Homestead Supplies, Inc. v. Executive Life Ins. Co.

Decision Date21 June 1978
Citation147 Cal.Rptr. 22,81 Cal.App.3d 978
CourtCalifornia Court of Appeals Court of Appeals
PartiesHOMESTEAD SUPPLIES, INC., Plaintiff and Appellant, v. EXECUTIVE LIFE INSURANCE COMPANY, Defendant and Respondent. Civ. 19262.
Dill & Showler and Fred H. Dill, Redlands, for plaintiff and appellant

KAUFMAN, Associate Justice.

Homestead Supplies, Inc. (hereafter plaintiff) commenced this action to obtain a declaration of the correct amount of the annual premium payment due under a policy of life insurance issued to plaintiff by Executive Life Ins. Co. (hereafter defendant) on the life of plaintiff's president. Trial was to the court without jury. Judgment was for defendant. Plaintiff appeals.


The essential facts are undisputed. Defendant's agent and plaintiff's president had been discussing plaintiff's purchasing from defendant a seven-year renewable and convertible term life insurance policy insuring the life of plaintiff's president. The policy would cover an initial term of seven years and be renewable by plaintiff for additional periods of seven years without proof of insurability.

Defendant's agent presented the plaintiff's president a written proposal for issuance of such a policy at the following specified premiums: premium for the first year $7,515; premium for each of the next six years $4,515; premium for each of the next seven years $7,485. Plaintiff's president pointed out to defendant's agent that the premiums specified in the proposal were greater than those previously quoted, and defendant's agent indicated the policy could be issued for the lower premiums originally quoted. The previously quoted premiums were penciled in on the written proposal as follows: premium for the first year $7,230; premium for each of the next six years $4,230; premium for each of the next seven years $6,840. At a special meeting of its board of directors, plaintiff authorized purchase of the policy on the basis of the lower penciled-in premiums. Plaintiff's president executed the required application and delivered to defendant's agent plaintiff's check for the first year premium in the amount of $7,230.

Several months later when the policy had been issued and arrived, plaintiff's president discovered that while the premiums for the first year and each of the next six years were at the lower figures penciled in on the written proposal from defendant's agent, the renewal premiums for each of the succeeding seven years calculated in accordance with the policy's table of renewal premiums was $7,485, the amount specified in the original written proposal rather than $6,840 as subsequently penciled in.

Plaintiff's president directed a letter to defendant's agent pointing out the discrepancy but received no response. Plaintiff's president then directed a letter to defendant addressed to the attention of defendant's president explaining the situation and requesting some action. In response, plaintiff received a letter from defendant's president dated April 28, 1970 which read in pertinent part: "I am very sorry that Mr. Sampson (defendant's agent) mistakenly quoted a rate one year younger than you really would be seven years from now. ( 1 ) (P) Mistakes are possible, naturally. However, since your Board approved the premiums, we will stand behind our agent and accept, during the renewal years, the amount of $6,840."

Having received this letter from defendant's president, plaintiff retained the policy and duly paid the premiums specified in the policy for each of the next six years. On June 11, 1976, defendant directed a letter to plaintiff enclosing a renewal premium notice and indicating the amount of the annual renewal premium due was $7,485. Plaintiff tendered payment of $6,840. Defendant demanded the full $7,485. When plaintiff refused to pay that amount, defendant sent plaintiff notice the policy had lapsed. Plaintiff then paid the full $7,485 under protest, whereupon the policy was reinstated. Shortly thereafter plaintiff commenced this action seeking a declaration that the annual premium during the first renewal term is $6,840.

As previously indicated, the court rendered judgment in favor of defendant, in effect adjudging the premium is $7,485.

Scope of Review

Findings of fact were not requested and, thus, were waived. (Code Civ.Proc § 632.) Accordingly, we must presume in favor of the judgment every finding of fact necessary to support it warranted by the evidence. (Gray v. Gray, 185 Cal. 598, 599, 197 P. 945; Philbrick v. Huff, 60 Cal.App.3d 633, 650, 131 Cal.Rptr. 733.) Additionally, defendant asserts the substantial evidence rule. However, with respect to the essential facts, the evidence is not in conflict nor does it give rise to pertinent conflicting inferences. Under these circumstances, the questions presented are questions of law. (Cf. Oliver & Williams Elevator Corp. v. State Bd. of Equalization, 48 Cal.App.3d 890, 894, 122 Cal.Rptr. 249, and cases there cited; 6 Witkin, Cal.Procedure (2d ed. 1971) Appeal, §§ 255, 256, p. 4247.)

Contentions and Discussion

Defendant's contentions in support of the judgment are two: (1) the correspondence between the parties after issuance of the policy constitutes an attempted modification of a written agreement that is unenforceable for lack of consideration; and (2) the purported modification is unenforceable because it would constitute a premium rebate in violation of Insurance Code sections 750, 751, 752 and 761 and a rate discrimination in violation of Insurance Code sections 790.02 and 790.03, subdivision (f). We conclude the modification agreement is not unenforceable for lack of consideration and though it may be technically in violation of one or more of the Insurance Code sections cited, the illegality is not such as to render the agreement unenforceable in the particular circumstances here shown.

Modification Consideration

The parties are in basic disagreement as to exactly when the contract of insurance was effected. Plaintiff contends the contract came into being when its president and defendant's agent agreed upon the premium figures and plaintiff's check for the first year's premium was delivered to defendant's agent. Under plaintiff's analysis, the policy failed to conform to the parties' agreement and the subsequent correspondence merely acknowledged and corrected the mistake and, thus, required no new consideration. (See Texas Company v. Todd, 19 Cal.App.2d 174, 185-186, 64 P.2d 1180; 1 Witkin, Summary of Cal.Law (8th ed. 1973) Contracts, § 715, p. 601.) Defendant contends the policy constituted the entire contract between the parties (Ins.Code, § 10113), and the subsequent correspondence constituted a purported modification of the written contract necessitating new consideration. (Civ.Code, § 1698; Main St. etc. Co. v. L.A. Trac. Co., 129 Cal. 301, 305, 61 P. 937; Krobitzsch v. Middleton, 72 Cal.App.2d 804, 808, 165 P.2d 729.) Since we must indulge presumptions supporting the judgment and in view of the waiver of findings of fact and conclusions of law and the absence of evidence concerning the authority of defendant's agent, we accept as correct for purposes of this decision defendant's contention that no contract of insurance was effected prior to issuance of the policy. We conclude, however, the subsequent agreement of the parties that the renewal premium would be $6,840 (hereafter the modification agreement) was supported by consideration or a legal substitute therefor.

It is indisputable defendant's agent misquoted the amount of the renewal premium to plaintiff's president and plaintiff never agreed to pay $7,485 as the annual renewal premium. Thus, when plaintiff received the policy and discovered the discrepancy, it was under no legal obligation to accept or retain the policy; it undoubtedly had the legal right to return the policy and demand repayment of the first year's premium. (Cf. Civ.Code, §§ 1689(b)(1), 1692.) Having received the letter from defendant's president promising to accept $6,840 as the annual renewal premium, plaintiff refrained from exercising these legal rights, retained the policy and thereafter paid the specified premium for each of the next six years. This conduct on the part of plaintiff, if bargained for, constituted consideration (Civ.Code, § 1605; Raedeke v. Gibraltar Sav. & Loan Assn., 10 Cal.3d 665, 673-674, 111 Cal.Rptr. 693, 517 P.2d 1157; see 1 Witkin, Summary of Cal.Law (8th ed. 1973) Contracts, §§ 152, 157, pp. 146, 150-151); if not bargained for by defendant, plaintiff's conduct constituted a reasonably expectable and substantial change of position in reliance on the promise sufficient to invoke the doctrine of promissory estoppel, which is a legal substitute for consideration. (Youngman v. Nevada Irrigation Dist., 70 Cal.2d 240, 249, 74 Cal.Rptr. 398, 449 P.2d 462; see Rest. Contracts, § 90; 1 Witkin, Summary of Cal.Law (8th ed. 1973) Contracts, § 189, p. 174).

Illegality Enforceability

Insurance Code section 750 2 reads: "An insurer, insurance agent, broker, or solicitor, personally or by any other party, shall not offer or pay, directly or indirectly, as an inducement to insurance on any subject-matter in this State, any rebate of the whole or part of the premium payable on an insurance contract . . . ." Section 751 prohibits the same persons from offering to pay as an inducement to enter into an insurance contract any valuable consideration which is not clearly specified or provided for in the policy. Section 761 makes it a misdemeanor for any such person to make an unlawful rebate. Section 752 makes it a misdemeanor for an insured knowingly to accept or receive any unlawful rebate.

Sections 790.02 and 790.03, subdivision (f), prohibit an insurer from "(m) aking or permitting any unfair discrimination between individuals of the same class and equal expectation of life in the...

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