Beneficial Fire & Cas. Ins. Co. v. Kurt Hitke & Co.

• Decision Date: 22 May 1956
• Citation: Beneficial Fire & Cas. Ins. Co. v. Kurt Hitke & Co., 297 P.2d 428, 46 Cal.2d 517 (Cal. 1956)
• Parties: BENEFICIAL FIRE AND CASUALTY INSURANCE COMPANY, a California corporation, Plaintiff and Respondent, v. KURT HITKE & COMPANY, Inc., a California corporation, Defendant and Appellant. L. A. 23697.
• Court: California Supreme Court

Page 428

297 P.2d 428

46 Cal.2d 517

BENEFICIAL FIRE AND CASUALTY INSURANCE COMPANY, a California corporation, Plaintiff and Respondent, v. KURT HITKE & COMPANY, Inc., a California corporation, Defendant and Appellant.

L. A. 23697.

Supreme Court of California, In Bank.

May 22, 1956.

John S. Bolton and F. V. Lopardo, Los Angeles, for appellant.

Hill & Attias, Henry Attias, Philip Glusker and Frank Mankiewicz, Beverly Hills, for respondent.

CARTER, Justice.

Plaintiff, an insurance company, obtained a favorable declaration of its rights under a written agency contract in its action against defendant agent.

The contract was made in February, 1950, and according to its terms and as found by the court, plaintiff appointed defendant its general agent to solicit and obtain purchasers of insurance policies of a certain type in a specified area, the policies to be issued in plaintiff's name as insurer. Generally the insurance to be sold was for property damage and public liability in connection with a certain class of motor vehicles. The contract was to remain in force until 30 days after written notice of cancellation was given by either party. As far as appears, the contract has not been cancelled by either party.

The action, for declaratory relief, was commenced by plaintiff in October, 1952, and apparently the contract had been carried out by the parties for at least two years prior thereto.

The contract provided that defendant would keep records of business transacted for plaintiff and send monthly 'all dailies on business written.' (Par. 2.) All monies of plaintiff and all premiums collected by defendant on policies issued were to be paid to plaintiff as provided in the contract. (Par. 3.) Any credit for premiums extended to insureds by defendant was to be at its risk and the premiums on such policies were to be paid by defendant to plaintiff not later than 60 days after the end of the calendar month in which the policy was written. (Pars. 4 and 6.) Plaintiff could reject any risk submitted and defendant was not to be entitled to any commission thereon. (Par. 7.) Plaintiff was not to be 'responsible' for any of defendant's expenses in conducting the agency. (Par. 9.) Defendant was to provide inspection and safety service, investigate losses claimed to be payable under policies and cooperate with plaintiff in settlement of losses. (Par. 13.) Paragraph 14 deals with defendant's compensation as follows: 'On or before the 30th day of each month, the Company (plaintiff) will compute all premiums earned during the previous month and will furnish the General Agent (defendant) with a statement thereof, together with a record of all losses and loss expense paid and of all reserves for loss incurred on a case basis. At such time the Company shall remit to the General Agent all commission earned during said previous month. In the event the computation of commission earned at the end of any regular monthly adjustment period results in a deficit against the General Agent, this deficit shall be fully covered by a subsequent commission earning before any earned commission shall be due the General Agent.' (Emphasis added.) Paragraph 15 provided that defendant agreed to accept as compensation in full for its services and plaintiff agreed to pay compensation to be determined as follows: 'From the gross earned premium under all policies of insurance * * * there shall be deducted the following items: (a) losses and allocated loss adjustment expense; (b) a fixed charge by the Company of a sum equal to 20% of such gross earned premium; (c) from the residue remaining shall be paid a sum as commission to the General Agent not to exceed 30% of the gross earned premium.' Loss adjustment expense is defined as the 'allocation' overhead cost of defendant in the adjustment of each claim and is subject to review and in the event of dispute it shall be settled by arbitration. The last sentence of that paragraph provided: 'As soon after December 31 of each calendar year as practicable, the underwriting profits arising out of the net retained business under this contract shall be computed and 50% thereof shall be payable to the General Agent. That retained business shall be defined as the net amount of risk assumed by the Company after deducting quota share reinsurance.' If the parties could not agree on the 'reserves for the outstanding losses and loss adjustment expense,' arbitration was provided for and the decision 'shall be used for the reserve in the computation of the compensation and underwriting profits provided for in Paragraph 14 until subsequent developments occur which may change the extent of liability.' (Par. 16.) Defendant could appoint agents for plaintiff. (Par. 17.) The agreement was to remain in force until cancelled as heretofore mentioned and such cancellation was to apply to all provisions in the contract except those items which pertain to the compensation of the General Agent, which items were to remain in full force and effect until all premiums had been earned and losses had been paid, or until an earlier mutually agreeable date had been set. 'With respect to those items the Company agrees to pay the General Agent any and all amounts due the General Agent and the General Agent agrees to pay the Company any and all amounts due the Company.' (Emphasis added; par. 19.)

The trial court determined that defendant's compensation was to be determined under paragraph 15 of the contract; that paragraph 14 provided for 'interim monthly payments to defendant on account only'; that under paragraph 19 the final determination of the compensation was to be fixed after all premiums had been earned (that is, after the term of the policies written had expired) and all losses had been paid, and that defendant's compensation was contingent in that whether defendant received any compensation at all depended upon a favorable loss experience under the policies written which could not be determined until all losses had been paid and loss adjustment expenses had been paid and premiums earned. That as a result, prior to cancellation of the contract, any overayment made to defendant under paragraph 14 might be recovered by plaintiff only out of commissions later earned and payable to defendant but that after cancellation of the contract defendant must repay to plaintiff any portion of the sums received under paragraph 14 which exceeded the amount necessary to pay losses and the other items mentioned in paragraph 15. In other words, the trial court decided that while the contract was still in effect defendant could keep the commissions paid to it monthly under paragraph 14 and would not be personally liable to return them to plaintiff, but if they were too much, as shown by later events, any overpayment could be deducted from the monthly commissions payable but at the end of the contract, defendant would be personally liable for any deficiency which could then be deducted from commissions found to be still payable in the final accounting. The monthly payments were treated like advances on commissions for which defendant would be ultimately liable if they exceeded the commissions in fact earned, that is, in effect, that defendant agent alone bore the risk of whether it would be paid anything for its services or for the expense of operating the agency business.

Defendant contends that none of the commissions paid to it monthly under paragraph 14 are returnable to plaintiff and that if the contract is not unequivocally subject to that construction, evidence offered by it to explain the contract and indicating such construction should have been admitted. Plaintiff, of course, contends the trial court's construction was correct and there was no ambiguity in the contract.

Defendant offered to prove: (1) That the parties construed the contract during the time it was being carried out as urged by defendant and to that end plaintiff's vice president would testify, as he had by deposition, that the sums paid monthly to defendant were fully earned and not returnable at any time and that plaintiff had never demanded a return of those sums although they showed in a deficit position; (2) that under trade custom and usage in the insurance business with respect to general agency contracts, in which both parties were engaged, earned commissions are never returnable. The trial court rejected the offer. While the offer of proof is general and somewhat vague it is sufficient. The trial court had previously indicated that it would receive no extrinsic evidence of any kind bearing upon the construction of the contract. Where an entire class of evidence has been declared inadmissible or the trial court has clearly intimated it will receive no evidence of a particular class or upon a particular issue, an offer of proof is not a prerequisite to raising the question on appeal, and an offer, if made, may be broad and general. Heimann v. City of Los Angeles, 30 Cal.2d 746, 185 P.2d 597; Lawless v. Calaway, 24 Cal.2d 81, 147 P.2d 604; Caminetti v. Pacific Mut. Life Ins. Co., 23 Cal.2d 94, 142 P.2d 741; In re Estate of Kearns, 36 Cal.2d 531, 225 P.2d 218. As said in the Kearns case: 'At the hearing on the petition for instructions the trial judge stated that the will was not ambiguous and that he did not wish to hear any extrinsic evidence. Accordingly, no witnesses were called, but a statement was made of the proof which appellants could produce if permitted to do so. Respondent asserts that some of the evidence which appellants state they could produce is not relevant and that some is incompetent under section 105 of the Probate Code. We need not, however, discuss in detail the different items of proof because it is apparent from the record that respondent objected to the admission of any extrinsic evidence and that it was the purpose of the court to exclude all such evidence. Although the statement made by appellants did not amount to a formal offer...