Walker v. Occidental Life Ins. Co.

• Decision Date: 26 October 1967
• Citation: 432 P.2d 741,63 Cal.Rptr. 45,67 Cal.2d 518
• Parties: , 432 P.2d 741 Vivian WALKER, Plaintiff and Appellant, v. OCCIDENTAL LIFE INSURANCE COMPANY, Defendant and Respondent. L.A. 29440.
• Court: California Supreme Court

Page 45

63 Cal.Rptr. 45

67 Cal.2d 518, 432 P.2d 741

Vivian WALKER, Plaintiff and Appellant, v. OCCIDENTAL LIFE INSURANCE COMPANY, Defendant and Respondent.

L.A. 29440.

Supreme Court of California In Bank.

Oct. 26, 1967.

As Modified on Denial of Rehearing Nov. 22, 1967.

Allan F. Grossman, Los Angeles, for plaintiff and appellant.

Gibson, Dunn & Crutcher and John L. Endicott, Los Angeles, for defendant and respondent.

Chandler P. Ward, Van Nuys, as amicus curiae on behalf of defendant and respondent.

MOSK, Justice.

Plaintiff Vivian Walker brought this action as beneficiary to collect the proceeds of two life insurance policies issued to her deceased husband, Harry V. Walker. Decedent had been an employee of the Bank of America (hereinafter called the bank), which was the policyholder of two group insurance policies issued by defendant. The policies and the certificates issued thereunder provided that the coverage of an employee terminated with his employment but that he had the option, within 31 days after termination, to obtain an individual policy from defendant without evidence of insurability in an amount not exceeding the face value of the group policies. This conversion option must be inserted in every group policy by virtue of the provisions of section 10209 of the Insurance Code. ¹

Walker was suspended from his position on April 14, 1961, and on November 13 of that year he applied to convert a portion of the coverage under one of the policies. His application was rejected by defendant on the ground that it was submitted more than 31 days after his employment with the bank had terminated. Walker died shortly thereafter, and his widow brought this action, contending that she was entitled to the face value of the policies less the amount of premiums which would have been due from the time of the conversion application to Walker's death. The trial court, sitting without a jury, found in defendant's favor and entered judgment accordingly.

The primary problem posed here is whether the existence of a 31-day conversion option implies a duty on the part of the insurer to give notice to an employee that his employment has been terminated.

Harry Walker was employed by the bank from 1924 until sometime in 1961. In 1936 he applied for and was issued insurance under the bank's group insurance policy in a sum which ultimately amounted to $20,000, and thereafter his share of the premiums for the policy was deducted from his salary. The master policy provided that the insurance of an employee would cease upon termination of his employment, as shown by the employer's records. The certificate issued to Walker provided, as we have seen, that a person whose employment was terminated was entitled to obtain an individual policy in an amount not exceeding the face value of the group policy, if he applied to defendant within 31 days after termination and paid the appropriate premium. A second policy for an additional $2,000 and the certificate issued thereunder contained substantially the same provisions.

The master policy was administered by the employer. The bank deducted the employee's share of the premiums from his wages, maintained most of the insurance records, and inquiries about various aspects of the insurance were referred by defendant to the bank.

On April 14, 1961 Walker was notified orally that he was suspended from his position as the manager of one of defendant's branches. Under the usual procedure in such circumstances, a committee of the bank was convened to investigate the causes for Walker's suspension and to determine a final course of action with regard to his employment. It decided to terminate Walker's association with the bank and, on May 18, 1961, he was sent a letter stating, 'This is to inform you that you suspension as an officer of this bank effective April 14, 1961, has been made permanent, and that your employment has been terminated for cause As of that date.' (Italics added.) This letter was returned to the bank as undeliverable, was readdressed, and finally received by Walker on June 20. The personnel records of the bank initially indicated that Walker's employment ended on April 14, but that date was crossed out and '6--22--61' later inserted as the termination date.

In the summer and autumn of 1961 Walker's attorney and representatives of the bank exchanged a number of letters and met personally to discuss various benefits to which Walker claimed he was entitled by virtue of his period of employment with the bank. These negotiations were primarily involved with Walker's retirement benefits and his rights under the bank's family estate plan, but there was some correspondence with both the bank and defendant relating to Walker's conversion rights under the group insurance policies. ²

On November 13, Walker entered into a final settlement with the bank, in consequence of which he executed a document releasing the bank and its agents from any claims he had arising out of his employment or the termination of his employment. The document was sent to him by the bank for his signature and was accompanied by a letter from the bank enclosing certain other papers for his signature, including an application for conversion of group life insurance. The letter indicated that defendant might refuse to permit conversion 'at this late date' but that the bank would submit the application to defendant 'to see what their reaction is.'

In the application, which Walker signed and forwarded to the bank on November 13, he requested conversion of only $10,000 of the $20,000 policy and did not seek to convert the $2,000 policy. On the reverse side of the application, which was to be filled in by the employer, the bank indicated that as of June 22, 1961, Walker ceased to be insured under the group policy for which conversion was sought. On November 27, defendant informed Walker that the application could not be accepted because it was submitted more than 31 days after the termination of his insurance which, according to the bank's records, occurred on June 22, 1961. Walker died a few weeks after he received this notice.

The trial court found that Walker's employment was terminated on June 22, 1961, that the application for conversion was not timely because it was made more than 31 days thereafter, and that defendant had properly exercised its right of rejection. The court also found that the bank was not the agent of defendant for the administration of the group policy, that defendant was not bound by the bank's administrative acts, and that defendant had no duty to give Walker notice that his employment was terminated.

We need not discuss the issue of agency, since in Elfstrom v. New York Life Insurance Co., Cal., 63 Cal.Rptr. 35, 432 P.2d 731, we held that generally the employer is the agent of the insurer in the administration of group insurance policies. Thus the primary problem we must decide is whether the insurer is required to give an employee notice of the termination of his employment either directly or through its employer-agent.

We answer this question in the affirmative. There is no controlling authority on the issue in California, but the majority of jurisdictions hold, under similar policy provisions, that the employee is entitled to receive notice that the employer has terminated their relationship. (Shears v. All State Life Ins. Co. (1942) 242 Ala. 249, 5 So.2d 808, 814; Emerick v. Connecticut General Life Ins. Co. (1935) 120 Conn. 60, 179 A. 335, 337--338, 105 A.L.R. 413; Leavens v. Metropolitan Life Ins. Co. (1938) 135 Me. 365, 197 A. 309, 311; Geisenhoff v. John Hancock Mut. Life Ins. Co. (1941) 209 Minn. 223, 296 N.W. 4, 6--7; Nick v. Travelers Ins. Co. (1945) 354 Mo. 376, 189 S.W.2d 532, 533, 537--538; Jones v. Metropolitan Life Ins. Co. (1944) 156 Pa.Super. 156, 39 A.2d 721, 725; cf. Kolodziej v. Metropolitan Life Ins. Co. (1940) 307 Ill.App. 657, 30 N.E.2d 916, 919; John Hancock Mut. Life Ins. Co. v. Pappageorgu (1940) 107 Ind.App. 327, 24 N.E.2d 428, 431.) The rationale of these decisions is that the privilege of converting the policy regardless of an employee's physical condition is a valuable property right, that it would be inequitable to hold that an employee may be deprived of this right without his knowledge at the whim of the employer, and that the inclusion of such a clause in the policy implies an intention that the employee should have knowledge of the precise date of termination of his employment.

The cases representing the minority view, at least one of which acknowledges the unfairness to an insured employee resulting from its decision (Szymanski v. John Hancock Mut. Life Ins. Co. (1943) 304 Mich. 483, 8 N.W.2d 146, 149, 145 A.L.R. 947), reason generally that, in the absence of a statutory or contractual provision specifying that notice is required, the courts cannot judicially insert such a provision into the contract. (Metropolitan Life Ins. Co. v. Thompson (1942) 203 Ark. 1103, 160 S.W.2d 852, 854--855; Colter v. Travelers Ins. Co. (1930) 270 Mass. 424, 170 N.E. 407, 409; Hanaieff v....