California Supreme Court to Decide Applicability of Lapse Laws on Out-of-State Life Policies

The California Supreme Court has agreed to review whether California's life insurance lapse laws apply to policies initially issued out of state. This follows a case involving Metropolitan Tower Life Insurance Co., where the insurer denied a claim, citing that the policy originated in Illinois. California's insurance code requires insurers to provide a 60-day grace period and advance termination notice for life insurance policies, consumer protections which are currently subject to legal debate when applied to policies issued outside California but maintained by California residents.

The case centers on a $2 million term life insurance policy taken out in Illinois but renewed in California, where the insured missed a premium payment amid health struggles. The insurer terminated the policy without granting the statutory grace period, leading to litigation. Tower argued that California's lapse laws apply only to policies issued or delivered within California and that no private right of action exists under these laws.

A federal district court ruled in favor of Tower, but the Ninth Circuit has requested the state supreme court to clarify the application of the lapse statute to out-of-state policies renewed in California. The Life Insurance Advocacy Center supports review, emphasizing the importance of consumer protections for vulnerable populations who may unintentionally miss payments.

This is not the first time California's lapse laws have been interpreted broadly; in 2021, the state supreme court extended these protections retroactively to all policies in force when the statutes took effect, regardless of issuance date. The forthcoming decision will have significant implications for insurers and policyholders, particularly in a state where many residents bring life insurance policies from other jurisdictions, raising key questions about regulatory reach and consumer rights under state law.