Russell v. Bankers Life Co.

CourtCalifornia Court of Appeals
Citation46 Cal.App.3d 405,120 Cal.Rptr. 627
Decision Date24 March 1975
PartiesAustin Brooks RUSSELL, Plaintiff and Appellant, v. BANKERS LIFE COMPANY and Does I through X, Defendants and Respondents. Civ. 45009.

Gottlieb, Gottlieb & Stein, Inc., by Arthur J. Gottlieb, Long Beach, for plaintiff and appellant.

Lillick McHose, Wheat, Adams & Charles and Michael D. Dempsey, Los Angeles, for defendant and respondent Bankers Life Co.

STEPHENS, Associate Justice.

This is an appeal from a judgment rendered in favor of respondent Bankers Life Company in an action denominated by appellant Austin B. Russell in his complaint as one 'for declaratory relief and for money.' The main issue revolves around the interpretation of a group disability insurance policy issued by respondent to appellant's employer, George Chevrolet. Since the underlying facts in this case are not in dispute and the issue is whether the court properly interpreted the contested insurance policy provision, we adopt generally the statement of facts as set forth in respondent's brief.

Appellant was employed by George Chevrolet as a service writer. While there, he was covered under Chevrolet's Workmen's Compensation insurance policy issued by Allstate Insurance Company. Pursuant to his employment, appellant was also eligible for long-term group disability insurance through respondent. On April 1, 1971, in consideration of payment of specified premiums, respondent issued to appellant a certificate of insurance under the group policy with Chevrolet. The record shows that appellant was never provided with a copy of the disability policy. Even appellant's attorney was furnished only excerpts from the master policy (which was maintained in Des Moines, Iowa) when he requested a copy of the policy. The covering letter transmitting the excerpts stated that the group policyholder (George Chevrolet) had a complete copy. Appellant, however, had been given a copy of an 'insurance booklet,' the first page of which states: 'This booklet describes your insurance plan and it is your certificate while you are insured. We suggest you read it carefully so that you will be well acquainted with all the benefits to which you are entitled. The Group Policy determines all rights and benefits which are briefly outlined in this booklet. The benefits of this plan are designed to help you obtain the financial security that adequate protection can bring. (s) H. G. Allen President.' The following are pertinent portions of the excerpts which were later furnished to appellant's attorney:

Section 12 of the policy provides:

'If a Person becomes totally disabled while he is insured under this Policy and if such total disability continues without interruption during the qualifying period, the Company, during the continuance of such total disability and subject to all provisions of this Policy, will pay to the Person the monthly income which accrues in accordance with the provisions of Section 13--Schedule of Insurance . . ..'

Section 15 of the policy, entitled 'Coordination of Benefits,' reads in part:

'If a Person is eligible for income from other sources for any month in which a benefit is payable under this Policy, the monthly benefit which accrues under this Policy shall be limited to an amount which, when added to such income from other sources does not exceed 70% Of the Person's covered monthly compensation. For the purposes of this policy, income from other sources shall be the sum of:

'(a) any payments for which the person and any of his dependents are eligible under the Federal Social Security Act; and

'(b) any payment for which the Person is eligible under a Workmen's Compensation Act or other similar legislation, or under any plan (including compulsory plans) providing benefits for loss of time from employment to which the Group Policyholder contributes or makes payroll deductions (emphasis added); and

'(c) any payment the Person receives under any salary continuation or retirement plan of the Group Policyholder; and

'(d) 60% Of any payment the Person receives as wage or profit in accordance with the provisions of Section 14--Rehabilitation Benefit; and

'(e) any payment for which the Person is eligible under the California Unemployment Insurance Code.'

Application of the coverage under the insurance purchased by appellant came into question on August 5, 1971, when appellant sustained an injury while on the job and became totally disabled. On September 13, 1971, he submitted to respondent an application for the commencement of payment of benefits under the long-term disability policy (from which the above quoted portions have been set forth). Appellant had begun receiving Workmen's Compensation temporary disability benefits on August 16, 1971 from the underwriter, Allstate Insurance Company; between August 16, 1971 and January 9, 1972, appellant received $1,837.50 in such benefits, and an additional $315 for permanent disability payments, also from Allstate. 1 On October 4, 1972, appellant entered into a lump sum compromise and release agreement with Allstate for $8,925.55. The amount appellant realized under this agreement was $7,889.76. 2 The agreement was approved by the Workmen's Compensation Appeals Board. (Lab.Code, § 5001.) The total payments (temporary disability, permanent disability, and lump sum) from the Workmen's Compensation underwriter and California Unemployment Disability Insurance amounted to $10,352.97.

In November 1972, in accordance with Section 15(b) of its long-term disability policy, respondent began withholding benefits from appellant which, according to respondent, were to continue 'until the benefits equalled the amount appellant received under the Workmen's Compensation Act.' 3 In March 1973, appellant brought this action for declaratory relief and for money, claiming that the policy provisions for coordination of benefits under Section 15(b) of the policy were ambiguous and should be applied only to the extent that payments under the Workmen's Compensation Act provide 'benefits for loss of time from employment.' Appellant further argues that the Workmen's Compensation lump sum settlement was for further and lifetime medical care, medical legal costs, lien claims, earnings, and other items. To the extent that the settlement did not compensate for lost earnings, appellant contends that no offset should be made from the disability insurance benefits.

The trial court found: (1) that there is no ambiguity in the contract; (2) that the comma in Section 15(b) 4 of respondent's policy separates two phrases; (3) that the phrase 'Workmen's Compensation or other similar legislation' refers to any payment for whatever purpose made under California's Workmen's Compensation or other similar legislation; and (4) that respondent need not establish that any Workmen's Compensation payments were made to provide a benefit for 'loss of time' from employment. The trial court concluded that respondent was entitled to coordinate its benefits with payments received by appellant under the Workmen's Compensation Act and to determine the monthly equivalent which equitably adjusts for the amount of the lump sum payment received by appellant.

Interpretation of Insurance Policies

Certain fundamental rules have evolved with reference to the interpretation of insurance contracts. If any ambiguity or uncertainty exists, an insurance policy is to be construed strictly against he insurer, and most liberally in favor of the insured. (State Farm Mut. Auto Ins. Co. v. Johnston, 9 Cal.3d 270, 274, 107 Cal.Rptr. 149, 507 P.2d 1357.) The standard to be used in construing such contracts is the understanding of the ordinary reasonable person. (Arenson v. Nat'l Automobile & Cas. Ins. Co., 45 Cal.2d 81, 83, 286 P.2d 816.) The rule of strict construction against the insurer and liberal construction in favor of the insured is particularly applicable where the policy purports to exclude coverage or substantially limit liability. 5 The burden rests on the insurer to phrase such exclusions and limitations in plain, clear, and conspicuous language. (Thompson v. Occidental Life Ins. Co., 9 Cal.3d 904, 921, 109 Cal.Rptr. 473, 513 P.2d 353.) However, when the terms of the policy are plain and explicit, the courts will not indulge in a forced construction so as to fasten a liability on the insurance company which it has not assumed. (New York Life Ins. Co. v. Hollender, 38 Cal.2d 73, 81, 237 P.2d 510.) 'While . . . any ambiguity in an insurance contract will be resolved adversely to the insurer, such rule is not without limitation. Some actual or apparent ambiguity must be present before the rule comes into play . . . (otherwise) the plain language of the limitation must be respected.' (Wetzler v. State Farm Mut. Auto Ins. Co., 246 Cal.App.2d 472, 476, 54 Cal.Rptr. 756, 758; see also McMillan v. State Farm Ins. Co., 211 Cal.App.2d 58, 62--63, 27 Cal.Rptr. 125.)

Interpretation of the Instant Insurance Policy

The construction of the instant policy is one of law because it is based upon the terms of the insurance contract. Accordingly, we are not bound by the trial court's interpretation of the policy, and it is our duty to make the final determination in accordance with the applicable principles of law. (Parsons v. Bristol Development Co., 62 Cal.2d 861, 865, 44 Cal.Rptr. 767, 402 P.2d 839; Estate of Platt, 21 Cal.2d 343, 352, 131 P.2d 825.) The test we must apply in construing the policy may be summarized as follows: This court must resolve uncertainties in favor of the insured and interpret the policy provisions according to the layman's reasonable expectations. (See Gray v. Zurich Insurance Co., 65 Cal.2d 263, 271, 54 Cal.Rptr. 104, 419 P.2d 168; Logan v. John Hancock Mut. Life Ins. Co., 41 Cal.App.3d 988, 993, 116 Cal.Rptr. 528.)

Respondent argues that Section 15(b) of the policy is plain and unambiguous; that it refers to two...

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