Delgado v. Heritage Life Ins. Co.

• Citation: 203 Cal.Rptr. 672,157 Cal.App.3d 262
• Decision Date: 18 June 1984
• Docket Number: No. B001712,B001712
• Court: California Court of Appeals Court of Appeals
• Parties: Antonio V. DELGADO, Plaintiff and Appellant, v. HERITAGE LIFE INSURANCE COMPANY, Defendant and Appellant.

Page 672

203 Cal.Rptr. 672

157 Cal.App.3d 262

Antonio V. DELGADO, Plaintiff and Appellant, v. HERITAGE LIFE INSURANCE COMPANY, Defendant and Appellant.

No. B001712.

Court of Appeal, Second District, Division 4, California.

June 18, 1984.

Hearing Denied Aug. 15, 1984.

Lipsky and Blickenstaff and David I. Lipsky, Claremont, for plaintiff and appellant.

Raitt, Dobrin & Seeley, G. Emmett Raitt, Jr. and Peter L. Colt, Los Angeles, for defendant and appellant.

McCLOSKY, Associate Justice.

Plaintiff Antonio V. Delgado appeals from "the order of nonsuit ... in favor of defendant HERITAGE LIFE INSURANCE COMPANY against plaintiff on the issue of punitive damages on the cause of action for breach of the duty of good faith and fair dealing." Defendant Heritage Life Insurance Company (Heritage) cross-appeals from the "judgment ... in favor of plaintiff ... and against defendant Heritage ... on the issue of interpretation of the insurance policy on the count for breach of the duty of good faith and fair dealing." That judgment after a trial by jury awarded plaintiff "[d]amages undert [sic ] the insurance policy in the amount of $2,236.08 [and] [c]ompensatory damages in the amount of $900.00."

CONTENTIONS

Heritage raises the following contentions on appeal:

"The trial court did not consider the purpose of the policy, or the reasonable expectations of the parties in making its determination of ambiguity.

"The insurance policy must be conclusively presumed to be unambiguous since it was approved by the insurance commissioner of the State of California.

"The 'process of nature rule' precludes recovery by appellant in this case.

"Appellant proved only that his disability manifested itself during the policy term."

Mr. Delgado raises the following contentions on appeal:

"A punitive damages instruction is proper if plaintiff has made a prima facie showing of malice, fraud or oppression.

"Delgado presented overwhelming evidence that his claim for credit disability benefits was handled fraudulently, maliciously, and oppressively in conscious disregard of his rights.

"The trial court applied the incorrect standard in determining whether to permit plaintiff to go to the jury on punitive damages regarding defendant's breach of its duty of good faith and fair dealing.

"The determination whether to award punitive damages was within the province of the jury."

FACTS

On March 29, 1974, John Braca, a salesman for Leo Hoffman Chevrolet Corp. (hereafter Hoffman Chevrolet), sold plaintiff Antonio Delgado a car together with a three-year credit life and disability policy offered by defendant Heritage through Leo Hoffman Insurance Corp. (hereafter Hoffman Insurance). ¹ The purpose of that policy was to insure the payments of the automobile loan in the event Mr. Delgado died or became disabled.

On October 30, 1975, Mr. Delgado was seriously injured while working at his job. In November 1975, the Delgados went to Hoffman Chevrolet to shop for a new car. Mr. Delgado's appearance reflected his recent accident. They encountered one Kurt Hoffman, an employee of Hoffman Insurance, who inquired into Mr. Delgado's condition. Mr. Delgado told him that he had been hurt in Washington.

On March 29, 1976, the Delgados returned to Hoffman Chevrolet, purchased a new car and traded in their 1974 car. Mr. Braca was again their salesman. The Delgados decided to subscribe to another credit life and disability policy with Heritage in connection with this purchase. Mr. Braca told the Delgados that they could transfer the remaining one year on their 1974 credit life and disability insurance to the insurance purchased for their 1976 car. Mrs. Delgado was skeptical about this and Mr Braca took the Delgados to Mr. Hoffman to have this explained.

While the Delgados were in Mr. Hoffman's office, the application for the 1976 insurance policy was completed. Ms. Delgado testified that Mr. Hoffman told her that all of the insurance on the 1974 car would be transferred to the 1976 car. Mr. Hoffman testified that he was not told of the Delgados' 1974 disability policy or he would have refunded the premiums for the one year remaining on that policy. No refund of those premiums was ever made. Ms. Delgado assumed that the effective date of the 1976 policy would be upon the expiration of the 1974 policy.

In the process of completing the insurance application, Mr. Hoffman asked whether Mr. Delgado had consulted or been under the care of a doctor within the six months for cancer or any disease or condition of the heart, liver, kidneys or lungs. Mr. Delgado responded that he had nothing like that wrong with him. Ms. Delgado testified that she told Mr. Hoffman about Mr. Delgado's October 1975 accident at that time. Mr. Hoffman did not recall this.

The 1976 policy provided in pertinent part: " 'Injury,' as used herein, means bodily injury, caused by an accident, occurring while this policy is in force, which causes the total disability of the Insured, as defined herein, resulting in loss of time commencing while this policy is in force. [p] 'Sickness,' as used herein, means sickness or disease which causes the total disability of the Insured, as defined herein, resulting in loss of time commencing while this policy is in force.... [p] EXCLUSIONS: This policy does not provide any benefits for total disability caused by or resulting from any of the following: (1) a pre-existing illness, disease or physical condition for which medical advice, consultation or treatment was required or recommended within the six months preceding the taking of the application for this policy and for which medical advice, consultation or treatment was required or recommended within the six months following the effective date of this policy; (2) pregnancy, except miscarriage caused by accident; (3) intentionally self-inflicted injuries." This clause was known as, and will be referred to as, the six and six exclusion.

Mr. Hoffman did not recall explaining the six and six exclusion to the Delgados at the time they subscribed to the policy. Nor did the brochure which describes the policy explain this exclusion. Heritage's interpretation of that clause was that it excluded pre-existing conditions as a result of an illness which had been treated within those times provided. The exclusion applied solely to illnesses such as malaria and not injuries such as a broken arm. Mr. Sklar and Mr. Crummey of Heritage, each testified that no pre-existing injuries were covered under the 1976 policy. Mr. Crummey, the attorney who actually drafted the policy, also testified that the "six and six" exclusion applied only to sickness and not to accident. "Even though it says physical condition, people look at it in terms of illness as opposed to injury." The Delgados testified that Mr. Hoffman explained only that the policy would provide coverage if plaintiff became very ill or died and that "we would not have anything to worry about."

In April 1977, Mr. Delgado submitted a claim under the 1976 policy for a disability caused by his October 1975 accident. He claimed that the injuries from that accident did not incapacitate him until January 1977. That claim provided in pertinent part:

"If accident, where and how did it occur? in Washington fell off beam

"If illness, when were symptoms first noticed? 1-18-77

"Have you been treated for this condition within 6 months BEFORE the effective date of your policy? __ Yes xNo

"Have you been treated for this condition within 6 months AFTER the effective date of your policy? xYes. __No"

Sanford Sklar processed Mr. Delgado's claim for Heritage. On May 3, 1977, he sent Mr. Delgado a letter stating:

"Enclosed please find a copy of the check ... for $355.63 as full and final payment for your disability from January 18, 1977, through March 29, 1977, the expiration date of policy C243353 [the 1974 policy]. No further benefits are due or payable under that policy. [p] No benefits are payable under policy C347456 [the 1976 policy] as the accident for which you are now claiming benefits occurred prior to the issue date of the policy. The exception clause in your policy explains this. I'm sorry we cannot be of help in this matter. [p] If you have any questions on the above, please do not hesitate to contact this office."

Mr. Sklar testified that Mr. Delgado's claim was inconsistent because it contained responses to questions dealing with both an accident and an illness. He did not think, however, that this inconsistency warranted an investigation of that claim and therefore none was made.

After the Delgados received the above letter, Mrs. Delgado twice telephoned Heritage in an attempt to get information regarding the rejection of the claim under the 1976 policy. On each occasion, she was told only that she would be called back but never was. After the second unsuccessful attempt to discuss their claim with Mr. Sklar, the Delgados retained an attorney who phoned Heritage and was explained its interpretation of the policy.

Thereafter, Mr. Delgado filed this action against Heritage, Hoffman Chevrolet and Kurt Hoffman for breach of duty of fair dealing and good faith; fraud; breach of fiduciary duty (which cause of action was dismissed at trial) and breach of statutory duty.

In substance, that complaint sought to recover compensatory and punitive damages due to defendant's alleged failure to make payments under the 1976 policy, their failure to adequately investigate his claim, their failure to adequately explain their denial of that claim and their misrepresentations to plaintiff respecting the coverage under that policy. The jury returned a verdict for Mr. Delgado and against Heritage on his cause of action for breach of duty of good faith and fair dealing. It returned a verdict against Mr. Delgado on all other counts.

THE HERITAGE CROSS-APPEAL

I

Heritage first contends that "[t]he trial court did not consider the purpose of the policy, or the reasonable...