Got insurance? Don’t bet your life on it!

In a recent move, California class action lawyers are turning their attention to filing new dubious class action lawsuits against life insurance companies based on lapsed insurance policy payments.  This tactic will not only raise liability costs, but it will also make prices go up for policyholders who seek security for their families should the worst happen.

There’s also a local angle to what’s going on. A case involving this type of lawsuit abuse will be heard in a Fresno County court in September.

Ironically, the only group that stands to gain from this sneaky move is the same band of class action trial attorneys who pushed for this dangerous precedent.

A ruling last year by the California Supreme Court on a 2013 statute, AB 1747, created a new grace period for life insurance policies to remain in effect, and should be retroactively applied, even though that wasn’t included in the law. The judgment by the state insurance commission was overruled by the high court and opened the floodgates for an avalanche of new class action lawsuits based on life insurance policy lapse notices.

AB 1747 established a 60-day grace period after a missed premium.  It required insurers to notify policyowners, as well as persons designated by the policyowners to receive notice, at least 30 days before terminating a policy due to a payment lapse. The laws prevent an insurer from terminating a policy for an unpaid premium absent the requisite 30 days’ notice.

Punishment Today for Past Legal Actions

Then, the California Supreme Court ruled that even though it wasn’t written in AB 1747, the cases could go back retroactively. Think of it as being punished in the present for a law that didn’t exist in the past until now. It is wrong to allow retroactive class action lawsuits especially when a law to prevent something wasn’t even in place.

A viable claim can be brought against an insurer for a “lapsed” life insurance policy years after the fact — regardless of whether it was intended or not. Any policy that is entered into can be the subject of one of these lapse claims unless the insurer pays it out.

This harmful precedent will result in skyrocketing premiums for Californians. As premiums go up, fewer Individuals will be able to afford life insurance to protect their family members when they are no longer here. As prices go up, insurance will become a luxury that only the wealthy can afford. It is also important that insurance companies stay solvent to be able to pay out benefits. Who knows how these cases will impact insurance availability in our state, or whether insurance companies will even choose to stay in the California insurance market?

So far, more than 20 class action lawsuits have been filed across the state seeking to hold insurance companies liable for lapsed policies, despite the fact that many of the class action members voluntarily allowed the policies to lapse and have suffered no actual harm. Yet, this will not prevent them from being added to the class.

A white paper by Jones Day, analyzed a set of 110 consumer fraud class action settlements approved by federal courts from 2010 to 2018.  The findings: Typically, only a small fraction of class members receive monetary benefits from the settlements; some settlements did not redress class members’ alleged economic harms but awarded class counsel hundreds of thousands or millions of dollars in attorneys’ fees; and, on average, class members receive 30% or less of a monetary award.

Lawsuit Abuse Costs Each Californian Nearly $2K a Year

Widespread lawsuit abuse continues to wipe out billions of dollars of economic activity annually. The most recent economic data reports that every California resident pays a “tort tax” of $1,917 as a result of the state’s broken civil justice system. Unfortunately, for California residents and businesses, their tort tax is likely to get worse before it gets better.

California courts need to require plaintiffs in class action lawsuits to demonstrate that they were harmed by an insurance company’s statutory violation and not allow baseless class action lawsuits to proceed. California’s judicial system is broken. Our state’s profit-hungry trial bar is exploiting judicial activism to enrich themselves at the expense of everyone else.

California judges need to exercise common sense and not certify these undeserving class actions! It’s time to bring the judicial scales back into balance.

About the Author

Victor Gomez is the executive director of Citizens Against Lawsuit Abuse, a not-for-profit, non-partisan grassroots movement dedicated to fighting lawsuit abuse in California. Gomez is a former mayor of Hollister and served two terms on the Hollister City Council.

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