Abstract
The McHugh decision, a landmark ruling in California’s insurance law, determined that the notice requirements preceding policy lapse were applicable to all policies in effect at the time, not just those written after the law was enacted. As a result, many policy cancellations for nonpayment of premiums can be deemed incomplete, making life insurers potentially liable for death benefits on these lapsed policies. This decision has reshaped the dynamics of the state’s life insurance market. This paper examines the implications of McHugh on California’s life insurance industry by estimating potential costs and liabilities for life insurers. Our findings reveal significant financial costs, with an estimated liability of up to $22.4 billion for life insurers in California. These insights provide valuable guidance for insurers in risk management, product design, and financial planning, and also inform policymakers on regulatory enhancements and market oversight strategies.
Published Version
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