Waggaman v. Northwestern Security Ins. Co.

• Decision Date: 07 April 1971
• Citation: 94 Cal.Rptr. 170,16 Cal.App.3d 571
• Court: California Court of Appeals Court of Appeals
• Parties: Floyd P. WAGGAMAN, Claimant and Respondent, v. NORTHWESTERN SECURITY INSURANCE COMPANY, Respondent and Appellant. Civ. 10236.

Page 170

94 Cal.Rptr. 170

16 Cal.App.3d 571

Floyd P. WAGGAMAN, Claimant and Respondent, v. NORTHWESTERN SECURITY INSURANCE COMPANY, Respondent and Appellant.

Civ. 10236.

Court of Appeal, Fourth District, Division 2, California.

April 7, 1971.

[16 Cal.App.3d 573] Donald S. Gillespie, Wm. A. Flory, San Bernardino, for respondent-appellant.

Ryneal, Hunt & Palladino, Riverside, and Leonard Sacks, Pico-Rivera, for claimant-respondent.

OPINION

GABBERT, Associate Justice.

Floyd P. Waggaman, claimant-respondent, sustained bodily injury in an automobile collision which occurred in the performance of his employment. The other party involved in the collision was an uninsured motorist. Waggaman began negotiations with his liability insurance carrier, respondent-appellant Northwestern Security Insurance Company, for payment under the uninsured motorist provision of the policy. No agreement could be reached, so, pursuant to the policy, the dispute was submitted to an arbitrator.

The arbitrator awarded Waggaman damages of $8,250, reduced by $2,985 in workmen's compensation payments already made. At the arbitration hearing, Northwestern requested permission to call expert witnesses who would give opinion evidence as to the amount of future workmen's compensation payments that Waggaman would be eligible to receive by reason of permanent disability. The arbitrator refused to permit such testimony, and Northwestern made an offer of proof. No transcript of the arbitration hearing, if there was one, was submitted either to the trial court or to this court. The arbitration award contains a finding which specifically excludes any reduction in Waggaman's recovery for the value of future workmen's compensation payments. ¹

Northwestern filed a petition in superior court to vacate the arbitrator's award; the court denied the petition and confirmed the award of the arbitrator. The petition was submitted on the record, the award of the arbitrator and the briefs of the parties. No oral evidence was taken, nor were declarations or other substitutes for oral evidence offered. The parties waived findings of fact and conclusions of law. This appeal is taken by Northwestern from the judgment confirming the award of the arbitrator and denying its petition for rehearing of the arbitration.

Northwestern contends, as a basis for vacating the award, its rights were substantially prejudiced by refusal of the arbitrator to hear evidence material to the controversy. (Code Civ.Proc., § 1286.2 subd. (e).) The claim is based on Insurance Code, § 11580.2 subd. (h) which provides in part: 'Any loss payable under the terms of the uninsured motorist endorsement or coverage to or for any person May be reduced: (1) By the amount paid and the present value of all amounts payable to him under any workmen's compensation law exclusive of nonoccupational disability benefits.' (Emphasis added.) The insurance policy here involved contains an almost identical clause in its uninsured motorist provision, except for the language 'Any loss payable * * * Shall be reduced by' any such payments. ^{2 2} (Emphasis added.) As used in the Insurance Code, the word 'shall' is mandatory and the word 'may' is permissive. (Ins.Code, § 16.)

An initial issue stems from this difference in language. Waggaman urges that the use of the term 'may' in the statute vests in the arbitrator's discretion as to whether or not to apply a reduction for workmen's compensation payments despite a contrary provision in the insurance policy. Such construction seems strained. The whole scheme of the statute addresses itself to contract provisions of the insurance policy, not the arbitrator's discretion.

In Cannizzo v. Guarantee Ins. Co., 245 Cal.App.2d 70, 73, 53 Cal.Rptr. 657, the court held, in the absence of such a 'shall' clause in the policy, there can be no reduction in the arbitrator's award for medical payments; the statute was explained as permitting such clauses, but having no independent effect. Since in some states such clauses have been held invalid, ³ the probable purpose of our statute is to make clear such clauses are valid in California. However, such clauses would be meaningless if Waggaman's interpretation of the statute were accepted; the most reasonable result is to give full effect to the mandatory language of the policy.

The determinative issue in the case at bar, then, is the meaning of the language 'present value of all amounts payable' contained in both the statute and the insurance policy. Our research has not uncovered any legislative history relating to Insurance Code, § 11580.2 subd. (h), ⁴ and there are no California cases interpreting the specific language with which we are concerned.

Cases cited by Waggaman for the proposition that recovery from a third party tortfeasor cannot be reduced by a compensation award (See Slayton v. Wright, 271 Cal.App.2d 219, 76 Cal.Rptr. 494) are not in point. They do not interpret a statute or policy containing a provision that the award be reduced by the 'present value of all amounts payable'.

In the present case, the arbitrator properly made an allowance for appellant's reimbursement for the amounts Waggaman had actually received under workmen's compensation. However, the arbitrator refused to continue the hearing to allow appellant to call as its expert witness a disability rating specialist employed by the California Division of Industrial Relations Workmen's Compensation Appeals Board in order to testify as to 'the present value of all amounts payable' under the workmen's compensation law. A similar offer of proof was advanced as a ground for rehearing. Both offers were rejected.

In reviewing this action, we have but two alternatives. We could hold either the arbitrator was required to determine the present value of the workmen's compensation benefits not yet awarded, or the decision to exclude the evidence as to the present value was correct. Neither is wholly satisfactory. However, for reasons which will become apparent, we conclude the arbitrator's decision was correct, and the language reducing the amount payable under the terms of the uninsured motorist statute by 'the amount paid and the present value of all amounts payable' under the workmen's compensation law refers to amounts which have been paid or are fixed at the time of the arbitration hearing.

There is a distinction between cases where an award has been applied for and made, and those where, as here, the injured party may be eligible for an award, but has not applied for such, or no award has been granted. In the former, there is no problem in determining 'the present value of amounts payable', the arbitrator may consult an actuarial table for that purpose. In the latter, the arbitrator is required to predict not only the amount of the award but also its existence, and then apply an actuarial table to his prediction. This procedure would encumber the arbitration proceedings with an inherently speculative trial within a trial.

It is virtually impossible to arrive at an accurate amount which will be paid under permanent disability awards of workmen's compensation when the insured is not yet ratable for permanent disability. Permanent disability is '* * * the irreversible residuals of an injury either mental or physical, which produce an impairment of earning power or capacity.' (C.E.B., Cal. Workmen's Compensation Practice, § 17.1.) 'A disability is permanent when the medical evidence establishes that no major changes is expected for better or for worse and the condition will remain substantially the same during the remainder of the insured's lifetime.' (Eisler, Cal.Uninsured Motorist Law Handbook (1969) p. 155.)

Many difficulties immediately come to mind in attempting to determine the present value of amounts payable in the future when present physical condition has not been determined, or established as being medically permanent, or when the case has not been rated.

Clearly, the statute requires the damages under uninsured motorist recovery be reduced by the present value of an award under the workmen's compensation procedure when the uninsured motorist coverage so provides.

However, when the phrase 'present value of amounts payable' is considered in connection with the situation where an insured may be eligible for benefits but no award has been made, there is an ambiguity. Yet another ambiguity is presented by the silence of the policy as to methods of repayment or reimbursement for benefits still to be fixed. Where there is ambiguity, the court has a duty to construe the uninsured motorist law in favor of the person injured through no fault of his own. (Modglin v. State Farm Mut. Auto Ins. Co., 273 Cal.App.2d 693, 698, 78 Cal.Rptr. 355; Valdez v. Fed. Mut. Ins. Co., 272 Cal.App.2d 223, 226, 77 Cal.Rptr. 411.) Likewise, ambiguous provisions of an insurance policy must be construed in favor of the policyholder and against the insurance company. (Hendricks v. Meritplan Insurance Co., 205 Cal.App.2d 133, 138, 22 Cal.Rptr. 682 and cases cited therein.) Similarly, when the insurer prepares the contract, ambiguous expressions whereby the insurer attempts to limit its liability should be construed most strongly against the insurer. (See Jarret v. Allstate Ins. Co., 209 Cal.App.2d 804, 809--810, 26 Cal.Rptr. 231.)

The construction to be given to insurance contracts should be, as in the case of all contracts, the reasonable and natural one. (See Civ.Code, § 1635, et seq.) If the language is clear, the terms are to be taken and understood according to their plain, ordinary and popular sense. Construed in the popular sense, the words of both the statute and the policy, as the arbitrator stated, can be interpreted as '* * * referring to instances where the claimant has already secured an amount pursuant to agreement (compromise and release) or by order (permanent disability rating), but which amount, although fixed and determined, has not yet been paid to ...