California’s plaintiffs’ lawyers abuse well-intentioned laws like Prop 65, Song-Beverly, and the Private Attorneys General Act by clogging the state’s courts with cookie-cutter lawsuits. The trial bar’s love for litigation has allowed them to reap massive paydays. It’s also helped California consistently rank as having one of the worst lawsuit climates in the nation. Unfortunately, sometimes it seems like the California Supreme Court is working overtime to help plaintiffs’ lawyers keep the costs of excessive lawsuits high for everyone.
The state legislature enacted a law in 2013 that clarified when and how companies need to warn consumers that a life insurance policy may be cancelled. Life insurance is a product that some people allow to lapse on purpose, while others simply forget to pay their annual premiums. When people stop making payments, companies often continue coverage for a grace period and if the consumer still doesn’t pay, the company will eventually cancel their policy. The new law didn’t apply to existing policies, which even the California Department of Insurance affirmed.
But in 2021 the California Supreme Court decided, in a case called McHugh v. Protective Life, that the legislature did want the law to apply to every existing policy in the state, claiming the wording was “less than crystal clear.”
Plaintiffs’ lawyers immediately seized upon the ruling and have filed dozens of lawsuits, including class actions, in various California and federal courts. These lawsuits seek billions of dollars in damages and want to hold life insurance companies liable for not complying with a law that wasn’t intended to apply to most policies. The only people that these lawsuits are likely to benefit are the plaintiffs’ lawyers bringing them. A 2015 CFPB study found that the average award to consumers in class actions is only $32, while the lawyers take home nearly $1 million on average.
The class action system was created to compensate injured individuals, not give lawyers massive paydays without helping consumers. Unfortunately, the decision in McHugh did just that: give plaintiffs’ lawyers the green light to file and take a well-meaning law and turn it into a new lawsuit pipeline where consumers will receive little benefit while the lawyers stand to make millions.
Lawmakers had the power to establish new standards for the life insurance industry, which they did by passing a law requiring new contracts to include extended grace periods and third-party notice. But courts have no business deciding, without unambiguous notice from the legislature, that the law applied retroactively to tens of thousands of existing insurance policies.