

explained in Heckart v. A-1 Self Storage, Inc. (2018) 4 Cal.5th

749, 769, footnote 9, these types of private communications offer

poor guides because (a) they don’t appear to be the product of

“ ‘ “careful consideration” ’ ” of the legal issue, but instead reflect

interpretations prepared in ad hoc advice letters by individual

staff members; (b) the views expressed in them do not represent

“a quasi-legislative rule, promulgated pursuant to delegated

lawmaking power” (ibid.); and (c) they were “not disseminated

as an annotation by the [DOI] to be considered by anyone other

than the recipient, and there is no information regarding how

carefully the issue was considered” (ibid., applying Yamaha,

supra, 19 Cal.4th at pp. 11–16). For the same reasons, we give

no weight to the identical, as well as additional, correspondence

that we judicially notice at Protective Life’s request.10

10

Plaintiffs argue that applying sections 10113.71 and

10113.72 to the facts here requires us to conclude they are

entitled to recover the policy benefits from Protective Life. But

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Opinion of the Court by Cuéllar, J.

IV.

When the Legislature enacted changes to the Insurance

Code protecting people who hold life insurance policies from

inadvertently losing them, it established limited protections

that kept such policies from being revoked when policy owners

lapsed in paying premiums. Those provisions clearly establish

that life insurance policies must have a 60-day grace period

before they can be terminated for a premium lapse, and that

insurers cannot terminate policies for a premium lapse until

they give at least 30-day mailed notice to the policy owners and

to any additional designated individuals. What they don’t

explicitly establish is whether these protections apply to people

holding life insurance policies issued or delivered before these

amendments went into effect.

These sections are nonetheless best read to extend

protections to policies issued before these sections went into

effect. Key passages in sections 10113.71 and 10113.72 are

written in universal terms, best understood to modify policies

whether they come into effect after reforms were enacted or

were already in effect at the time. Other indicia of purpose

resolve any ambiguity that remains from the language. The

grace period and notice protections apply to all policies in effect

as of the sections’ effective date — and in this case, nothing in

the presumption against retroactive application of legislation as

ordinarily applied compels another result. The Legislature

this argument would require us to address the correctness of the

jury’s verdict. We decline to do so, as plaintiffs did not petition

for our review on this issue and it is not squarely before us.

(Nationwide Biweekly Administration, Inc. v. Superior Court.

(2020) 9 Cal.5th 279, 334, fn. 25.)

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Opinion of the Court by Cuéllar, J.

enacted the sections not only to provide protections to people in

the future, but also to ensure that existing policy owners don’t

lose the life insurance coverage that they may have spent years

paying for and on which their loved ones depend. Accordingly,

we reverse the judgment of the Court of Appeal and remand for

proceedings consistent with this opinion.

CUÉLLAR, J.

We Concur:

CANTIL-SAKAUYE, C. J.

LIU, J.

KRUGER, J.

GROBAN, J.

44

MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

S259215

Concurring Opinion by Justice Jenkins

I agree with the majority that sections 10113.71 and

10113.72 of the Insurance Code1 “apply to all life insurance

policies in force when these two sections went into effect,

regardless of when the policies were originally issued.” (Maj.

opn., ante, at p. 2.) I reach this conclusion by a different

analytical path. Even if, as defendant Protective Life Insurance

Company (Protective Life) argues, this conclusion constitutes

retroactive application of the statutes — such that the

presumption against retroactivity applies — the relevant

statutory language and legislative history are, in my view,

“sufficiently clear to compel the inference that the [Legislature]

did intend the provisions” to apply retroactively. (Californians

for Disability Rights v. Mervyn’s, LLC (2006) 39 Cal.4th 223, 229

(Mervyn’s).) Indeed, the majority acknowledges that “if the

presumption applies with its ordinary weight, the indicia of

legislative purpose here could rebut it.” (Maj. opn., ante, at p.

26.)

However, I do not endorse the majority’s conclusion that

applying the statutes to the policy at issue in this case does not

trigger the presumption — or, alternatively, that the

presumption applies but with something less than “its ordinary

weight” (maj. opn., ante, at p. 26) — because (a) the impact of

1

All unspecified section references are to the Insurance

Code.

1

MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Jenkins, J., concurring

doing so on Protective Life’s contractual rights and obligations

is insufficiently “substantial” to constitute a retroactive legal

change (maj. opn., ante, at p. 18), and/or (b) “any nominal

retroactive effect . . . plainly fails to present the type of concern

underlying the application of the presumption as we have

ordinarily understood it” (maj. opn., ante, at pp. 24–25). I

therefore concur only in the judgment.

I.

The insurance policy here at issue includes a 31-day “grace

period” for payment of the yearly premium, which provides in

relevant part: “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.”

As the majority notes, the length of this contractual grace

period complied with applicable administrative regulations,

which then expressly required at least “a 31-day grace period.”

(Maj. opn., ante, at p. 9, fn. 3.) William McHugh, who purchased

the policy, failed to pay the premium that was due on January

9, 2013, by the end of the grace period. He died in June 2013.

Protective Life advised his named beneficiaries that the policy

terminated before his death for nonpayment of the premium.

The beneficiaries — plaintiffs Blakely McHugh and Trysta

Henselmeier — sued Protective Life for breach of contract and

breach of the implied covenant of good faith and fair dealing,

arguing that Protective Life improperly terminated the policy

without following the requirements of sections 10113.71 and

10113.72. Protective Life asserts that sections 10113.71 and

10113.72 do not apply in this case because they took effect on

2

MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Jenkins, J., concurring

January 1, 2013, long after McHugh’s policy was issued in 2005.

A contrary conclusion, it argues, would constitute a retroactive

application of the statutes — by extending the policy’s stated

grace period and imposing new notice requirements — and there

is insufficient evidence to “overcome” the “presumption ‘that

legislation operates prospectively rather than retroactively.’ ”

II.

Even if Protective Life is correct that applying the statutes

to the policy at issue here triggers the presumption against

retroactivity, Protective Life’s argument ultimately fails

because the presumption has been overcome. As the majority

notes, “[t]he retroactivity presumption is not a ‘straitjacket.’ ”

(Maj. opn., ante, at p. 25.) “Even without an express declaration,

a statute may apply retroactively if there is ‘ “a clear and

compelling implication” ’ that the Legislature intended such a

result.” (People v. Alford (2007) 42 Cal.4th 749, 754.) “We may

infer such an intent from the express provisions of the statute

as well as from extrinsic sources, including the legislative

history.” (Preston v. State Bd. Of Equalization (2001) 25 Cal.4th

197, 222 (Preston); see Alford, at p. 754 [relying on “legislative

history” in giving statute retroactive effect].)

In my view, the statutory language and relevant

legislative history are “sufficiently clear to compel the inference

that the [Legislature] did intend” sections 10113.71 and

10113.72 to apply retroactively. (Mervyn’s, supra, 39 Cal.4th at

p. 229.) Section 10113.71, subdivision (a), states that “[e]ach 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.” (Italics added.) As the majority explains,

this language “reasonably” may be understood as “a mandatory

3

MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Jenkins, J., concurring

directive for all policies (i.e., each policy must be read to contain

a grace period),” without any “temporal limitation.” (Maj. opn.,

ante, at p. 31.) Next, section 10113.72, subdivision (c), states

that “no individual life insurance policy shall lapse or be

terminated for nonpayment of premium unless the insurer, at

least 30 days prior to the effective date of the lapse or

termination, gives notice to the policy owner and to the person

or persons designated pursuant to subdivision (a), at the address

provided by the policy owner for purposes of receiving notice of

lapse or termination.” (Italics added.) This language states a

substantive rule of law — apparently applicable to all policies

(“No individual policy” (ibid.)) — that precludes lapse or

termination of any policy absent provision of the required notice.

The breadth of this language, and the absence of any

language limiting the statutes’ application to policies issued

after the statutes’ effective date, are significant given that the

Legislature, in the same 2012 measure that added sections

10113.71 and 10113.72, amended section 10173.2. As to life

insurance policies “assigned in writing as security for an

indebtedness,” section 10173.2 requires “insurer[s]” to mail

written notice to the assignees “each time the policy owner has

failed or refused to transmit a premium payment to the insurer

before the commencement of the policy’s grace period or before

the notice is mailed.” As the majority explains, when the

Legislature amended section 10173.2 in 2012, the statute

contained — and still contains — language giving it prospective-

only effect, by providing that the statute’s requirements apply

only when a life insurance policy is assigned “ ‘after the effective

date of this section.’ ” (Maj. opn., ante, at p. 37; see Stats. 2012,

ch. 315, § 3; Stats. 1975, ch. 792, § 1, p. 1816.) Thus, as the

majority also explains, “when the Legislature added sections

4

MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Jenkins, J., concurring

10113.71 and 10113.72 to the Insurance Code, it knew that

another statute — indeed, a statute it amended in the very same

bill — used expressly future-oriented language,” but the

Legislature “did not add similar [prospective-only] language to

sections 10113.71 and 10113.72.” (Maj. opn., ante, at p. 37.)

This circumstance indicates the Legislature’s intent to make the

grace period and notice provisions applicable to all policies,

regardless of issue date. (See Calfarm Ins. Co. v. Deukmejian

(1989) 48 Cal.3d 805, 827 (Calfarm) [“necessary inference” from

“omission” of language giving statute prospective-only effect is

that statute’s application “was not so limited,” given language

in simultaneously enacted provision “expressly” giving it

prospective-only effect].)

The relevant legislative history reinforces this conclusion.

According to one analysis of the proposed legislation, the

“[p]urpose of the bill” was “[t]o provide consumer safeguards

from which people who have purchased life insurance

coverage . . . would benefit.” (Sen. Com. on Insurance, Analysis

of Assem. Bill No. 1747 (2011–2012 Reg. Sess.) as amended June

7, 2012, p. 2, italics added, underscoring omitted.) Several other

analyses used identical language in describing what,

“[a]ccording to the author” of the legislation, the proposed

statutes would “provide[].” (Assem. Com. on Insurance,

Analysis of Assem. Bill No. 1747 (2011–2012 Reg. Sess.) as

amended Apr. 26, 2012, p. 1; see Assem. 3d reading analysis of

Assem. Bill No. 1747 (2011–2012 Reg. Sess.) as amended May 9,

2012, p. 2 [same].) In explaining the need for these safeguards,

the same analyses explained that under existing law,

policyholders — “especially seniors” — could “easily lose”

coverage after “many years” of “paying premiums” if they

“accidentally missed” making even “a single premium” payment.

5

MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Jenkins, J., concurring

(Assem. Com. on Insurance, Analysis of Assem. Bill No. 1747

(2011–2012 Reg. Sess.) as amended Apr. 26, 2012, pp. 1–2;

Assem. 3d reading analysis of Assem. Bill No. 1747 (2011–2012

Reg. Sess.) as amended May 9, 2012, p. 2; Sen. Com. on

Insurance, Analysis of Assem. Bill No. 1747 (2011–2012 Reg.

Sess.) as amended June 7, 2012, p. 2.) The Legislature sought

to address this problem through the combined effect of the new

notice and extended grace period provisions. As the majority

observes, to conclude that the Legislature did not intend to

extend these new safeguards to existing at-risk policyholders

who, according to the legislative history, were the motivation for

the legislation, “would produce results seemingly incongruous

with” the Legislature’s intent. (Maj. opn., ante, at p. 36.) Given

“[t]he evident purpose of” the statutes, “the conclusion is

inescapable that” they were “intended to apply to policies in

force on the . . . date” they took effect. (Calfarm, supra, 48

Cal.3d at p. 827.) To decline to give the statutes’ retroactive

effect would, contrary to our precedent, turn the presumption

into a “ ‘straitjacket.’ ”2 (Maj. opn., ante, at p. 25.)

III.

In light of my conclusion that the statutory language and

legislative history are “sufficiently clear to compel the inference

that the [Legislature] did intend the provisions” to apply

retroactively (Mervyn’s, supra, 39 Cal.4th at p. 229), it is

unnecessary for me to decide whether, as Protective Life asserts,

2

The majority asserts that “our cases do not definitively

indicate that the presumption has been rebutted” in this case.

(Maj. opn., ante, at p. 26). But my analysis and conclusion are

fully in line with, and supported by, our analysis and conclusion

in Preston, Calfarm, and Alford, and the majority does not

assert otherwise.

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MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Jenkins, J., concurring

applying the requirements of sections 10113.71 and 10113.72 in

this case constitutes a retroactive application of the statutes

that triggers the presumption. Contrary to what the majority

might seem to suggest, this approach is fully “consistent with”

precedent (maj. opn., ante, at p. 26) in which we first

“assum[ed],” without deciding, that applying a statute would be

giving it retroactive effect, and then held, based on “the

pertinent legislative materials,” that the Legislature intended

the statute to have such effect. (Preston, supra, 25 Cal.4th at

pp. 221, 222.) I therefore do not join the majority’s conclusion

that the presumption is inapplicable or applies with less than

its ordinary force, or with its discussion of those questions.

Although I acknowledge that the majority’s choice to

address the question of whether the presumption even applies

is “consistent with previous cases,” it is not evident to me that

the majority’s approach is “the most thorough” one. (Maj. opn.,

ante, at p. 26.) I say this because the majority leaves more

questions unanswered than it resolves. It does not definitively

decide whether applying the statutes here would result in

“retroactive changes for purposes of the presumption.” (Ibid.) It

also declines to decide whether the presumption is

inapplicable — such that it carries no weight — or whether it

applies but carries less than “its ordinary weight.” (Ibid.; see id.

at p. 38 [the presumption “carries little if any weight” in this

case]).3 Nor does the majority explain, with respect to its

3

Given the majority’s alternative holding that the

presumption applies and carries some weight, its choice to

address the question of whether applying the statutes here

involves retroactivity ultimately does not, as the majority

asserts, “avoid having to apply” the presumption “in a

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MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Jenkins, J., concurring

alternative holding that the presumption applies but carries less

than “its ordinary weight” (maj. opn., ante, at p. 26), what

weight the presumption does carry or what is required to

overcome it. Indeed, notwithstanding the majority’s alternative

holding, its analysis proceeds as if the presumption is

completely inapplicable. For example, the majority never

mentions the presumption or appears to give it any weight, as

evidenced by the majority’s express refusal even “to entertain”

Protective Life’s argument “that the Legislature’s failure to

enact the sections as part of urgency legislation cuts against

rebutting the presumption.” (Id. at p. 38, fn. 9.) In short, by

declining to offer answers to what it calls the “threshold

question” (id. at p. 26) of retroactivity, the majority’s “approach”

ultimately fails to yield an analysis that provides lower courts

with clear and adequate guidance for applying the presumption,

as the majority puts it, in a way we have not previously

“understood it” (id. at p. 25) and with less than “its ordinary

weight” (id. at p. 26).

Nor is it clear to me that our precedents “support[]” (maj.

opn., ante, at p. 24), much less “strongly favor[]” (id. at p. 17),

the majority’s conclusion that the presumption either does not

apply at all or applies but carries less than “its ordinary weight”

(id. at p. 26). I have found no case — and the majority cites

none — in which this court (or a Court of Appeal) has declined

to apply the presumption because the impact on contractual

rights and obligations of applying a new statute to an existing

contract was insufficiently “substantial” to trigger the

presumption. (Maj. opn., ante, at p. 18.) Nor have I found a

circumstance where it’s not necessary.” (Maj. opn., ante, at p.

26.)

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MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Jenkins, J., concurring

case — and again, the majority cites none — in which this court

(or a Court of Appeal) has applied the presumption with less

than “its ordinary weight” (id. at p. 26), either for the reason the

majority offers here — applying the statutes gives them

retroactive effect, but only in a “technical[],” “nominal,” or

“trivial” way (id. at p. 24) — or for any other reason.

In support of its view, the majority states that (1) “we have

generally explained that a new law operates ‘retroactively’ when

it changes ‘ “ ‘the legal consequences of past conduct by imposing

new or different liabilities based upon such conduct,’ ” ’ ” and (2)

“[w]e have asked whether the new law ‘ “ ‘substantially affect[s]

existing rights and obligations.’ ” ’ ” (Maj. opn., ante, at p. 16.)

But our precedents also have long declared that a law is

“ ‘retroactive’ ” for purposes of the presumption if it “ ‘takes

away or impairs vested rights acquired under existing laws . . .

or give[s] a right [that] never before existed.’ ” (Davis &

McMillan v. Industrial Acc. Com. (1926) 198 Cal. 631, 637–638.)

Our precedents also indicate that where a law “ ‘destroy[s] or

impair[s] an existing right, or give[s] a right which never before

existed,’ ” the law necessarily “ ‘relate[s] to substantial rights’ ”

and is therefore retroactive for purposes of the presumption.

(Id. at p. 638 [“ ‘Retrospective statutes are usually considered to

embrace only those which relate to substantial rights, as those

which destroy or impair an existing right, or give a right which

never before existed’ ”].) Consistent with this understanding,

our modern decisions broadly declare that “ ‘ “ ‘[e]very

statute . . . which takes away or impairs vested rights acquired

under existing laws . . . , in respect to transactions or

considerations already past, must be deemed retrospective.’ ” ’ ”

(Strauss v. Horton (2009) 46 Cal.4th 364, 471–472, italics

added.) Indeed, the majority acknowledges that at least “some

9

MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Jenkins, J., concurring

of our cases” articulate a “broad[] definition” of retroactivity that

“seems to embrace any conceivable statutory impact on the

terms of an existing contract — including an insurance

contract.” (Maj. opn., ante, at p. 16.) The majority’s analysis

does not convince me that “[o]ur precedent . . . establishes [the]

different,” far narrower “proposition” that retroactivity does not

exist where application of “a new law” would, in fact, “impact”

vested contractual rights by “chang[ing] . . . the contracting

parties’ rights or obligations,” but a court decides that the

“impact” on those contractual rights is not sufficiently

“substantial.” (Maj. opn., ante, at p. 21.) Thus, contrary to the

majority’s assertion, my reservations about its analysis and

conclusion go far beyond its failure to “identify a sufficiently

analogous case.” (Id. at p. 20.) Having failed to find a decision

from any court applying our decisions in the way the majority

does, and having thoroughly “grapple[d] with this established

body of law” (id. at p. 19), it simply is not evident to me that our

precedents “support[]” (id. at p. 24) the majority’s novel analysis.

It also is not evident to me that the statutes, as applied to

existing policies, merely “make relatively cabined, procedural

changes to how insurers administer policies,” by “requir[ing]

insurers to provide policy owners with limited but critical

safeguards to avoid defaulting.” (Maj. opn., ante, at p. 18.) As

the majority acknowledges, “ ‘promptness of payment is

essential in the business of life insurance,’ ” and “insurers

depend on the regular, timely payment of premiums in order to

pay death benefits and cover the cost of administering policies.”

(Maj. opn., ante, at p. 9.) As noted above, the policy in this case

expressly states that “coverage will cease” if the premium is not

paid at the end of “[a] grace period of 31 days.” Under section

10113.71, subdivision (a), coverage must remain in force,

10

MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Jenkins, J., concurring

notwithstanding the contractual provision and the nonpayment

of premium, for at least 60 days. In my view, this mandatory

coverage extension arguably constitutes more than a mere

“procedural change[].”4 (Maj. opn., ante, at p. 18.)

In all events, in terms of the presumption’s applicability

and operation, our prior decisions eschew reliance on whether a

change may be characterized as procedural rather than

substantive. (Aetna Cas. & Sur. Co. v. Industrial Acc.

Commission (1947) 30 Cal.2d 388, 394.) As we have explained,

“ ‘In deciding whether the application of a law is prospective or

retroactive, we look to function, not form. [Citations.] We

consider the effect of a law on a party’s rights and liabilities, not

whether a procedural or substantive label best applies.’ ” (In re

Friend (2021) 11 Cal.5th 720, 743.) “In this area of the law, . . .

substance and procedure are so interwoven that their attempted

segregation into clean-cut categories becomes meaningless;

here, as elsewhere, the hoary dichotomy between the

substantive and the procedural cannot serve as a talismanic

solution to the retroactivity problem.” (People v. Charles (1967)

4

Curiously, despite the majority’s acknowledgement that

prompt and timely payment “ ‘is essential’ ” to insurers (maj.

opn., ante, at p. 9), the majority later rests its conclusion in part

on Protective Life’s failure to “clearly” show how extending the

grace period “constituted a disruptive contract change” (maj.

opn., ante, at p. 24), its failure to “specifically identify any way

in which the bargain memorialized in the insurance contract

would be substantially upset by applying the [extended] grace

period” (id. at p. 22), and its reliance instead on a “generalized,

amorphous allusion to financial impact” (ibid). According to the

majority, Protective Life can show a sufficient “financial impact”

only by providing “evidence that [it] or other insurers

anticipated and accounted for a projected rate of inadvertent

defaults when setting their premiums.” (Id. at p. 39.)

11

MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Jenkins, J., concurring

66 Cal.2d 330, 336.) The majority fails to even acknowledge, let

alone “grapple with this established body of law.” (Maj. opn.,

ante, at p. 19.)

I also am not convinced that under our precedents, “the

‘highly regulated’ nature of the insurance industry” (maj. opn.,

ante, at p. 21) is a factor that weighs against fully applying the

presumption. Indeed, our decision in Interinsurance Exchange

of the Auto. Club of Southern Calif. v. Ohio Cas. Ins. Co. (1962)

58 Cal.2d 142, seems to indicate precisely the contrary. That

case did not, as the majority indicates, present the question of

whether to apply a statutory “change [that] would have upended

the bargain struck” in “previously negotiated contracts.” (Maj.

opn., ante, at p. 18.) Instead, the issue in the case was whether

to apply a statutory change that would have negated a

contractual provision that was not expressly contained in the

contract — an insurance policy — but that was “written into the

policy as a matter of law” and “public policy.” (Interinsurance

Exchange, at p. 146.) In answering this question, after stating

the “rule” that provisions required by “the statutory and

decisional law in force at the time the policy is issued . . . ‘are

read into each policy . . . and become a part of the contract with

full binding effect upon each party’ ” (id. at p. 148), we explained

that “[b]ased upon” the presumption against retroactivity, “this

rule is followed even though there has been a subsequent

amendment or repeal of the statute incorporated into the policy”

(id. at p. 149). Applying the presumption, we then declined to

apply the new statute to existing policies, finding “nothing to

indicate that the Legislature wished the [statutory]

amendment . . . to have such a retroactive effect.” (Ibid.) This

analysis and holding seem inconsistent with the majority’s

reliance on “the ‘highly regulated’ nature of the insurance

12

MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Jenkins, J., concurring

industry” (maj. opn., ante, at p. 21) as a factor weighing against

application of the presumption. In my view, the “expectations”

at issue under the policy here — which arose from an express

contractual provision that was mandated by then-applicable

administrative regulations and which would be “disrupt[ed]” by

applying the statutes to the policy — are at least as “settled”

as — and arguably more settled than — the “expectations” at

issue in Interinsurance Exchange, which arose from a provision

read into the policy by law and which we found sufficient to

trigger application of the presumption. (Maj. opn., ante, p. 19.)

Last, I note that the majority’s analysis of whether and

how the presumption applies appears to overlap the inquiry that

governs our analysis of whether a retroactive application of a

law unconstitutionally impairs contractual rights. As we

recently explained, the “threshold question” of the constitutional

inquiry is whether the state law “ ‘ “operate[s] as a substantial

impairment of a contractual relationship.” ’ ” (Alameda County

Deputy Sheriff's Assn. v. Alameda County Employees'

Retirement Assn. (2020) 9 Cal.5th 1032, 1075.) “In making this

determination, we “ ‘consider[] the extent to which the law

undermines the contractual bargain, interferes with a party’s

reasonable expectations, and prevents the party from

safeguarding or reinstating his rights.’ ” (Ibid.) Under the

majority’s analysis, whether the presumption against

retroactivity fully applies likewise turns on whether the impact

of applying the new law to existing contracts is sufficiently

“substantial” (maj. opn., ante, at p. 18), and the same factors

likewise are considered in deciding these questions (id. at p. 17

[“focus[]” of “ ‘retroactivity’ ” inquiry is “whether the statutory

change in question significantly alters settled expectations”], 18

[statutory changes here “do not disrupt clearly settled

13

MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Jenkins, J., concurring

expectations” in “fashion” that makes application of statutes

retroactive and applying them would not “impinge on a

contracting party’s substantial rights or unfairly upset the

bargain memorialized in the insurance policy”], 22 [Protective

Life fails to “specifically identify any way in which the bargain

memorialized in the insurance contract would be substantially

upset by applying” the new statutory requirements]). Our

previous decisions state that the question of whether the

presumption applies is separate and different from the question

of whether retroactive application of a law unconstitutionally

impairs contractual rights. (Hogan v. Ingold (1952) 38 Cal.2d

802, 821 [“the question of the constitutionality of retroactive

legislation and the question of the applicability of a rule” against

retroactivity “are distinct”]; People ex rel. Thorne v. Hays (1854)

4 Cal. 127, 139, 131, 132 [“there is a broad difference” between

the question of whether a statute “not expressly made

retrospective in terms, should not be so construed as to affect

past transactions” and whether retroactive application of the

law unconstitutionally “divest[s] the rights of individuals vested

previous to its passage”].) I am not convinced that it is

appropriate to make the two inquiries similar in this way or that

doing so will not have unforeseen consequences.

14

MCHUGH v. PROTECTIVE LIFE INSURANCE COMPANY

Jenkins, J., concurring

In summary, because it is not clear to me the majority’s

analysis squares with our jurisprudence, I do not join its

conclusion that the presumption against retroactivity is

inapplicable or applies with less than its ordinary weight.

However, I concur in the judgment because I conclude that the

statutory language and relevant legislative history are

sufficiently clear to overcome the presumption, assuming it

applies.

JENKINS, J.

I Concur:

CORRIGAN, J.

15

See next page for addresses and telephone numbers for counsel who

argued in Supreme Court.

Name of Opinion McHugh v. Protective Life Insurance Co.

__________________________________________________________

Procedural Posture (see XX below)

Original Appeal

Original Proceeding

Review Granted (published) XX 40 Cal.App.5th 1166

Review Granted (unpublished)

Rehearing Granted

__________________________________________________________

Opinion No. S259215

Date Filed: August 30, 2021

__________________________________________________________

Court: Superior

County: San Diego

Judge: Judith F. Hayes

__________________________________________________________

Counsel:

Winters & Associates, Jack B. Winters, Jr., Georg M. Capielo, Sarah D.

Ball; Williams Iagmin and Jon R. Williams for Plaintiffs and

Appellants.

Law Offices of Daniel D. Murphy and Daniel D. Murphy for California

Advocates for Nursing Home Reform, Inc., as Amicus Curiae on behalf

of Plaintiffs and Appellants.

Glick Law Group and Noam Glick for California Retired County

Employees Association as Amicus Curiae on behalf of Plaintiffs and

Appellants.

Neil Granger, in pro. per., as Amicus Curiae on behalf of Plaintiffs and

Appellants.

Grignon Law Firm, Margaret M. Grignon; Maynard Cooper & Gale, C.

Andrew Kitchen, Alexandra V. Drury, John C. Neiman, Jr.; Noonan

Lance Boyer & Banach and David J. Noonan for Defendant and

Respondent.

Alston & Bird and Thomas A. Evans for American Council of Life

Insurers as Amicus Curiae on behalf of Defendant and Respondent.

Quinn Emanuel Urquhart & Sullivan and Kathleen M. Sullivan for

Chamber of Commerce of the United States of America as Amicus

Curiae on behalf of Defendant and Respondent.

Matthew Rodriguez, Acting Attorney General, and Lucy F. Wang,

Deputy Attorney General, for Ricardo Lara, Insurance Commissioner,

as Amicus Curiae, upon the request of the Supreme Court.

Counsel who argued in Supreme Court (not intended for

publication with opinion):

Jon R. Williams

Williams Iagmin LLP

2475 Kettner Boulevard

San Diego, CA 92101

(619) 238-0370

John C. Neiman, Jr.

Maynard Cooper & Gale P.C.

1901 Sixth Avenue North, Suite 1700

Birmingham, AL 35203

(205) 254-1228