Williams v. American Cas. Co.

• Decision Date: 13 December 1971
• Citation: 491 P.2d 398,98 Cal.Rptr. 814,6 Cal.3d 266
• Court: California Supreme Court
• Parties: , 491 P.2d 398 Marian A. WILLIAMS, Plaintiff and Appellant, v. AMERICAN CASUALTY COMPANY OF READING, PENNSYLVANIA et al., Defendants and Respondents. L.A. 29887. In Bank

Page 814

98 Cal.Rptr. 814

6 Cal.3d 266, 491 P.2d 398

Marian A. WILLIAMS, Plaintiff and Appellant, v. AMERICAN CASUALTY COMPANY OF READING, PENNSYLVANIA et al., Defendants and Respondents.

L.A. 29887.

Supreme Court of California,

In Bank.

Dec. 13, 1971.

Henry B. Niles, Pasadena, Boyko & Simmons and Michael W. Roberts, Los Angeles, for plaintiff and appellant.

Booth, Mitchel, Strange & Willian and Owen W. Strange, Los Angeles, for defendants and respondents.

TOBRINER, Justice.

Marian A. Williams, widow of Harold R. Williams, instituted this action against her husband's former employer, Atlantic Research Company (Atlantic) and the American Casualty Company of Reading, Pennsylvania (American Casualty) to recover benefits under a group disability insurance policy issued by American Casualty and administered in part by Atlantic. Mr. Williams died on October 25, 1964, 25 days after his employment with Atlantic had terminated, and defendants denied liability on the grounds that (1) the policy had terminated prior to Williams' death and (2) that the death was not a result of an 'accident' within the meaning of the policy.

Pursuant to a stipulation of the parties, the trial was bifurcated to permit the trial court, sitting without a jury, to determine initially the legal issue of whether, under the policy's terms, coverage continued to the date of Mr. Williams' death. The trial court concluded that the insurance policy's termination clause, providing for the termination of coverage 'on the first premium due date following the date on which the Insured Person ceases to be an employee of (Atlantic),' was unambiguous, and that, pursuant to the clause, coverage had terminated on October 1, 1964, prior to Mr. Williams' death; the court accordingly entered judgment for defendants. Plaintiff appeals from that judgment, contending that the termination clause's reference to a 'premium due date' is ambiguous, and that under one reasonable interpretation of the provision her husband was insured on the date of his death.

As discussed more fully below, we have concluded that in the context of a group insurance program in which employees' premium payments are administered through payroll deductions, the instant policy's unexplicated reference to a 'premium due date' is, as plaintiff suggests, ambiguous. In a group insurance context, the term 'premium due date' can reasonably be interpreted to refer either to the date on which the group's collective premium is 'due' from the employer or, alternatively, to the date on which the premium is 'due' from the individual employee, i.e., the date the premium is paid by payroll deduction. Indeed, in the instant case, the uncertainty and potential confusion inherent in the policy's terminology finds ample demonstration in defendant-insurer's own varying answers to interrogatories specifically directed to this point. Under traditional principles, of course, such ambiguity must be construed against the insurance company, the draftsman of the policy, and since under the latter interpretation the policy remained in effect on the date of Mr. Williams' death, we conclude that the judgment for defendants must be reversed.

The facts underlying this litigation are not in dispute. On August 1, 1962, American Casualty issued to Atlantic a master insurance policy, VGA 18057, providing group insurance benefits for named beneficiaries in the event of accidental death or dismemberment of insured Atlantic employees; all Atlantic employees were eligible to become 'Persons Insured' under the policy upon written application and payment of premium. Mr. Williams became an employee of Atlantic on October 9, 1962, and shortly thereafter he applied for and received an individual certificate evidencing accidental death insurance benefits in the face amount of $100,000, payable to Mrs. Williams, his wife of 32 years, as beneficiary; the certificate declares the 'effective date' to be December 1, 1962. ¹

Under the agreement with American Casualty, Atlantic administered its employees' payment of premiums through a payroll deduction program. Premiums were paid monthly and in advance, and Atlantic followed the uniform practice of deducting an employee's premium payments from the last paycheck which the employee received every month. Atlantic made such deductions monthly for the full amount of the insurance premium due to American Casualty; Atlantic itself contributed nothing whatsoever to the cost of insurance. After deducting the premium payments from its employees' wages, Atlantic completed a monthly report indicating the employees from whom premiums had been collected and sent this report, accompanied by a check for the total premiums collected to the insurer. Although the insurer had instructed Atlantic by letter to complete the report as close to the first of the month as possible, Atlantic frequently allowed four to five weeks to elapse before it forwarded the form and its check to the insurer, and the insurer continually accepted the tardy reports and the employer's check without penalty.

Pursuant to its regular practice, Atlantic deducted Mr. Williams' $7.50 monthly premium from the paycheck prepared and paid on September 27, 1964, the end of the last regular pay period in September; Atlantic deducted the following monthly premiums from its covered employees on October 25, 1964. Atlantic, however, terminated Mr. Williams' employment on September 30, 1964, and on that date it issued Mr. Williams a termination paycheck for the abbreviated period of September 27 through September 30; this check included a refund of the $7.50 premium which had been previously deducted from the September 27th paycheck. Mr. Williams endorsed and deposited the termination paycheck on October 2, 1964.

Three weeks later, on October 25, 1964, Mr. Williams died. Plaintiff filed a timely claim with American Casualty seeking the benefits of her husband's group disability policy, but the insurer denied the claim and plaintiff then instituted the instant action to recover $100,000, the face amount of the policy. Under the terms of the policy, coverage was to terminate 'on the first premium due date' following the termination of employment, and the insurer resisted plaintiff's claim on the ground that under this provision the policy's coverage had terminated on October 1, prior to Mr. Williams' death.

Plaintiff contended, on the other hand, that the policy's termination clause was at least ambiguous, and that the 'first premium due date' after the termination of her husband's employment on September 30th could reasonably be interpreted to be October 25, 1964, when Atlantic's employees next paid their insurance premiums through payroll deduction. Since her husband had died on October 25, plaintiff contended under her suggested interpretation of the termination clause, Mr. Williams would have still been insured at the time of death. The trial court agreed with defendants' contention, however, and concluded both that the termination clause was unambiguous and that, pursuant to that provision, coverage had terminated on October 1, 1964, prior to Mr. Williams' death; the court consequently awarded judgment for defendants.

Inasmuch as the facts underlying this litigation are not in dispute, the trial court's finding that the terms of the policy were 'plain and unambiguous' rested simply on its own interpretation of the language of the policy as written. In reviewing such a determination, we begin with the established principle that in such cases 'an appellate court is not bound by the findings of the trial court (but) (o)n the contrary, it is the duty of the appellate court * * * to make its own independent determination of the meaning of the- language used in the instrument under consideration.' (Schmidt v. Pacific Mut. Life Ins. Co. (1969) 268 Cal.App.2d 735, 738, 74 Cal.Rptr. 367, 369; see, e.g., Faus v. City of Los Angeles (1967) 67 Cal.2d 350, 360, 62 Cal.Rptr. 193, 431 P.2d 849; Atchison, T. & S.F. Ry. Co. v. Abar (1969) 275 Cal.App.2d 456, 465, 79 Cal.Rptr. 807.) Thus, we turn initially to the relevant provisions of the group disability policy in question.

The crucial provision of the policy, ² for the purposes of this appeal, is entitled 'Individual Termination,' and provides in pertinent part that 'The individual coverage with respect to any Insured Person shall immediately terminate: (a) on the date of termination of the (Master) Policy in which event the Company will return the pro rata portion of any premium contribution unearned as the result of such termination; or (b) on expiration of the grace period if the Insured Person fails to make the required premium contribution; or (c) On the first premium due date following the date on which the Insured ceases to be an employee of the Policyholder.' (Emphasis added.) It is the operation of this final clause, subdivision (c), which is primarily at issue in the instant case; more specifically, we must determine whether the policy's reference to 'the first premium due date' following the termination of employment is unambiguous and whether pursuant to that provision insurance coverage terminated prior to Mr. Williams' death.

We have found no provision, in either the individual certificate of insurance issued to the individual employee, Williams, or in the master group insurance policy issued solely to the employer, Atlantic, which attempts to define, or even to indicate, a 'premium due date'; ³ insofar as the record reveals, the policy itself does not mention the manner in which premiums were to be paid at all. ⁴ At trial, however, defendants contended, and the trial court agreed, that since (1) the effective date of the master policy was August 1, 1964, (2) the effective date of Mr. Williams' certificate was December 1, 1962, and (3) the employer had agreed to remit the premiums from its employees on a monthly basis and had regularly deducted those premiums from the...