Industrial Commission v. Arizona Power Co.

• Decision Date: 19 January 1931
• Docket Number: Civil 2809
• Citation: 295 P. 305,37 Ariz. 425
• Parties: THE INDUSTRIAL COMMISSION OF ARIZONA, Appellant, v. THE ARIZONA POWER COMPANY, a Corporation, Appellee
• Court: Arizona Supreme Court

295 P. 305

37 Ariz. 425

THE INDUSTRIAL COMMISSION OF ARIZONA, Appellant, v. THE ARIZONA POWER COMPANY, a Corporation, Appellee

Civil No. 2809

Supreme Court of Arizona

January 19, 1931

APPEAL from a judgment of the Superior Court of the County of Maricopa. M. T. Phelps, Judge. Reversed and remanded, with directions.

Mr. K Berry Peterson, Attorney General, Mr. John J. Taheny, Mr. H A. Elliott and Messrs. Elliott & Shimmel, for Appellant.

Messrs Cornick & Crable, for Appellee.

OPINION

ROSS, J.

On August 20, 1926, the Industrial Commission of Arizona insured the Arizona Power Company against its entire compensation liability under the Workmen's Compensation Act for the period to and including December 31, 1926, and received from the insured as initial payment on premium the sum of $4,134. Claiming under the terms and conditions of the policy there had accrued during said period premiums amounting to $16,555.38, the commission demanded of the insured the difference between these two sums, to wit, $12,421.38, and payment being refused this action was begun to recover said sum.

The policy is what is known and referred to as a self-rating policy. It is the same form of policy employed by the commission to insure employers in the state compensation fund, except the method adopted to ascertain the amount of the premiums to be paid. Such method is expressed in a typewritten indorsement on the policy in words and figures as follows:

"Except as regards the loading for expense of administration and for catastrophe and excess losses, the rate or rates of premium for this policy shall be subject to the experience rating plan of The Industrial Commission of Arizona on a 100 per cent. self-rating basis, i. e., the rate or rates shall be modified upward or downward in direct proportion to the ratio of the actual loss experience (exclusive of catastrophe and excess losses) to the expected loss experience (exclusive of catastrophe and excess losses).

"The initial experience period shall extend from the date of inception of this policy to and including December 31st, 1926.

"Every succeeding calendar year shall be an experience period.

"In the event of cancellation during an experience period, the latter shall terminate upon the effective date of cancellation.

"Every modified rate shall be retroactively effective, and shall apply to the entire experience period upon which it is predicated."

During the period of insurance, claims for compensation to employees of defendant were allowed and actually paid by the commission out of the state compensation fund in the sum of $72.08; and in addition claims by a wife and child for compensation for death of a husband and father from injuries received during said period were allowed, payable out of such fund: To the wife (24 years old) at $70 per month until death or remarriage, and $1,680 in cash upon remarriage; and to the child (1 1/2 years old) $30 per month until she attains the age of 18 years or sooner dies or marries.

Applying the terms of the contract of insurance to these facts, the commission, using its own statement, found the premiums to be as follows:

"The Arizona Power Company had five accidents during the period from August 20th to December 31st; two of which were compensable. In one case the total cost amounted to $72.08. The other was a case of accident resulting in the death of A. F. Leavitt; the present value of that case computed on expectancy and remarriage tables, discounted at 3 1/2%, gives a total payment to both the wife and child of the deceased of $15,485.74.

"Under their policy of insurance with us, the Arizona Power Company agree to pay premium on a rate which shall be retroactively determined by their actual cost of accidents, exclusive of catastrophe or excess losses. The figure of $14,000.00 has been established as the minimum above which the cost of any accidents, or series of accidents, arising out of one event will be distributed from the excess fund set up out of the 15% additional cost based on their accidents. Consequently, the cost of their accidents for the purpose of establishing a rate has been reduced from $15,557.82 to $14,072.08. Inasmuch as this now represents 85% of the total premium chargeable, we arrive at a figure of $16,555.38, as the total premium due under their policy, which deducting the $4,134.00 advance premium which has been paid leaves a balance due The Industrial Commission of $12,421.38."

There is no question but that the premiums were calculated by the commission in accordance with "the experience rating plan of The Industrial Commission of Arizona." Defendant admits its liability under the policy for compensation actually paid by the commission during the insurance period, but denies the right of the commission to commute the installments payable to the wife and child and to include the commuted payment as part of the actual loss experience. The defendant figures the earned premium for the period from August 20th to December 31st to be $72.08, the compensation actually paid by the commission plus the 15 per cent. loading charge, or a total of $82.88.

Defendant says, and this is one of its defenses, that it had no knowledge of the commission's "experience rating plan" and that the reference thereto in the written indorsement on policy was not sufficient to put it on notice that there was such a plan. From this premise it argues that there was no meeting of minds and therefore no contract.

It also contends that the "actual loss experience," as used in policy, means, and was so understood by it, losses paid during insurance period, and does not include losses incurred but to be paid in the future, such as the compensation to the wife and child.

Defendant also contends that the Compensation Act gives to the employer the right to pay compensation to the surviving dependents of the deceased in installments over a period of years, and that it is entitled to have and exercise such rights, and that any contract depriving it of that right is discriminatory, unconstitutional, and void.

It also contends that the self-rating policy is not one of the policies authorized by the Compensation Act, and that therefore it is ultra vires the powers of the commission and void.

The trial court sustained the contentions of the defendant and, in accordance with the defendant's prayer, ordered the commission to make an accounting, and upon such accounting being made entered judgment against the commission for a balance after deducting $72.08 and partial payments made to the widow and child up to July 26, 1928, such judgment being for the sum of $2,189.33. The commission appeals.

We will consider defendant's contentions in the order as above stated.

The commission's self-rating plan was a very real and important part of the insurance contract, for upon such plan the premiums were to be calculated and ascertained. This is what is said in the indorsement upon the policy, made a part thereof:" . . . The rate or rates of premium for this policy shall be subject to the experience rating plan of The Industrial Commission of Arizona." Unless the defendant gave its consent to the incorporation of the self-rating plan into the contract by reference, such plan is no part of the contract, but if it did consent thereto, the defendant is presumed to know its full purport and meaning, even though as a fact it did not. It has long been settled, without a dissenting voice, that parties may incorporate into agreements by mere reference other writings or agreements or records and thereby make the latter an essential part of their contract. If one writing refers to another, the intention of the parties is to be gathered from the two instruments. We cite a few of the many authorities on this rule: Gill v. Manhattan Life Ins. Co., 11 Ariz. 232, 95 P. 89; Whittlesey v. Herbrand Co., 217 Mich. 625, 187 N.W. 279; Short v. Van Dyke, 50 Minn. 286, 52 N.W. 643; Cary v. Holt's Executors, 120 Va. 261, 91 S.E. 188; Aetna Life Ins. Co. v. Bradford, 45 Okl. 70, Ann. Cas. 1918C 373, 145 P. 316; Green v. National Casualty Co., 87 Wash. 237, 151 P. 509; Beedy v. San Mateo Hotel Co., 27 Cal.App. 653, 150 P. 810.

On March 8, 1926, the commission adopted and spread upon its minutes an "Outline of the Experience Rating Plan . . . Applicable to Employers Insuring with the Commission on a Self-Rating Basis." When the present contract was entered into such "outline" was a public record, open to inspection by defendant. If before entering upon negotiations for self-insurance defendant was without knowledge of such record, it learned thereof before the contract was executed, for the contract itself referred to the self-rating plan as the basis of rate fixing.

It is said in 32 Corpus Juris, 1164, section 275:

"Reasonable rules and regulations of the company for the conduct of its business are as binding upon the company and insured dealing with the company after notice thereof, as if they had been declared in express terms to be a part of the contract."

We think the self-rating plan of the commission should be treated as actually inserted at length into the contract of insurance and together with the latter construed as the contract made by the parties.

Indeed we are persuaded that defendant's chief, and perhaps only, grievance against the contract of insurance grows out of the application of the self-rating plan in arriving at the earned premium. The discrepancy in what defendant admits owing and what plaintiff claims is very great. Why parties of admitted experience and intelligence should construe the contract, one as calling for an earned premium of $82.88 and the other of an earned premium of $16,555.38, is cause for wonder. It all comes from the...