Keniston v. American Nat. Ins. Co.

• Decision Date: 23 April 1973
• Citation: Keniston v. American Nat. Ins. Co., 107 Cal.Rptr. 583, 31 Cal.App.3d 803 (Cal. App. 1973)
• Parties: John B. KENISTON, etc., Plintiff and Appellant, v. AMERICAN NATIONAL INSURANCE COMPANY, Defendant and Respondent. Civ. 40523.
• Court: California Court of Appeals

Page 583

107 Cal.Rptr. 583

31 Cal.App.3d 803

John B. KENISTON, etc., Plintiff and Appellant, v.AMERICAN NATIONAL INSURANCE COMPANY, Defendant and Respondent.

Civ. 40523.

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

April 23, 1973.

Hearing Denied July 6, 1973.

David Daar, Leon Perlsweig and Florence Bernstein, Los Angeles, for plaintiff and appellant.

Buchanan & Tollefsen, R. L. Tollefsen, Los Angeles, and Robert S. Besser, Sausalito, for defendant and respondent.

Styskal, Wiese & Melchione and Alvin O. Wiese, Jr., North Hollywood, Gibson, Dunn & Crutcher, Robert S. Warren and James R. Martin, Sheppard, Mullin, Richter & Hampton, William A. Masterson and Pierce T. Selwood, Los Angeles, Sullivan, Roche & Johnson and Theodore A. Kolb, San Francisco, Mori & Katayama and Arthur S. Katayama, Donnelly, Clerk, Chase & Haakh and Claire D. Johnson, Irell & Manella and Charles H. Phillips, and Mitchell, Silberberg & Knupp and Arthur Groman, Los Angeles, amici curiae.

DUNN, Associate Justice.

Plaintiff appeals from a summary judgment entered in favor of defendantAmerican National Insurance Company in a class action plaintiff filed against American, Budget Financial Corporation and Budget Finance Plan.

The action was brought to recover a portion of credit insurance premiums allegedly refunded by American to Budget pursuant to the provisions of group credit life and group credit disability insurance policies which American issued to Budget, and under which plaintiff and the other members of the class became insured upon borrowing money from Budget and paying premiums for coverage under the group policies.

The complaint alleged: defendantsBudget Financial Corporation and its subsidiary, Budget Finance Plan, are licensed personal property brokers under the laws of California; defendant American is an insurance company authorized to transact, and transacting, business in California; beginning in 1959 American issued to Budget various policies of group credit life and group credit disability insurance which provided that persons borrowing money from Budget could become insured thereunder against the contingency of death or disability, or both, with regard to their indebtedness to Budget; when a borrower was included as an insured under the group policy, he was charged a premium which was added to the amount of his loan, and he received a certificate from American indicating that he was insured under the master policy issued to Budget; the class represented by plaintiff included all persons who borrowed money from Budget after 1959 and became insured under the master policy upon paying the required premium; at all times the claim and loss experience of American with regard to the group credit insurance written for Budget was favorable and, 'during each of the years dealt with herein,'¹ American returned a sum of money to Budget in the form of 'dividends' or 'premium refunds'; substantially all of the premiums were paid by plaintiff class, and the premium refunds exceeded Budget's contributions and expenses of administering the policies; therefore, under Ins.Code §§ 10214and10270.65, the sums were the property of the members of the class; the entire amount of each of the premium refunds paid by American to Budget was retained by Budget for its own use and was not paid to, or applied for the benefit of, the class, as required by §§ 10214and10270.65.

It was further alleged: defendants participated in a 'common plan' whereby Budget deliberately procured credit insurance from American at excessively high rates, and American refunded a substantial portion of the premiums to Budget as an incentive for transacting business with American; thus the refunds constituted unlawful rebates or 'kickbacks'; American knew that such payments exceeded the expenses of Budget in administering the insurance, that Budget therefore was entitled to only a small portion of the payments, and that it would retain the entire payments for its own use to the exclusion of plaintiff and his class; as an insurance carrier, American owed plaintiff class a duty to protect its interests under the policy and the law; American violated this duty by paying premium refunds to Budget with knowledge that Budget would keep the sums so paid for its own benefit.

Pursuant to leave of court, plaintiff filed an amendment to the complaint alleging: Budget was authorized by plaintiff class to purchase credit insurance on its behalf; therefore, in purchasing the insurance Budget was acting as the 'agent and fiduciary' of the class, and in such capacity had a duty to obtain credit insurance at the lowest possible rate; instead, Budget sought out the highest rate as part of the plan to make a profit for itself at the expense of plaintiff class; Budget was acting as agent for American by collecting the premiums from the class members and remitting the premiums to American; the acts of Budget in receiving and retaining profits from American were within the scope of its agency; therefore American, as principal, was responsible for the wrongful acts of Budget.

Based upon the foregoing allegations plaintiff, on behalf of himself and all members of the class, sought judgment for $100,000 compensatory damages ² and $100,000 punitive damages.

American and Budget filed answers denying all allegations of the complaint and the amended complaint.These answers also pleaded affirmative defenses, including various statutes of limitation.Thereafter, American moved for summary judgment.(Code Civ.Proc. § 437c).Supporting and opposing declarations were filed.The motion was granted and summary judgment was entered in favor of American.³On this appeal, plaintiff contends that American 'failed to controvert all causes of action alleged in the complaint.'By this statement, appellant apparently means that the declarations filed in support of the motion did not set forth facts sufficient to entitle respondent to judgment in its favor as to each of the various theories of recovery set forth in the complaint.

Appellant sought recovery, first, on the theory that under Ins.Code §§ 10214and10270.65he and the class members were entitled to all of the premium refunds paid by respondent to Budget except that portion which represented Budget's contributions and costs of administering the credit insurance program.Section 10214 provides: 'If hereafter any dividend is paid or any premium refunded under any policy of group life insurance heretofore or hereafter issued, the excess, if any, of the aggregate dividends or premium refunds under such policy over the aggregate expenditures for insurance under such policy made from funds contributed by the policyholder, or by an employer of insured persons or by union or association to which such insured persons belong, including expenditures made in connection with the administration of such policy, shall be applied by the policyholder for the benefit of such insured employees generally or their dependents or insured members generally or their dependents. . . .'Section 10270.65 contains identical provisions with respect to a policy of group disability insurance.

Appellant also sought recovery on theories which may be summarized as follows: (1)respondent violated its duty to appellant by charging excessive rates for credit insurance, and by failing to see that Budget paid members of the insured class their rightful share of the premium refunds; (2) Budget acted as respondent's agent in administering the credit insurance program, and therefore respondent was liable for Budget's allegedly wrongful act of withholding premium refunds from the class; and (3)respondent and Budget engaged in a conspiracy whereby unlawful rebates were paid by respondent to Budget.

Among other affidavits submitted by American in support of its motion for summary judgment was that of W. L. Harlan, which stated, preliminarily, that: from September 15, 1966, to July 1970⁴he was the manager of respondent's credit insurance division; in this position he had charge of the issuance and administration of all group policies of credit life and credit disability insurance issued by respondent; in the course of performing these duties, affiant had acquired personal knowledge of the facts set forth, and if sworn as a witness he could testify competently to such facts.Mr. Harlan then stated: respondent issued several group policies of credit life and credit disability insurance to Budget Finance Plan; these policies contained the following identical provisions: 'Premium rates may be subject to readjustment at the end of each policy year in accordance with the Company's experience rating plan.Any reduction in premium rates may be made retroactive for the previous year and a consequent refund of premium for that year may be paid to the Creditor'; pursuant to this provision respondent paid Budget an experience rating refund each year from 1967 to 1970, inclusive; all group credit life and credit disability insurance policy and certificate forms issued by respondent to Budget, and the premium rates to be used in connection therewith, were filed with and approved by the insurance commissioner pursuant to Ins.Code § 779.1 et set.; the commissioner set the maximum premiums which could be charged for coverage under the group policies; respondent did not know nor has it any information concerning the costs or expenditures of Budget in connection with its administration of the group policies; there never was any agreement or understanding between respondent and Budget as to the application, disposition or retention by Budget of any of the money paid to it by respondent as experience rating refunds.

These statements were adopted in a supporting affidavit of J. P. Rulien, who became senior vice president of respondent's credit insurance division in July 1970.Mr. Rulien stated: since that date he had been in charge of the issuance and administration of all...