Bareno v. Employers Life Ins. Co.

• Decision Date: 11 September 1972
• Citation: 103 Cal.Rptr. 865,7 Cal.3d 875,500 P.2d 889
• Court: California Supreme Court
• Parties: , 500 P.2d 889 Maria Teresa BARENO, Plaintiff and Appellant, v. EMPLOYERS LIFE INSURANCE COMPANY OF WAUSAU et al., Defendants and Respondents. L.A. 29930. In Bank

Page 865

103 Cal.Rptr. 865

7 Cal.3d 875, 500 P.2d 889

Maria Teresa BARENO, Plaintiff and Appellant, v. EMPLOYERS LIFE INSURANCE COMPANY OF WAUSAU et al., Defendants and Respondents.

L.A. 29930.

Supreme Court of California,

In Bank.

Sept. 11, 1972.

Schall, Butler, Boudreau & Gore and W. J. Schall, San Diego, for plaintiff and appellant.

Coyle & Dunford, Richard B. Coyle, and Henry F. Walker, Los Angeles, for defendants and respondents.

TOBRINER, Justice.

We must adjudicate another case involving ambiguous provisions in a certificate of insurance issued pursuant to a group insurance policy. On countless occasions we have inveighed against the careless draftsmanship of documents of insurance and have decried the evil social consequences that flow from lack of clarity. (E.g., Paramount Properties Co. v. Transamerica Title Ins. Co. (1970) 1 Cal.3d 562, 569--570, 83 Cal.Rptr. 394, 463 P.2d 746; Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 269--274, 54 Cal.Rptr. 104, 419 P.2d 168; Ensign v. Pacific Mut. Life Ins. Co. (1957) 47 Cal.2d 884, 888, 306 P.2d 448; Continental Cas. Co. v. Phoenix Constr. Co. (1956) 46 Cal.2d 423, 437--438, 296 P.2d 801.) We have emphasized that the uncertain clause leaves in its murky wake not only the disillusioned insured and the protesting insurer but also the anguished court.

We think that the responsibility for writing clear and simple policies lies with the insurance industry, and that the tremendous growth of insurance in this country enhances the need for such policies. The group insurance program, such as that presented here, a nation-wide development involving millions of customers, ¹ increases the importance of precision; these multitudes of insured persons and their beneficiaries, many of whom are unversed in the sophisticated ways of commerce, are utterly unable to decipher obscure and technical language. They are singularly dependent upon the good will and the good draftsmanship of the insurer.

These considerations of public policy have long led courts to insist that insurers draw clear policies or suffer adverse consequences; we have consistently held that ambiguities in such documents must be resolved against the insurer. (Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 269, 54 Cal.Rptr. 104, 419 P.2d 168; Continental Cas. Co. v. Phoenix Constr. Co. (1956) 46 Cal.2d 423, 437--438, 296 P.2d 801; Accord, Civ.Code, § 1654.)

In the instant case we must interpret a group life and permanent disability insurance certificate and a notice of 'terminated Employees' Options' issued to plaintiff's deceased husband. The basic question that lies before us turns on whether the certificate's 31-day extension provisions apply to the disability benefits in the policy or merely to the life insurance benefits. We conclude that the certificate and the separate notice of terminated employee's options extend the life and disability program for the 31-day period; we further conclude that even absent the notice we would nonetheless be compelled to infer from the certificate's ambiguous terms a 31-day extension for disability coverage. We return the case to the trial court to determine whether decedent became totally disabled during the 31-day period.

The uncontested facts are these: On January 6, 1967, Frederico G. Bareno commenced employment as a salesman of the Employers Mutual Liability Insurance Company. One month later he became eligible to, and did, enroll in the company's group life and permanent disability insurance program. At that time Bareno's employer provided him with an 'employee certificate of insurance,' which the insurer had prepared in order to set forth the provisions of the program. The certificate described both life insurance and permanent disability benefits.

In November 1967, Bareno began to develop heart trouble. On Christmas day of that year he experienced a serious convulsion, which required brief hospitalization. Within a week, after his doctors declared him fit to return to work, Bareno resumed his activities as a salesman. He did not notify the employing insurance carrier or his supervisor of the convulsive attack, but he did claim benefits under the carrier's group health plan for the expenses of treatment connected with that attack.

On February 1, 1968, Bareno's supervisor, receiving a copy of Bareno's claim for group health benefits, learned of his medical problems. The next day, February 2d, the supervisor informed Bareno that he was being discharged because of a 'communication problem,' namely, his failure to inform the company of his medical difficulties. In addition to this reason, another factor contributed to the decision to dismiss Bareno; he had not met the life insurance company's expectations for performance as a first-year salesman, obtaining only $5,000 of the $22,000 annual premium quota assigned to him.

In the days following his discharge Bareno completed the check-out procedures necessary to terminate his connection with the insurance company, and began to look for a new job. Two weeks after his notice of discharge, the company sent him his final paycheck, which included pay for work up to February 2, two weeks' severance pay, and a deduction for Bareno's final group policy premium payment. The employer enclosed with the paycheck a notice of 'terminated employee's options' under the company's group insurance programs. ²

On February 19, the same day that the employer mailed the last paycheck and the notice, Bareno suffered an acute heart seizure. His doctor advised him to undergo immediate intensive hospital care, but because of his lack of funds Bareno refused. The doctor then ordered that Bareno at least rest quietly at home.

In the following weeks Bareno's health further deteriorated and became so poor that on the 12th of March his wife took him to the hospital. There the attending physician diagnosed Bareno's condition as terminal and ordered him into hospitalization. On March 13th, Bareno, then 36 years old, died of heart failure.

Following Bareno's death, his widow demanded indemnity from the insurer in the amount of $40,000, which represented the value of the life insurance that Bareno held under the group policy. When the company refused to meet this demand, Mrs. Bareno brought the instant suit against her husband's insurer and his employer, alleging that the defendants were liable to her in contract on the policy and in tort for punitive damages.

At the close of the trial without jury, the superior court, on the basis of the following conclusions, held that Bareno was not covered under the policy: the extension provisions in the insurance certificate and notice mailed February 19 extended only the life insurance, and not the disability, portion of the policy for 31 days after Bareno's termination as an employee; the employer terminated Bareno's employment on February 2 for 'reasons' that were 'justified and proper'; Bareno did not die within 31 days of the termination of employment, and enjoyed no life insurance benefits under the policy; and since Bareno was not an employee on February 19 or March 13, he could not claim permanent disability benefits for disabilities experienced on either of those dates.

On this appeal plaintiff attacks the superior court's interpretation of the certificate and its ruling that the defendants were not liable under the policy. ³ Her contention, raises an issue for the resolution of this court, since 'it is the duty of the appellate court . . . to make its own independent determination of the meaning of the language used in the instrument under consideration.' (Schmidt v. Pacific Mut. Life Ins. Co. (1969) 268 Cal.App.2d 735, 738, 74 Cal.Rptr. 367, 369; accord, Faus v. City of Los Angeles (1967) 67 Cal.2d 350, 360, 62 Cal.Rptr. 193, 431 P.2d 849; Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865--866, 44 Cal.Rptr. 767, 402 P.2d 839.)

We begin by nothing that rather than an analysis of the company's master policy both parties seek an interpretation of the insurer's certificate that the employer issued to Bareno. Whatever the purported coverage of the policy, 'the terms of the certificate are binding on the insurer.' (Humphrey v. Equitable Life Assur. Soc. (1967) 67 Cal.2d 527, 534, 63 Cal.Rptr. 50, 56, 432 P.2d 746, 751; Evans v. Holly Corp. (1971) 15 Cal.App.3d 1020, 1023, 93 Cal.Rptr. 712; John Hancock Mutual Life Ins. Co. v. Dorman (9th Cir. 1939) 108 F.2d 220; see 1 Appleman, Insurance Law & Practice (1965) § 46, at pp. 68--70.) 'This result is easily justified upon the grounds that the individual certificate is the only document which the employee sees or is given at any time and that the insurer, who drafts the instrument in language it selects, cannot thereafter complain that it does not express the intention of the parties.' (Humphrey v. Equitable Life Assur. Soc., Supra, 67 Cal.2d 527, at p. 534, 63 Cal.Rptr. 50, at p. 56, 432 P.2d 746, at p. 751.) For this reason the court held in Evans v. Holly Corp., Supra, 'Where the representations in an insurance certificate indicate broader coverage than that provided by the master policy, the insurer is bound by the terms of the certificate.' (15 Cal.App.3d 1020 at p. 1023, 93 Cal.Rptr. 712 at p. 713.)

Thus, in order to determine liability we turn initially to the certificate. The provisions of the certificate as to termination are set out under the heading 'Individual Terminations.' The clause in substance provides that the coverage shall cease automatically upon either (1) the termination of the policy, (2) the cessation of premium payments, or (3) the termination of the employee's employment, and concludes as follows: 'Note: In case the Employee ceases active work due to sickness, injury, retirement on pension, leave of absence or temporary layoff, the terms of the Group policy may provide for continuance of insurance for a limited period. The Employee should consult the Employer who is in a position to...