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District Court of Appeal, Second District, Division 1, California.


Civ. 12538.

Decided: August 30, 1941

John L. Flynn, of Los Angeles, for appellant. I. Gralla and Henry O. Wackerbarth, both of Los Angeles, for respondent. W. P. Wood and M. W. Young, both of Los Angeles, for A. Caminetti, Jr., Insurance Com'r.

This appeal is prosecuted by the defendant Physicians Life Insurance Company from a judgment entered against it in the amount of $3,000, in favor of the plaintiff and respondent, as beneficiary under a life insurance policy issued by the defendant Washington Mutual Life Association and reinsured and assumed by appellant under conditions hereinafter noted. The notice of appeal also states that an appeal is taken from the order denying defendant and appellant's motion for a new trial. As frequently pointed out, there is no appeal from such an order in a civil action of this nature. The appeal herein is upon the judgment roll alone; hence the findings of the court must be presumed to be supported by the evidence, and the sole question here to be decided is whether the findings support the conclusions of law and the judgment based thereon.

The trial court found the following facts to be true: On December 15, 1928, the defendant Washington Mutual Life Association issued a life insurance policy for $3,000 covering the life of one Frank F. Pratt, with his wife, Anna G. Pratt, as beneficiary. The beneficiary was later changed to the plaintiff herein, the change being endorsed on the policy. The policy of insurance was of the mutual type, calling for the payment of membership dues by the insured quarter–annually on the 15th days of March, June, September and December of each year, and in addition payment of death assessments, under certain conditions, upon receipt of notice of the death of any member of the association in good standing. Payment of the quarter–annual dues had continued the policy in full force and effect up to September 15, 1937, and death assessments levied on the policy were fully paid to and including July 31, 1937. On July 1, 1937, the defendant Washington Mutual Life Association and appellant entered into an agreement whereby appellant reinsured the policies of life insurance or membership certificates of the Washington Mutual Life Association in force on August 1, 1937. It is to be noted that the agreement of reinsurance, as found by the court, recites that it is made by appellant “to and with the said Washington Life, and to and with each and every holder of a policy of insurance or membership certificate issued by said Washington Life, in force on the first day of August, 1937, and to and with the beneficiaries thereof, and to and with their legal representatives and assigns”. In connection with taking over the assets and assuming the obligations and payments due on the insurance policies issued by the Washington Mutual Life Association, appellant issued a written document denominated “Washington Mutual Life Assumption Rider”, a copy of which was mailed to the insured under the policy here in question, on or prior to August 1, 1937. No copy of the said rider or any information with reference thereto or with reference to the merger or consolidation of the two insurance companies was mailed to respondent, who became the beneficiary under the policy on November 17, 1936. The rider recited that it, together with the policy formerly issued by the Washington Mutual, constituted the contract of insurance between the member and appellant. Enclosed with the rider referred to, appellant sent the insured notices of the change effected by the reinsurance agreement, together with a notice of the revised premium due under the policy as modified by the rider. The premium notice thus sent read as follows: “Physicians Life Insurance Company, Home Office, 7th Floor, 333 Kearney Street, San Francisco, Cal. Phone EXbrook 2150. This is to remind you that your premium will be due and payable as specified below. Receipt will not be returned unless requested. Your check is a receipt. Important: Please return this notice with your remittance. Amount due $24.00. Payable Aug. 1, 1937 Policy No. 2615. Continues your Policy in force to September 1, 1937. Send payment now! Do not lay this aside––this is important to you and yours. Send all payments direct to Home Office.” The rider above referred to provided that the retention thereof “and/or payment by the member of a premium call during August, 1937, or thereafter, shall constitute the acceptance thereof by the member, and this Rider shall be binding on the Physicians Life only on the payment of said premium calls”. The rider also provided for twenty days' grace for the payment of premiums.

The premium notice and letters or notices above referred to were received by the insured before the expiration of the grace period for the August 1, 1937, premium. Thereafter, on August 18, 1937, two days before the expiration of the grace period, the insured wrote a letter to appellant as follows: “In regard to W. Mu. Ins. Co. policy we have not been able to determine just how much insurance we will be able to carry as yet. It will depend on how much money we can spare or we may be able to raise which we will not find out about for a few days.”

No further communications were received by appellant from the insured. On September 16, 1937, twenty–seven days after the grace period had terminated, the respondent went to the home of the insured, and while there saw for the first time the printed and typewritten notice or reminder which appellant had mailed to the insured with reference to the payment of the premium. This was the first knowledge respondent had of the fact that the Washington Mutual Life Association had been taken over by or merged or consolidated with appellant and the first knowledge of any request for the payment of the premium of $24. Respondent thereupon inquired of the insured concerning the merger or consolidation, but at the time the insured was ill and unable to give respondent any information. Respondent then took the premium notice and immediately went to the office formerly occupied by the Washington Mutual Life Association at Los Angeles and found the said office vacant, with no information on the door or thereabouts as to where the office of the said association had been moved. Upon further inquiry, respondent was unable to locate the office of the Washington Mutual Life Association. Thereupon respondent went to the post office, procured a money order in the sum of $24, payable to appellant, and mailed the same by air mail, special delivery, together with the premium notice and a letter, to appellant's home office. Appellant was served with a notice to produce all letters written by respondent to appellant, but at the trial did not produce the letter thus sent with the money order and premium notice. According to respondent's recollection at the trial, the said letter was as follows: “Enclosed please find money order for $24.00 to pay on policy of Frank F. Pratt, No. 2615. I am the beneficiary in this policy and have paid on it many times. We do not understand this change and I do not wish to drop this policy as Mr. Pratt has a paralyzed wife. Please let me know how and when to pay at once.” Respondent wrote her telephone number and address at the bottom of the said letter. This letter, with accompanying payment and notice, was mailed to appellant September 16, 1937, and was, together with the enclosures, received by appellant on September 17, 1937. Appellant accepted the money so sent in payment of the premium for the month of August, 1937, and deposited the same in its bank account. On September 17, 1937, respondent procured a money order for $12, payable to appellant and mailed it to appellant that day by air mail and special delivery, with a letter reading as follows: “Enclosed please find $12.00 which I hope is the correct amount as payment from Sep. 1–37 to Oct. 1–1937 on the policy of F. F. Pratt. On the 16 I mailed $24.00 to pay up to September 1–37. Please advice me if there is an error in this amount.” This letter was received at the San Francisco post office at 7 a. m. on September 18, 1937, and delivered by special delivery messenger to the office of appellant during the forenoon of that day.

On September 23, 1937, respondent learned for the first time that appellant had an office at Los Angeles, and was informed that by calling at that office she could ascertain the correct amount of monthly payments necessary to be paid on the policy in question under the terms of the assumption rider. On the last date mentioned respondent called at appellant's Los Angeles office and was there informed that the monthly premium on the policy was $24, and that such monthly premium payments commenced as of August 1, 1937. Respondent thereupon immediately procured an express money order for $12 and sent the same to appellant at its home office in San Francisco, accompanied by the following letter: “After making an inquiry in regard to Mrs. Pratt's policy No. 2615 Washington Mutual, I find out the payments are $24.00 per month. I enclosed $12.00 to balance on the month of Sep. So far I haven't had a reply from Sep. 16 and 17th, 1937, letters. Would like to know if we are fully paid and covered in case of death.” The court found that the first knowledge respondent had that appellant was demanding the sum of $24 per month as the premium on the policy was September 23, 1937. Some few days after that date the insured gave the plaintiff the copy of the assumption rider which he had received from appellant on or prior to August 1, 1937. Respondent's letter of September 23, 1937, to appellant, was received at the post office at San Francisco on September 24, 1937, and was delivered to appellant's office during the forenoon of that day.

The first communication of any character that respondent received from appellant was appellant's letter dated and mailed at San Francisco on September 23, 1937, which was as follows: “We are in receipt of your remittance of $24.00 to pay August 1st premium on policy 2615 F. F. Pratt, also $12.00 to apply on the September premium. Since the premium is $24.00 per month it will be necessary for you to remit an additional $12.00 to complete the payment. The grace period has expired on the above payments, and it will be necessary for Mr. Pratt to sign the enclosed application for reinstatement. Kindly have the enclosed application signed and return with remittance of $12.00.” This letter was not received by respondent until after she had mailed to appellant the second $12, enclosed in her letter of September 23, 1937. The court found that no notice of cancellation of the policy in question was ever given to respondent or to the insured, nor did appellant cancel the said policy for the nonpayment of premiums or any other money due thereon.

On October 14, 1937, respondent sent to appellant at its home office a postal money order in the sum of $24 for the October, 1937, premium on the policy, and the money order was received by appellant on or about October 15, 1937.

On September 25, 1937, respondent wrote a letter to appellant in which she stated: “In reply to your letter of the 23rd instant advising that the grace period has expired on the August and September payments on policy No. 2615 issued by the Washington Mutual Life Association to Frank Flint Pratt, I have to advise that it is impracticable for Mr. Pratt to execute the form of application for reinstatement of the insurance which accompanied your letter. Therefore, please refund to me by early mail the $48.00 I have advanced in payments of $24.00 and two $12.00 payments, sending remittance to me at the above address.” In response thereto, appellant, on September 29, 1937, wrote a letter to respondent enclosing the money orders and a check covering the $24 payment mailed on September 16, 1937, and stated: “We are in receipt of your letter of September 25th in which you state that it is impracticable for Mr. Pratt to sign the application for reinstatement in connection with Washington Mutual Policy No. 2615, and ask the return of your remittance of $48.00. Enclosed you will find our check for $24.00 Post Office M. O. No. 116398 for $12.00 and Express Order No. AF–1159241.” On October 1, 1937, respondent sent a telegram to appellant, reading as follows: “Hold money until further notice regard policy 2615.” Also on the same date respondent returned all of the said money orders and check to appellant with a letter stating: “At the suggestion of the California State Insurance Commission, I am returning the following: Letter from you to me dated September 29th, together with the following: (reciting the check and money orders above referred to). You will no doubt hear from the California Insurance Commission direct in connection with case.”

The insured died on October 21, 1937, and on October 22, 1937, respondent procured a certified copy of the death certificate and immediately forwarded the same to appellant. On November 5, 1937, appellant wrote to respondent as follows: “* * * as stated in our prior correspondence, the policy of Mr. Frank Flint Pratt, lapsed and became void and of no effect because the premium payment of $24.00 that was due on September 1, 1937, was not tendered within the grace period. Enclosed you will find post office money order * * * drawn in our favor and dated September 17, 1937, in the amount of $12.00; (express) money order * * * in the amount of $12.00, drawn in our favor on September 23, 1937; post office money order * * * being dated October 14, 1937, drawn in our favor in the amount of $24.00; and our check, dated September 29, 1937, drawn in favor of Edna Mae Page in the sum of $24.00. We mailed you this check on September 29, 1937, in accordance with the request made in your letter of September 25, 1937, although we had no legal obligation to do so since this was the premium paid for August, 1937, and had been earned by our company.” On March 24, 1938, respondent's attorney returned the said money orders and check to appellant with a letter stating that he had investigated respondent's claim and was of the opinion that it was valid and that respondent had accordingly instructed him to institute proceedings therefor.

With relation to a separate defense set up by appellant to the effect that respondent had no insurable interest in the life of the insured, the court found that respondent “was on November 17, 1936, and for many months prior thereto, a person to whom the said Frank F. Pratt is and was under a legal obligation for the payment of money, of which the death or illness of Frank F. Pratt might delay or prevent payment or performance”; and that “for many months prior and subsequent to November 17, 1936, the plaintiff loaned and advanced many sums of money to the said insured Frank F. Pratt in order to defray the living expenses of the said Frank F. Pratt and his wife, and for more than four years last past the plaintiff had paid the quarter annual dues and death assessments levied against the said Frank F. Pratt under said * * * policy”.

It was also found that on two different occasions prior to August 1, 1937, the Washington Mutual Life Association received and accepted the payment of quarter–annual dues after the expiration of the grace period provided for in the policy, such payments having been made on June 21, 1937, for dues due June 15, 1937, and on October 1, 1936, for dues due September 15, 1936.

The court concluded that appellant had waived strict performance of the terms and conditions of the membership certificate (or policy) and assumption rider with respect to the payment of premiums on the due date or within the grace period thereafter; that the policy did not lapse by virtue of the failure to pay the premium falling due on September 1, 1937, within the grace period of twenty days thereafter, and the said policy was in full force and effect up to and including the date of the death of the insured; and judgment was accordingly awarded to respondent for the proceeds of the policy with interest.

The judgment of the trial court is thus seen to be based solely upon the theory of the waiver of payment of premiums within the grace period provided by the policy in question. This theory would appear to be drawn principally from the finding of the court that the first monthly premium on the policy as assumed by appellant was accepted by appellant after the expiration of the grace period therefor, coupled with a finding that on two previous occasions appellant's predecessor had accepted late payment of premiums or dues under the original policy. As to the acceptance of late or delinquent dues or premiums by the Washington Mutual Life Association under the original policy, it is to be noted that the assumption rider issued by appellant changed the terms of the policy as to dates and payments of premiums, thus creating a new set of conditions as to premium payments. These new conditions supplanted those under which payments were formerly made. In fact, the addition of the rider to the policy virtually made a completely new contract of insurance of a type different than the former contract. Under such circumstances, any waiver by the Washington Mutual of prompt payment of premiums under the old conditions could not be held to bind appellant under the new terms and conditions. Appellant assumed liability under the policy subject to the terms provided in the rider and did not merely take the place and assume the role of its predecessor. The finding of acceptance of late payments by Washington Mutual Life Association is therefore immaterial, and the theory of waiver must depend upon the act of appellant itself in accepting the first premium after the expiration of the period of grace.

Cases in which waiver of the terms of a policy requiring prompt payment of premiums has been held to exist, appear to be those in which there has been a consistent practice on the part of the insurer of accepting late payments, or in which a relatively long series of late payments have been accepted, thus leading the policyholder to believe that late payments will continue to be accepted. See Turner v. Redwood Mutual Life Ass'n, 13 Cal.App.2d 573, 57 P.2d 222; Vinther v. Sunset Mutual Life Ins. Co., 11 Cal.App.2d 118, 53 P.2d 182. It may be seen that the true theory enunciated by these cases is not strictly one of waiver but rather one of estoppel. See Nelson v. National Guaranty Life Co., 131 Cal.App. 669, 672, 21 P.2d 1022, cited in the Vinther case, supra. The conduct of the insurer must have been relied upon by the insured when making the late payments. But in the instant case the findings of the court reveal that when respondent made her payment of the second premium due under the revised policy of insurance she did not know, nor had she any reason to believe, that the payment of the first premium had been accepted by appellant. The court found that the payment of the first premium was mailed to appellant on September 16th, and that on the following day, without having received any word from appellant as to the first premium, respondent mailed appellant the sum of $12 as payment of the second premium; and then, on September 23d, after respondent learned that the correct amount of the premium was $24, respondent mailed appellant an additional $12. But the trial court found that the payment of this additional sum was made before respondent had received any communication from appellant as to the premiums. It cannot be said, therefore, that respondent, in paying the second premium after the grace period, relied upon the acceptance by appellant of the late payment of the first premium. Moreover, it is doubtful if respondent properly could have relied upon the single instance of waiver of the first premium as justification for late payment of the second premium. “It may be conceded that the receipt of the premium by the company * * * after the time had expired * * * would operate as a waiver, for the purpose of that renewal, of the condition that payment must be made in advance. It is difficult to perceive any sound reason for holding that this would abrogate the condition as to future renewals.” Upton v. Travelers' Ins. Co., 179 Cal. 727, 730, 178 P. 851, 852, 2 A.L.R. 1597. It would seem that something more than a single previous instance would be required to estop an insurer in the event of subsequent delinquencies.

The trial court, however, appears also to have based its conclusion that appellant had waived prompt payment of premiums upon other facts found to exist, namely, that respondent, as beneficiary, had received no notice of the assumption of the policy by appellant nor of the terms of such assumption, and that appellant sent its first communication to respondent after the period of grace for payment of the September premium had already expired. But it must be pointed out that there was no contractual duty imposed upon appellant to notify the beneficiary of the terms and conditions under which appellant would assume the policy, or to give notice of the premiums due; and the duties and liabilities placed upon an insurer are to be drawn from the contract of insurance. The duty of appellant in this respect had been discharged when notices were sent to the insured. It is true that the assumption agreement recited that it was made with the beneficiaries as well as with the policyholders, but this recital alone would be insufficient to imply a duty on appellant's part to notify the beneficiary as well as the insured under a policy, in the absence of other express or implied provisions of the agreement requiring such notice. This is particularly so where, as here, the beneficiary had no vested interest, the insured having the right to change the beneficiary. It is clear that the reason the assumption agreement recited that it was made with beneficiaries was to leave no doubt that the beneficiaries would have a direct cause of action against appellant to recover any benefits due in accordance with the terms of the policy as modified by the assumption rider. The terms of the policy as assumed by appellant did not include any provision requiring notices sent to the insured to be also sent to the beneficiary. Therefore, the fact that appellant did not notify, respondent of the terms and conditions of its assumption of the policy, or of the premiums due under the policy as assumed, furnishes no basis for a theory either of waiver or estoppel.

It should be noted that the findings of the court reveal that the insured under the policy indicated by his communication to appellant on August 18, 1937, not only that he had received his copy of the assumption rider, but that he also had some understanding of the effect of such conditions on the continuance of his insurance, for he stated that he had not yet been able to determine how much insurance he would be able to carry and that it would depend upon how much money he could spare, implying thereby that he knew the terms of appellant's assumption of the policy had greatly increased the cost of the insurance, necessitating a possible reduction in the amount the insured could carry. It is also apparent from the findings of the court that respondent's confusion and difficulties over ascertaining the terms of appellant's assumption of the policy largely grew out of the fact that the insured became so ill he was unable to discuss the matter with her.

The situation thus created by the illness of the insured could not form the basis for a waiver by appellant of prompt payment of premiums in the absence of a finding that at the time of acceptance of a late premium appellant had knowledge of the condition of the insured. It does not appear here that appellant knew of the illness of the insured. Obviously, the state of the insured's health at the time of his default in payment would be the determining factor in any election by appellant to waive the terms of the policy and continue the insurance in force notwithstanding the default.

It is difficult to perceive how or in what manner the failure of appellant to reply to respondent's letters for six days could operate either as a waiver or estoppel. It has already been pointed out that there was no contractual obligation on the part of appellant to notify the beneficiary of premium payments due; and it follows, therefore, that there was no duty imposed on appellant to communicate with respondent regarding the payment of premiums before the grace period expired. Moreover, the burden was upon the insured under the contract of insurance to keep the policy in force by payment of premiums, rather than upon the insurer to exert every effort to prevent the insured from allowing his policy to lapse through failure to make the payments. Under the circumstances, respondent was not entitled to rely either upon any communication of appellant or upon appellant's failure to communicate with her with respect to the premiums.

Respondent urges that the acts and conduct of appellant are sufficient to “waive” the payment of the second premium within the grace period. Presumably, respondent has in mind the creation of an estoppel, rather than a theory of waiver. The acts and conduct of appellant above specifically considered have been shown to be insufficient as a basis for either an estoppel or waiver; and no other acts found by the court could properly form the basis for a waiver or estoppel.

The quarterly rate of dues on the original $3,000 policy appears to have been $3, which amounts to but one dollar per month for the insurance in question. The conditions upon which appellant assumed liability under the policy imposed a monthly premium of $24 for the same amount of insurance. In other words, under the policy as revised an amount which was originally sufficient as dues for two years became only enough to keep the policy in force for one month. Of course, under the assumption rider death assessments were apparently eliminated, and the monthly premium became the only payment to be made by the insured. However, the equity or inequity created by such conditions is of no concern here. The only question here involved is whether appellant waived the terms of the policy as to prompt payment of premiums or was estopped to declare the policy no longer in effect. The amount of increase in the premiums over the former dues is immaterial. In fact, it would be untenable to urge that appellant is estopped to deny liability because of the harshness of the terms imposed in assuming it; and respondent does not take such a position. Respondent sought to pay the increased premiums and to obtain the benefits under the policy as revised by appellant. Whether the insured might have taken steps to protect himself against the imposition of such terms is of no consequence in the instant case.

Nor does the traditional abhorrence by the courts of a forfeiture here play a part, since the findings of the trial court furnish no basis in fact for any relief to respondent.

It should be noted that the court's finding that no notice of cancellation of the policy was ever given to respondent or to the insured is at variance with the finding as to appellant's letter to respondent of September 23d, with which it enclosed a form of application for reinstatement of the policy and in which it stated that the grace period had expired. Such a letter should constitute a sufficient notification. See California–Western States, etc., Co. v. Feinstein, 15 Cal.2d 413, 101 P.2d 696. Moreover, the policy in question does not appear to have provided for notice of cancellation.

It should also be pointed out that cases, some of which have been recited by respondent, wherein the insurer was held to have waived a default in premiums by entering into negotiations or transactions with the insured which recognized the continued validity of the policy or treated it as still in force, have no application to the instant case. It is not shown here that any such negotiations or transactions were entered into by appellant.

The court did not find, nor does respondent urge, that in her attempts to pay the premiums and keep the policy in force respondent was acting as the agent of the insured; though it is doubtful that the result would be any different in such a case. It would appear that, under the facts as found, the insured would be in no better position than respondent to claim a waiver or estoppel.

Appellant did not originally file a reply brief. However, at the hearing of this cause it was stated by counsel that appellant's affairs were in the hands of the insurance commissioner, and subsequently a brief has been filed on behalf of the insurance commissioner which raises no new points but is in effect a reply to respondent's brief.

For the foregoing reasons, the judgment is reversed with directions to enter judgment for defendant.

I dissent. Courts are disposed to seize upon slight circumstances to prevent a forfeiture. In the absence of fraud, where a party has made a sincere and honest effort toward payment of his premium in time, it seems to me that substantial reasons should be required to defeat it as a payment, especially when, as here, appellant insurance company, after being advised of respondent's ignorance of the exact status or amount of the newly established premiums and of her anxiety to maintain the policy in force, failed to notify her until the expiration of the grace period. To my mind, every element of good faith required appellant insurance company, when it received respondent's letters of September 16th and 17th, immediately to advise her of the correct amount due, before September 20th, that being the last day of the grace period.

As was stated by our Supreme Court in Bittinger v. New York Life Ins. Co., 17 Cal.2d 834, 112 P.2d 621, 625, “Conditions which create forfeitures will be construed most strongly against the insurer. Only a stern legal necessity will induce such a construction as will nullify the policy.” Upon the authority of Bryson v. Nat. Travelers Casualty Co., 206 Cal. 475, 274 P. 957, it seems to me that when respondent commenced negotiations with appellant insurance company concerning the confusion that had arisen upon her part concerning the premium a bounden duty devolved upon such insurance company to immediately advise her; and in any event such insurance company was estopped from declaring a forfeiture without extending to respondent a reasonable opportunity for payment of the amount due following its letter to her under date of September 23d. See, also, Spiegelman v. Metropolitan Life Insurance Co., 21 Cal.App.2d 299, 68 P.2d 1006.

In my opinion the judgment should be affirmed.

DORAN, Justice.

YORK, P. J., concurred.