Unisys Corp. v. California Life & Health Ins. Guarantee Ass'n, A072015

• Decision Date: 28 April 1998
• Docket Number: No. A072015,A072015
• Citation: 63 Cal.App.4th 634,74 Cal.Rptr.2d 106
• Parties: , 22 Employee Benefits Cas. 1157, 98 Cal. Daily Op. Serv. 3189, 98 Daily Journal D.A.R. 4386 UNISYS CORPORATION, Plaintiff and Appellant, v. CALIFORNIA LIFE AND HEALTH INSURANCE GUARANTEE ASSOCIATION, Defendant and Respondent.
• Court: California Court of Appeals Court of Appeals

Page 106

74 Cal.Rptr.2d 106

63 Cal.App.4th 634, 22 Employee Benefits Cas. 1157,

98 Cal. Daily Op. Serv. 3189,

98 Daily Journal D.A.R. 4386

UNISYS CORPORATION, Plaintiff and Appellant, v. CALIFORNIA LIFE AND HEALTH INSURANCE GUARANTEE ASSOCIATION, Defendant and Respondent.

No. A072015.

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

April 28, 1998.

As Modified on Denial of Rehearing May 21, 1998.

Review Denied Aug. 12, 1998. ^*

Ballard Spahr Andrews & Ingersoll, David H. Pittinsky, Lawrence D. Berger, Philadelphia, PA, McKenna & Cuneo, Susan A. Mitchell and Cynthia Beckwith, Los Angeles, for plaintiff and appellant.

Adams, Duque & Hazeltine, Los Angeles, Ann Sparkman, San Francisco, Randy G. Gerchick, Los Angeles, Thelen, Marrin, Johnson & Bridges and James R. Willcox, San Francisco, for defendant and respondent.

Kerr, Irvine, Rhodes & Ables, James W. Rhodes, Oklahoma City, OK, Anthony Buonaguro, John Del Campo, National Organization of Life and Health Insurance Guaranty Associations, Herndon, VA, amici curiae on behalf of defendant and respondent.

CORRIGAN, Associate Justice.

This litigation arises out of the failure of Executive Life Insurance Company (Executive Life) and resultant losses suffered by participants in two Unisys Corporation 401(k) plans that had invested in Executive Life guaranteed investment contracts. The specific question on appeal is whether the California Life and Health Insurance Guarantee Association Act ¹ (the Act) excludes from its coverage all guaranteed investment contracts. Respondent California Life and Health Insurance Guarantee Association (CLHIGA) contends that it does. ² Appellant Unisys Corporation (Unisys) asserts that the Act excludes only those guaranteed investment contracts that are "unallocated annuity contracts" within the meaning of the Act.

We hold that the Act, by its plain language, excludes all guaranteed investment contracts from coverage. We therefore affirm the grant of summary judgment in favor of CLHIGA.

Background

A guaranteed investment contract, or "GIC," is an investment device. Pursuant to the terms of the investment contract, the purchaser deposits a premium with the issuer and, in return, is paid a guaranteed rate of interest for a specified period. At the end of the contract period, the issuer, in this case Executive Life, repays the purchaser's premium. (In re Unisys Sav. Plan Litigation (3d Cir.1996) 74 F.3d 420, 426.) It is undisputed for purposes of this appeal that the GIC's in question are group annuity contracts within the meaning of the Act.

In 1987 and 1988, the trustee of the Unisys plans purchased four separate GIC's from Executive Life. The claimed value of the Executive Life GIC's as of March 31, 1991, was approximately $178 million.

In 1990, the Legislature enacted the predecessor of the Act, the California Life Insurance Guaranty Association Act. (Former §§ 1067-1067.18 as enacted by Stats.1990, ch. 1356, § 1, pp. 5970-5987.) In 1993, that act was repealed, reenacted with various changes, and given its current name. ³ (§ 1067 as enacted by Stats.1993, ch. 974, § 1.7.) The stated purpose of the statutory scheme, as originally enacted and in its current form, is to provide certain limited guarantees for beneficiaries, holders, assignees, or payees of life insurance policies and annuity contracts in the event the issuing insurer becomes insolvent or is otherwise unable to fulfill its contractual obligations. ⁴ (§§ 1067.01, subd. (a), 1067.04, subds. (f), (h).)

Executive Life was seized by the Insurance Commissioner in 1991, and insolvency proceedings began. ⁵ It defaulted on millions of dollars in principal and interest due on the four Unisys GIC's. In the wake of Executive Life's failure, Unisys brought this action to obtain declaratory and equitable relief requiring CLHIGA to provide coverage under the Act. CLHIGA moved for, and was granted, summary judgment. The trial court ruled that the Executive Life contracts were excluded from coverage by statute on the dual grounds that they were both unallocated annuity contracts and GIC's. This appeal followed.

Discussion

I. Summary Judgment

Summary judgment is proper only if the suit presents no triable issue of material fact and the moving party is entitled to judgment as a matter of law. (Code Civ. Proc., § 437c, subd. (c).) On appeal from a grant of summary judgment, the trial court's determination of a question of law is subject to independent review. (Ruoff v. Harbor Creek Community Assn. (1992) 10 Cal.App.4th 1624, 1627, 13 Cal.Rptr.2d 755; Wu v. Interstate Consolidated Industries (1991) 226 Cal.App.3d 1511, 1514, 277 Cal.Rptr. 546.)

II. The Act Expressly Excludes All GIC's From Coverage

Statutory interpretation is a question of law. (Ruoff v. Harbor Creek Community Assn., supra, 10 Cal.App.4th at p. 1629, 13 Cal.Rptr.2d 755.) Here, clear statutory language compels the conclusion that the Legislature intended to exclude all GIC's from coverage under the Act.

Section 1067.02, subdivision (b)(1) outlines the policies, annuity contracts, and certificates covered under the Act. "This article shall provide coverage to [specified persons] for direct, nongroup life, health, annuity, and supplemental policies or contracts and for certificates under direct group life, health, annuity, and supplemental policies and contracts, except as limited by this article. Annuity contracts and certificates under group annuity contracts include, but are not limited to, structured settlement agreements, allocated annuity contracts, and any immediate or deferred annuity contracts, and unallocated annuity contracts except those expressly excluded pursuant to subparagraph (D) of paragraph (2) of this subdivision." (Italics added.)

Section 1067.02, subdivision (b)(2) sets forth the limitations on coverage alluded to in subdivision (b)(1). In relevant part, it states: "This article shall not provide coverage for any of the following: [p] ... [p] (D) Guaranteed investment contracts, guaranteed interest contracts, funding agreements, deposit administration contracts, and all other unallocated annuity contracts ...." (Italics added.) GIC's are, thus, expressly excluded from coverage. The Legislature would have been hard pressed to make this point more clearly.

Unisys concedes, for purposes of this appeal, that the contracts at issue here are GIC's within the meaning of the Act. It argues, however, that section 1067.02, subdivision (b)(2)(D) does not exclude from coverage all GIC's, but only those that are also "unallocated annuity contracts." ⁶ This is because "[i]f the word 'other' in Section 1067.02(b)(2)(D) is accorded any significance, as it must be, it is only 'unallocated' GIC's which are expressly excluded from coverage. Therefore, even if the four Executive Life contracts are GIC's, they are excluded from coverage only if they are 'unallocated.' If a GIC is 'allocated,' it is clearly covered under Section 1067.02(b)(1) because all allocated annuity contracts are covered without exception." (Emphasis in original.)

The argument fails with its premise that the Legislature did not mean what it said when it listed GIC's among the items specifically excluded from coverage. In interpreting a statute, " ' "[t]he court turns first to the words themselves for the answer." [Citation.] We are required to give effect to statutes "according to the usual, ordinary import of the language employed in framing them." [Citations.] "If possible, significance should be given to every word, phrase, sentence and part of an act in pursuance of the legislative purpose." [Citation.] "[A] construction making some words surplusage is to be avoided." [Citation.]' [Citation.]" (Woosley v. State of California (1992) 3 Cal.4th 758, 775-776, 13 Cal.Rptr.2d 30, 838 P.2d 758, final brackets added; Ruoff v. Harbor Creek Community Assn., supra, 10 Cal.App.4th at p. 1629, 13 Cal.Rptr.2d 755.)

Unisys's construction is a remarkably convoluted way for the Legislature to make a point that could readily be stated with utmost clarity. Had the Legislature intended to limit its exclusion of GIC's to those that are unallocated, it certainly could have said so. The statutory language, however, supports a much more straightforward interpretation. Taken in its usual, ordinary sense, the Act excludes all GIC's, unallocated or otherwise. In addition, it excludes all other annuity contracts that are unallocated. Nothing in the statutory language suggests that the general exclusion of unallocated contracts was intended as qualifying the explicit exclusion of GIC's. ⁷ Moreover, Unisys's interpretation runs afoul of the rules of statutory interpretation in reducing to surplusage the specific reference to GIC's. Had the Legislature meant to exclude only unallocated GIC's from coverage, there would be no point in including GIC's as well as "all other unallocated annuity contracts" in its list of excluded financial products. ⁸

Unisys's remaining argument is no more persuasive. It maintains section 1067.02, subdivision (b)(1) "expressly extends coverage to all allocated contracts, and excepts from coverage only unallocated contracts...." (Emphasis added.) As we understand the argument, Unisys contends the exception for GIC's contained in section 1067.02, subdivision (b)(2)(D) applies only to unallocated contracts because subdivision (b)(1) references that exception only in relation to unallocated contracts: "Annuity contracts and certificates under group annuity contracts include, but are not limited to, structured settlement agreements, allocated annuity contracts, and any immediate or deferred annuity contracts, and unallocated annuity contracts except those expressly excluded pursuant to subparagraph (D) of paragraph (2) of this subdivision." (§ 1067.02, subd. (b)(1), italics added.) The reasoning is unpersuasive. One could posit that the italicized language qualifies only "unallocated annuity contracts," the phrase immediately...