California Lapse Litigation: A Big Resolution in the Small Decision? Small v. Allianz Life Insurance Co. of North America, No. 23-55821 (9th Cir. Dec. 10, 2024). The Ninth Circuit has now resolved a growing split among district courts assessing the standard for insurers’ liability under California Insurance Code §§ 10113.71 and 10113.72. These statutes lay out the notice insurers are required to provide life insurance policyholders before a policy can lapse. Insurers have faced a wave of class actions in the past few years alleging insufficient notice and seeking holdings that a class of policies had not lapsed—even when the named plaintiff intentionally let his or her policy lapse. Some courts had ruled that a plaintiff need only show a violation of the notice requirements (the “strict compliance theory”), while others had ruled that a plaintiff must also show that the violation caused the plaintiff harm (the “causation theory”). Addressing this split, the Ninth Circuit determined that “the California Supreme Court would likely adopt the ‘causation’ theory.” In particular, the Ninth Circuit looked to indicators in other California case law and the lack of a private cause of action in the no-lapse statutes requiring plaintiffs to meet the elements of a breach of contract. A Summary Judgment Switch in Biometrics Data Coverage Dispute Tony’s Finer Foods Enterprises Inc. v. Certain Underwriters at Lloyd’s, London, No. 2024 IL App (1st) 231712 (Ill. Ct. App. Sept. 10, 2024). The Illinois Court of Appeals reversed summary judgment in favor of an insured and directed the trial court to enter summary judgment in favor of the insurers in a coverage lawsuit arising out of biometrics data. In the underlying lawsuit, an employee sued Tony’s Finer Foods for allegedly failingtoobtainitsemployees’consenttocollectbiometric data (in the form of scanned fingerprints when clocking in and out of work) and improperly disclosing that data to third parties. Tony’s claimed that Lloyd’s breached its duty to defend Tony’s in the underlying lawsuit. The Illinois Court of Appeals held that the policy’s coverage for “a data breach, security failure, or extortion threat” did “not include Tony’s alleged violations … via its own collection, use, storage, or dissemination of employees’ biometric data.” Separately, even though “neither the parties nor the circuit court addressed this exclusion,” the court also held that an exclusion for the “collection of information by [Tony’s] (or others on [Tony’s] behalf) without the knowledge or permission of the persons to whom such information relates” also meant that Lloyd’s had no duty to defend. n Coverage Tom Evans, a partner in Alston & Bird’s San Francisco office, represented ACLI and ACLHIC in filing an amicus brief in support of Allianz’s appeal of the court’s class certification order. 7 6 Life Insurance Beyond resolving the causation requirement, the Ninth Circuit’s ruling will meaningfully impact the class certification analysis in these actions. Class certification in the district courts often turns on whether an individual inquiry into policyholders’ intent would be needed. Having adopted the causation theory, the panel went on to vacate the lower court’s certification of two subclasses because the required causation could not be determined classwide. This ruling is certainly a key authority for life insurers seeking to defend against these claims. (Note that Small has filed a petition for rehearing, asking that the opinion be withdrawn or certified to the California Supreme Court.) Summary Judgment for a COI Rate Change PHT Holding I LLC v. Security Life of Denver Insurance Co., No. 23-1326 (10th Cir. Nov. 13, 2024). This putative class action challenged a cost of insurance rate increase. The plaintiff asserted that Security Life of Denver considered non-mortality factors and recouped past losses (including liabilities assumed through the cancellation of reinsurance policies) in breach of the cost of insurance rates provision and nonparticipating provisions in the policies. The district court granted summary judgment to Security Life of Denver against those theories, finding that (1) the cost of insurance rate provision gave Security Life of Denver “substantial discretion” to set COI rates so long as it referred “to mortality factors along with other considerations”; and (2) the nonparticipating provisions only provide that a policyholder does not receive dividends. In an unpublished opinion, the Tenth Circuit affirmed those holdings. First, it found that the plaintiff’s “failure to challenge the district court’s interpretation of the cost of insurance provision is fatal or near-fatal to its appeal.” Second, it agreed with the district court’s interpretation of the nonparticipating provisions, finding that “[r]eading the nonparticipating provisions in the context of the whole contract confirms they do not concern COI rates.” n
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