Contractor's Safety Ass'n v. Cal. Comp. Ins. Co.

Decision Date01 March 1957
Citation307 P.2d 626,48 Cal.2d 71
CourtCalifornia Supreme Court
PartiesCONTRACTOR'S SAFETY ASSOCIATION (a Corporation), Plaintiff and Appellant, v. CALIFORNIA COMPENSATION INSURANCE COMPANY (a Corporation), Defendant and Respondent. L. A. 24366.

Simon Miller, Harry E. Ehrlich, and Blau, Shaw & Miller, Beverly Hills, for appellant.

Betts, Ely & Loomis, Forrest A. Betts, Los Angeles, Frank J. Creede, san Francisco, and F. V. Lopardo, Los Angeles, for respondent.

Edmund G. Brown, Atty. Gen., and Harold B. Haas, Deputy Atty. Gen., as amicicuriae on behalf of respondent.

SHENK, Justice.

This is an appeal from the judgment of dismissal following an order sustaining the defendant's oral demurrer to the introduction of any evidence on behalf of the plaintiff.

The plaintiff seeks to recover dividends to which it claims to be entitled upon an agreement made in conjunction with the purchase of a policy of workmen's compensation insurance.

As finally amended the complaint alleges that the defendant in 1950 circulated a form letter representing that it would pay dividends according to a stated schedule to group insureds carrying workmen's compensation insurance issued by the defendant where the insured's loss-premium ratio was 65% or less and a surplus was available for payment of such dividends. In August, 1950, the defendant insurance company wrote the plaintiff to the effect that its board of directors had authorized an additional 5% dividend to those insureds whose loss-premium ratio was 60% or less provided a surplus was available to pay the dividend. In reply the plaintiff informed the defendant that it accepted the offer to insure the plaintiff according to the terms of the information thus received. On October 11, 1950, the defendant issued to the plaintiff its standard workman's compensation policy. The plaintiff alleges that it relied upon those representations and that its loss experience was within a range which would entitle it to dividends in the sum of $77,400.74; that the defendant has sufficient surplus to meet the payment of the dividend, that it arbitrarily reduced plaintiff's dividend to $13,959 and that it has paid that amount. The complaint prays that the balance be paid to the plaintiff upon the determination of the existence or reserves sufficient to make the additional payment. The plaintiff contends that before the representatiions were made the defendant's board of directors by resolution unknown to the plaintiff provided that no dividend would be paid except by resolution of the board and that the board has arbitrarily reduced the amount of plaintiff's dividend because the plaintiff ceased to do business with the defendant in August, 1951. This, the plaintiff contends, was malicious and oppressive conduct on the part of the defendant through its board of directors. Accordingly, the plaintiff seeks an additional $50,000 as punitive damages.

The above facts are alleged in three counts. The first is an action upon the collateral agreement which the plaintiff contends is a part of the contract of insurance entered into on .october 11, 1950. The second is on a common count for money had and received; the third is for punitive damages.

The Insurance Commissioner as amicus curiae contends that the enforcement of the dividend agreement would violate the minimum rating provisions of the Insurance Code and administrative rulings promulgated under the Code. The defendant joins in this contention and asserts that the enforcement of the agreement would violate the anti-rebate provisions of the Insurance Code.

Insurance Code section 751 provides: 'An insurer * * * shall not offer or pay, directly or indirectly, as an inducement to enter into an insurance contract, any valuable consideration which is not clearly specified, promised or provided for in the policy, or application for the insurance, and any such consideration not appearing in the policy is an unlawful rebate.'

The receipt of a rebate is made a misdemeanor by Insurance Code section 752. The code does not, however proscribe all rebates. Insurance Code section 763 permits rebates under certain conditions. Subsection (a) of that section provides for 'The return by an insurer issuing policies on a participating plan, of any portion of the premium as a dividend after the expiration of the term covered by such policy.' While the return of a part of the premium would otherwise constitute an unlawful rebate, the return of part of the consideration is permitted under section 763. This provision is, however, limited to participating policies the premiums on which have been defined as follows: '* * * (P)articipating premiums are those in which the profits therefrom are shared by those who have paid the premiums.' (Couch, Cycl. of Ins., § 579.) In State Comp. Ins. Fund v. McConnell, 46 Cal.2d 330, 341, 294 P.2d 440, 447, this court said (in reference to Insurance Code § 11738), "Participating' refers to the right to share in earnings and does not refer to the price paid for insurance.' Where a dividend agreement is not one to share profits the dividend cannot be said to be 'participating' within the meaning of section 763.

The minimum rating law (now Ins. Code §§ 11730-11742) was enacted in 1915 to eliminate irresponsible premium policies which developed in response to competitive conditions in the insurance field. The purpose of this law was to require a premium rate which would assure adequate reserves to meet claims as they matured. Obviously, the purpose of the law would be frustrated if collateral agreements could effect a reduction of the premium. For this reason agreements affecting the premium were brought within the scope of statutory and administrative regulation.

At the time of the transaction here involved Insurance Code section 11736 provided: 'An insurer shall not issue, renew or carry beyond next anniversary date any workmen's compensation insurance under a law of this State at premium rates which are less than the rates approved or issued by the commissioner.' (St.1935, p. 723) The minimum rating law, like the antirebate provisions, contains a provision under which refunds may be made. Section 11738 provides: 'Nothing in this article shall affect the right of any insurer to issue compensation participating policies. A refund by reason of a participating provision in a compensation policy shall not be made to policyholders by any insurer except from surplus accumulated from premiums on workmen's compensation policies issued pursuant to laws of this State governing workmen's compensation insurance.'

The Insurance Commissioner, on March 1, 1950, promulgated the 'Manual of Rules, Classifications and Basic Rates for Workmen's Compensation Insurance.' This Manual, which became effective April 1, 1950, contains the following: 'III. Policy Forms and Coverage. * * * (2) Each policy issued must contain the following provision: 'This policy, including all endorsements or riders hereon, constitutes the entire contract of insurance. No condition, provision, agreement, or understanding not set forth in the policy or in such endorsement or rider shall affect such contract or any rights, duties, or privileges arising therefrom.''

In ruling on the demurrer to the introduction of evidence, the trial court had before it the Insurance Code and administrative rules of the Insurance Commission. Although not pleaded, the trial court could take judicial notice of 'Public...

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