Troyk v. Farmers Group, Inc., D049983.

CourtCalifornia Court of Appeals
Writing for the CourtMcDonald
Citation171 Cal.App.4th 1305
PartiesTHOMAS E. TROYK, Plaintiff and Respondent, v. FARMERS GROUP, INC., et al., Defendants and Appellants; PREMATIC SERVICE CORPORATION et al., Movants and Appellants.
Docket NumberNo. D049983.,D049983.
Decision Date10 March 2009
171 Cal.App.4th 1305
THOMAS E. TROYK, Plaintiff and Respondent,
FARMERS GROUP, INC., et al., Defendants and Appellants;
PREMATIC SERVICE CORPORATION et al., Movants and Appellants.
No. D049983.
Court of Appeals of California, Fourth District, Division One.
March 10, 2009.

[171 Cal.App.4th 1314]

Gibson, Dunn & Crutcher, Theodore J. Boutrous, Jr., Gail E. Lees, Christopher Chorba, James L. Zelenay, Jr., Kahn A. Scolnick; Skadden, Arps, Slate, Meagher & Flom, Raoul D. Kennedy, Douglas B. Adler and Darrel J. Hieber for Defendants and Appellants.

Fulbright & Jaworski, Richard R. Mainland, Peter H. Mason and Eric A. Herzog for Movants and Appellants.

Coughlin Stoia Geller Rudman & Robbins, Timothy G. Blood, Pamela M. Parker, Kevin K. Green and Leslie E. Hurst for Plaintiff and Respondent.



Plaintiff Thomas E. Troyk filed a class action against defendants Farmers Group, Inc., doing business as Farmers Underwriters Association (FGI), and Farmers Insurance Exchange (FIE) (together Farmers) alleging causes of action for breach of contract and violation of Business and Professions Code section 17200 et seq. (unfair competition law; hereafter UCL). He alleged FIE required him to pay a service charge for the payment of the premium for his automobile insurance policy's one-month term and, because the service charge was not stated in his policy, FIE violated the requirement of Insurance Code section 381, subdivision (f),1 that "premium" be stated in an insurance policy.

The trial court granted Troyk's request for class certification, granted Troyk's motion for summary judgment, and denied Farmers' motion for summary judgment. The court then entered judgment awarding Troyk and the other class members $115,556,827 for service charges paid by those members.

On appeal, Farmers contend (1) the trial court erred by interpreting the term "premium," as used in section 381, subdivision (f), to include the service charge imposed for payment in full of the stated premium for the policy's one-month term; (2) even if the service charge is premium, they complied, either actually (because of incorporation by reference to other documents) or substantially, with section 381, subdivision (f)'s disclosure requirement; (3) the court erred by concluding Troyk proved his breach of contract and UCL causes of action and by awarding the class members full

171 Cal.App.4th 1315

restitution for the service charges they paid; and (4) the judgment violates their constitutional right to due process of law.

Following oral argument in this appeal, we requested, and have received and considered, supplemental briefing by the parties on the issues whether (1) Troyk had standing under Business and Professions Code section 17204 to bring this action; and (2) the issue of standing was raised in the trial court by Farmers and, if not, has that issue been waived.

Because we interpret the term "premium," as used in section 381, subdivision (f), to include a service charge imposed for the payment in full of the stated premium for an insurance policy's one-month term, we conclude Farmers violated that statute's disclosure requirement. However, because in moving for summary judgment Troyk did not show there is no triable issue on the element of causation regarding his standing to prosecute the UCL cause of action, we conclude the trial court erred by granting his motion for summary judgment.


FIE is a reciprocal or interinsurance exchange organized under California law (§ 1280 et seq.) and is licensed to sell insurance in California and Nevada. FIE is owned by its subscribers, who are deemed its insureds. (§ 1303 ["[E]ach subscriber shall be deemed an insured."].) FGI is a Nevada corporation, but not an insurance company, and is the attorney-in-fact for FIE and performs certain administrative services for FIE. Both FIE, as an insurer, and FGI, as its attorney-in-fact, are "subject to and regulated by all of the provisions of [the Insurance Code]," except as otherwise exempted. (§ 1281.) Prematic Service Corporation, a California corporation (Prematic California), is a wholly owned subsidiary of FGI. Prematic Service Corporation, a Nevada corporation (Prematic Nevada), is a wholly owned subsidiary of Prematic California. The sole business of Prematic California and Prematic Nevada (together Prematic) is to handle monthly billing for customers of FIE and other insurance companies by agreements with those customers.

FIE offers automobile insurance with policy terms of either six months or one month. If an insured chooses a six-month term, the premium is payable in either one lump sum or two installments (under FIE's two-pay plan). If the insured chooses a one-month term, FIE in effect converts its six-month policy into a one-month policy by issuing an endorsement called the "Monthly Payment Agreement" (i.e., endorsement form No. E0022), which provides:

"In consideration of the premium deposit, we agree to the following:

171 Cal.App.4th 1316

"(1) The policy period is amended to one Calendar month. It will commence with the effective date shown in the Declarations.

"(2) The policy shall continue in force for successive monthly periods if the premium is paid when due. The premium is due no later than on the expiration date of the then current monthly period.

"(3) The monthly premium shall be subject to future adjustment. Such adjustment will apply the then current rate on the semi-annual or annual anniversary of the policy whichever is indicated in the Declarations as applicable.

"This endorsement is part of your policy. It supersedes and controls anything to the contrary. It is otherwise subject to all other terms of the policy." (Italics added.) However, to obtain a one-month, or monthly, term policy, FIE first requires that the insured enter into an agreement with Prematic (Prematic Agreement), pursuant to which Prematic agrees to send a monthly premium bill to the insured (requesting payment by check payable to Prematic) and, on receipt of the premium payment and its service charge (e.g., $5 per payment), forward the insured's payment to FIE (less Prematic's service charge).2

In 1991 Troyk purchased an automobile insurance policy from FIE, which policy has since been continuously renewed. He chose to pay the stated premium monthly, rather than every six months, and, accordingly, entered into the Prematic Agreement discussed above. FIE then issued to Troyk its standard form of six-month policy, but with the Monthly Payment Agreement endorsement (form No. E0022) amending the six-month term to a one-month term. As renewed in 2005, the policy's declarations page lists the total premium to be paid over the course of six months, but leaves blank the space adjacent to the item "fees" and therefore does not include, either separately or as part of the total premium, any statement of Prematic's service charges. Furthermore, adjacent to the item "Total" is typed "Prematic" (rather than a dollar amount). The declarations page includes a reference to the Monthly Payment Agreement endorsement (form No. E0022) and lists the number assigned to Troyk's agreement with Prematic (i.e., "PREMATIC NO[.] A641249"). Since 1991, Troyk has received monthly bills from Prematic for FIE's stated premiums and Prematic's service charges, and has made payments to Prematic for the billed amounts (including its service charges).

171 Cal.App.4th 1317

In October 2004 Troyk filed the instant class action. In December, he filed the operative first amended complaint alleging causes of action for breach of contract and violation of the UCL. In particular, Troyk alleged he "has suffered an injury in fact and has lost money as a result of the conduct alleged." He further alleged:

"14. Farmers offers its personal lines automobile insurance policyholders two options for the term of insurance coverage. Under the first option, Farmers offers insurance coverage for a term of six months. Under the second option, Farmers offers insurance coverage for a term of one month.

"15. Regardless of whether the term of coverage is for one month or six months, the premium Farmers asserts it charges is the same for otherwise identical coverage and risk. That is, the premium Farmers states in its insurance policy is the same per month regardless of the length of the term.

"16. In fact, regardless of whether an insured chooses a six month term or one month term, Farmers uses the same policy and the same Declarations page, which lists the same premium amount for a six month period. If the insured desires a monthly term, Farmers adds an endorsement to the policy, which modifies the policy from six months to one month, for a premium that is one-sixth the premium for a six month term. The endorsement states that `[t]he policy period is amended to one Calendar month.' ...

"17. Although the Declarations page states the total amount of premium, Farmers nonetheless charges policyholders who purchase insurance by the month additional premium which it euphemistically refers to as a `service charge.' The service charge is not included anywhere in the policy, but is nonetheless added in addition to the premium stated in the policy.

"18. [Troyk] has purchased automobile insurance from Farmers.... The Declarations page of the policy period beginning on May 25, 2004 states that the premium for the policy for six months is $345.40.

"19. [Troyk] did not buy six months of insurance coverage. Instead, [he] bought insurance for a one month term. Like all policyholders who purchase a Farmers policy in one month terms, [his] policy contains the endorsement which states that `[t]he policy period is amended to one Calendar month.'

"20. Instead of charging [Troyk] one-sixth of the six month premium quoted on the Declarations page, Farmers improperly charged [him] an additional monthly premium of $5.00.

171 Cal.App.4th...

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