Union Mutual Life Insurance v. Kinder

Opinion

NEWSOM, J. The instant appeal comes before us after summary judgment in favor of respondent and against appellant Insurance Commissioner.

[519]A review of the (undisputed) factual background shows that respondent had for several years sold long term disability insurance (LTD) in California. Such insurance is generally purchased by employers in order to guarantee employees a certain income level during periods of disability. Since, typically, disabled workers received income from other sources, respondent sold two types of LTD insurance. One, the so-called “nonfreeze” policy, provided that “other” income received during the disability period would be “integrated” with benefit payments, thus reducing the insurance company’s obligation by the amount of “overinsurance.” Thus, if a disabilitant earned $1,000 monthly, and was eligible to receive up to $800 in benefits, if other income from, for example, increased Social Security payments, brought his monthly income to a figure in excess of his monthly income, the insurance company under a “nonfreeze” policy could reduce disability payment by the amount of such excess.

A “freeze” policy, costing 21 percent more in premiums, provided that only the amount of Social Security benefits being received on the date of disability could be integrated: subsequent increases would not reduce the insurance company’s payment. Such “freeze” policies were marketed starting in 1974.1

In 1976 the Legislature enacted Insurance Code section 10127.1 prohibiting insurance companies from selling “nonfreeze” policies in California. The purpose of that statute was, manifestly, to insure that all future claimants under new or renewed policies would enjoy a rising level of income when “other income” increased with inflation.

On December 27, 1976, Assembly Bill No. 113 was introduced. In its earliest versions, this section would have acted retroactively to require insurance companies to extend “freeze” coverage, not only to beneficiaries under existing policies, but also to disabilitants already receiving benefits under both existing and terminated policies.

In such form, Assembly Bill No. 113 was opposed on a number of grounds, including that of potential impairment of contract, by both the industry and the commissioner.

The final version of Assembly Bill No. 113, as signed into law, deleted retroactivity provisions, and provided that: “Any provision