Schmidt v. Pacific Mut. Life Ins. Co.

• Decision Date: 10 January 1969
• Citation: 268 Cal.App.2d 735,74 Cal.Rptr. 367
• Court: California Court of Appeals Court of Appeals
• Parties: Earl L. SCHMIDT, Plaintiff and Appellant, v. PACIFIC MUTUAL LIFE INSURANCE COMPANY, a corporation, Defendant and Respondent. Civ. 24560.

Page 367

74 Cal.Rptr. 367

268 Cal.App.2d 735

Earl L. SCHMIDT, Plaintiff and Appellant, v. PACIFIC MUTUAL LIFE INSURANCE COMPANY, a corporation, Defendant and Respondent.

Civ. 24560.

Court of Appeal, First District, Division 3, California.

Jan. 10, 1969.

Hearing Denied March 5, 1969.

Morgan, Beauzay & Hammer, Philip L. Hammer, San Jose, for appellant.

Malovos, Mager & Chasuk, San Jose, for respondent.

SALSMAN, Associate Justice.

Appellant Earl L. Schmidt filed an action against respondent Pacific Mutual Life Insurance Company seeking declaratory relief concerning his rights under a policy of insurance issued by respondent and entitled 'New Accident and Sickness Disability Benefits' policy. After a hearing and an examination of the policy the trial court concluded that appellant was not entitled to relief and entered judgment to that effect. From our review of the record and consideration of the applicable principles of law we have reached a contrary conclusion and therefore reverse the judgment, with directions to enter judgment for the appellant.

There is no dispute as to the facts. Appellant purchased a health and accident contract from respondent in 1944. On March 20, 1961 appellant sustained an injury while at work. He finished his shift, however, and then went to see a doctor. After an examination, the doctor recommended treatment by a physiotherapist. Thereafter appellant took physiotherapy treatments at least three times each week. Although he suffered back pain and was 'in a lot of misery' he continued to work for 75 days after his March 20th injury. By June 5, 1961 his condition was such that he could not perform even minor tasks connected with his work and accordingly he left his employment on that date and has been unable to work since. At trial, there was no evidence presented to refute his claim that the March 20th accident and injury caused him to become totally disabled and thereby unable to engage in any occupation or employment for profit.

Before discussing the terms of the contract in issue here and rules of construction applicable to it, something must be said about the general nature of the contract itself. A photographic copy of the contract is before us, as part of the clerk's transcript. It consists of a lengthy printed form. There is nothing in its several parts that relates directly to appellant as an individual except the number given the contract, the amount of the premium, appellant's name and occupation, the date and the dollar amount of benefits payable. The remainder of the contract, a lengthy one, is a sea of print, closely defining such things as 'accident benefits', 'sickness benefits,' hospital benefits, total disability, and containing numerous provisions entitled 'Exceptions and Reductions' followed by extensive 'Standard Provisions' and 'Additional Provisions'. An examination of the contract makes plain that it is one entirely written by the insurance company, reduced to a standard printed form, and is of the kind commonly carried as inventory by insurance companies doing a health and accident business. It is a matter of common knowledge that such contracts are tendered to the public on a 'take it or leave it' basis, and that little if any genuine bargaining takes place between the insurance company and the purchaser of the insurance.

Contracts such as the one now before us have been described as contracts of adhesion by which is meant '* * * a standardized contract which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.' (Kessler, Contracts of Adhesion (1943), 43 Colum.L.Rev., p. 629.) Despite the fact that such contracts are the product of mass production and afford the party to whom they are tendered little if any room in which to bargain, the are perfectly valid, indeed useful, in the absence of ambiguity are enforced according to their terms. (Neal v. State Farm Ins. Cos., 188 Cal.App.2d 690, 694, 10 Cal.Rptr. 781.) If a contract of adhesion is found to be ambiguous, the same well recognized rules of construction are applied to it as are applied to other contracts. (See Maxon v. Security Ins. Co., 214 Cal.App.2d 603, 611, 29 Cal.Rptr. 586 for a detailed recital of rules of construction as applied to insurance contracts.) Three of the rules expressed in Maxon are: (1) Any ambiguity or uncertainty in the contract is to be resolved against the insurer; (2) if semantically permissible, the contract will be given such construction as will fairly achieve its object of securing indemnity to the insured for losses to which the insurance relates; and (3) if the insurer uses language which is uncertain, any reasonable doubt will be resolved against it. To this list of rules our Supreme Court has added two refinements, peculiarly applicable to contracts of adhesion, especially insurance contracts. Thus, in Atlantic Nat. Ins. Co. v. Armstrong, 65 Cal.2d 100, 112, 52 Cal.Rptr. 569, 416 P.2d 801, in reference to an insurance contract, the court noted that the form must be interpreted in the light of the reasonable and normal expectations of the parties as to the extent of the coverage; and in Steven v. Fidelity Casualty Co., 58 Cal.2d 862, 878, 27 Cal.Rptr. 172, 182, 377 P.2d 284, 294, the court, speaking of an exclusionary clause in such a contract, declared: 'If it (the insurer) deals with the public upon a mass basis, the notice of non-coverage of the policy, in a situation in which the public may reasonably expect coverage, must be conspicuous, plain and clear.' (See also Gray v. Zurich Insurance Co., 65 Cal.2d 263, 271, 54 Cal.Rptr. 104, 419 P.2d 168.)

The first question we must answer here is whether...