Industrial Indem. Co. v. Golden State Co.

Decision Date30 October 1957
Citation49 Cal.2d 255,316 P.2d 966
CourtCalifornia Supreme Court
PartiesINDUSTRIAL INDEMNITY COMPANY (a Corporation), et al., Plaintiffs and Respondents, v. GOLDEN STATE COMPANY, Ltd. (a Corporation), et al., Defendants, G. W. Thomas Drayage & Rigging Company, Inc. (a Corporation), et al., Defendants and Appellants, The Robert L. Johnson Corporation (a Corporation), Intervener and Appellant. S. F. 19389.

Belcher, Kearney & Fargo, Frank B. Belcher, Kenny & Morris, Robert W. Kenny, Los Angeles, Jerome Politzer, San Francisco, Morris E. Cohn, Beverly Hills, and Hyman & Hyman, San Francisco, for defendants and appellants.

Park Chamberlain and Earl C. Berger, San Francisco, for intervener and appellant.

Thelen, Marrin, Johnson & Bridges and Edward J. Ruff, San Francisco, for respondents.

McCOMB, Justice.

Industrial Indemnity Exchange (hereinafter referred to as Exchange) was a reciprocal insurance organization handling workmen's compensation insurance. Industrial Indemnity Company (hereinafter referred to as Company) also handled workmen's compensation insurance. There was considerable interrelation between Exchange and Company but no competition. Industrial Underwriters (hereinafter referred to as Attorney) was the managing entity of Exchange and Company.

In a reciprocal exchange the participants, called underwriters or subscribers, exchange insurance contracts for their mutual protection through the medium of an attorney-in-fact, who also sets rates, settles losses, compromises claims and cancels contracts. Attorney acted in this capacity for Exchange under an agreement known as Underwriters Agreement. In return for its services it received a percentage of the premiums deposited by the subscribers and was required to furnish offices and personnel for Exchange's operations out of this percentage.

Attorney, a partnership with substantially the same stock ownership as Company, also furnished offices and personnel for the latter. The Insurance Commissioner objected to the interlacing by Attorney of its private corporation (Company) and Exchange. He made certain recommendations looking to the separation of the management of these entitles or the elimination of possible conflicting loyalties through a combination of their activities.

An agreement was entered into between Company and Exchange whereby the in policies of Exchange would be transferred to and reinsured by Company as of December 31, 1948. The agreement provided that Company would service and run out all policies then in force and would pay the subscribers of Exchange an amount equal to the value of the entire net worth of Exchange as determined by such runout. Consents were obtained from 98 percent of the subscribers of Exchange to this agreement.

Subsequently Company brought an action for declaratory relief regarding the rights of the nonconsenting subscribers. Crosscomplaints were filed by several sets of these subscribers. After trial, judgment was rendered in favor of Company, and the crosscomplaints were ordered dismissed.

Two separate sets of defendants appealed, (1) G. W. Thomas Drayage & Rigging Company, Inc., W. R. Ballinger & Son, a corporation, and Minna M. Ballinger (hereinafter referred to as defendant Thomas Drayage & Rigging Company), and (2) Robert L. Johnson Corporation, for itself and as representative of all similarly situated co-owner subscribers of Exchange (hereinafter referred to as defendant Johnson Corporation).

On appeal it was held that the contract between Company and Exchange was illegal and void in violation of section 1101 of the Insurance Code. (Industrial Indemnity Co. v. Golden State Co., 117 Cal. App.2d 519, 256 P.2d 677.) The appellate court (1) reversed the judgment in favor of Company and remanded the case to the trial court with directions to deny all declaratory relief to plaintiffs, and (2) stated that 'in the cross-actions, relief will be granted (to appellants) only with respect to the consequences of the illegality of the transfer and assumption agreement. * * *' (See 117 Cal.App.2d at page 540, 256 P.2d at page 690.) It then directed the trial court to grant defendants 'such relief as the court will deem fit to enable them to recover in their representative capacity for subscribers the business and assets obtained by Company in consequence of the agreement herein held to be invalid. * * * ' (See 117 Cal.App.2d at pages 540-541, 256 P.2d at page 691.) (Italics added.)

After the reversal of the trial court's judgment defendant Johnson Corporation filed a petition for judgment and decree pursuant to its interpretation of the effect of the appellate court's remittitur. Defendant Thomas Drayage & Rigging Company moved to strike this petition upon the ground that Johnson Corporation was a mere 'intervenor' and as such not entitled to act on terms of equality with the other defendants. This motion was granted by the trial judge. Thereafter judgment was entered in favor of the defendants in the sum of $323,300.39. From this judgment both defendant Thomas Drayage & Rigging Company and defendant Johnson Corporation appeal.

Appeal of Defendant Thomas Drayage & Rigging Company.

In view of the former decision on appeal the trial court was limited to a determination of this issue: What business and assets were obtained by Company in consequence of the 'Transfer and Assumption Agreement'?

There can be no question that the 'agreement' held to be invalid referred to the Transfer and Assumption Agreement that was the basis of the litigation. An examination of the record discloses that the following findings of fact are sustained by substantial evidence:

'IV. Coincident with the issuance to Underwriters of the Certificate of Authority to act in liquidation of the Exchange, and on November 4, 1953, Company transferred to Underwriters and Underwriters accepted on behalf of Exchange and it subscribers, and with the approval of the Advisory Committee of Exchange, all of the business, property and assets of Exchange remaining in its hands after satisfaction of liabilities of the Exchange and which had been received by Company in consequence of the Transfer and Assumption Agreement. Underwriters has thereafter at all times continued in possession of and presently holds such business, property and assets for distribution to the subscribers of the Exchange in liquidation of its business and affairs. As of March 31, 1954, the net worth, representing the excess of assets over liabilities, including reserves for losses incurred and to be incurred, of the business, property and assets so transferred, exclusive of the Special Surplus Account, was $323,300.39. (Italics added.)

'V. The business, property and assets of Exchange received by Company in consequence of the Transfer and Assumption Agreement and thereafter transferred to Underwriters as found herein, included all assets and liabilities of Exchange as reflected on the balance sheet of December 31, 1948, and which thereafter arose or accrued and all policies of insurance in force on the books of the Exchange as of December 31, 1948, and the entire experience thereon including the development of claims and premiums. All of the business, property and assets of Exchange of every kind or character received by Company from Exchange at any time, and all value attributable thereto have been returned by Company to Underwriters and are included within the net worth as set forth in Paragraph IV of these Findings. The business, property and assets of Exchange do not include any policies written by the Company after December 31, 1948, for or on behalf of any former subscribers of Exchange and the net worth as set forth in Paragraph IV of the findings does not reflect any value with regard to such policies and no accounting of any profits made by Company on such policies is any part of these findings.

'VI. Under the provisions of the Transfer and Assumption Agreement, Company, with regard to policies of insurance in force in the Exchange as of December 31, 1948, took over for its own account that portion of the 1948 policy year occurring after December 31, 1948, and under the provisions of the Transfer and Assumption Agreement no adjustment was to be made to the net worth of the Exchange payable to the subscribers with regard to this portion of the experience on those policies. That portion of the 1948 policy year taken over by Company for its own account developed to be unprofitable. This loss amounted to $156, 600.53. All policies of insurance in force with Exchange as of December 31, 1948 and the entire experience on those policies, including the experience on the entire 1948 policy year, and the entire experience on policies previously issued by Exchange and expired on December 31, 1948, are a part of the business and assets of the Exchange and because of the invalidity of the Transfer and Assumption Agreement are for the account of the Exchange. this entire experience on policies of insurance in force with Exchange as of December 31, 1948, as well as the entire experience on policies previously issued by Exchange and expired on December 31, 1948, is reflected in the amount of net worth as set forth in Paragraph IV of these Findings.

'VII. All policies of insurance at any time issued by the Exchange, including those in force as of December 31, 1948, were issued subject and pursuant to the terms and provisions of an Underwriters' Agreement executed by each of the subscribers. Under the terms of such Underwriters' Agreement, a true copy of which has been received in evidence as Defendants' Exhibit No. 6, Underwriters was appointed as Attorney-in-Fact and was entitled to receive as its fee 25% of all compensation premium deposits received and 5% of all savings credited to each subscriber. The subscribers or any of them did not at any time have any right to any portion of these fees to be paid to Underwriters and such...

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  • Milano v. Edelson
    • United States
    • California Court of Appeals Court of Appeals
    • April 11, 2013
    ...(See Sargon Enterprises, Inc. v. University of Southern California, supra, 55 Cal.4th at p. 773.) Industrial Indem. Co. v. Golden State Co. (1957) 49 Cal.2d 255, 271-272 cited by Milano, for the proposition that the trial court had discretion to award interest, is inapposite. The discussion......

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