CONTRACTORS SAFETY ASSOCIATION, a California corporation, Plaintiff and Appellant, v. CALIFORNIA COMPENSATION INSURANCE COMPANY, a corporation, Defendant and Respondent.*
The present action came on for trial on plaintiff's complaint, copiously amended, to be referred to as the complaint. Defendant interposed an oral ‘demurrer to the introduction of any evidence,’ which was sustained by the court. Leave to amend further was denied, and plaintiff appeals from the ensuing judgment. Inasmuch as an oral motion to exclude evidence is tantamount to a general demurrer, our review of the judgment is limited to the sole question whether, under the facts pleaded, the complaint states the substance of a cause of action on any theory. Bice v. Stevens, 136 Cal.App.2d 368, 289 P.2d 95; Miller v. McLaglen, 82 Cal.App.2d 219, 186 P.2d 48 and cases therein collected.
The complaint is in three counts, and in view of the rather evasive manner of pleading adopted by plaintiff, it will be necessary to set forth the allegations at some length.
Count I is as follows: Defendant is engaged in the business of issuing contracts of workmen's compensation and employer's liability insurance. Plaintiff is a non-profit corporation and (we infer) an association of employers. During 1950, defendant ‘offered to the public generally by means of form letters and other written advertising material, that any group insureds securing their workmen's compensation insurance through defendant would receive dividends in the event that the combined loss experience under all policies issued to members of any group for the insured period should be less than 65% of the total premiums paid by the group as a whole for that period, provided that defendant had an earned surplus sufficient to pay such dividends.’ (A schedule of dividends showing the percentage of paid premiums refundable as dividends for groups of insureds whose total combined premiums were in excess of $25,000 per year is next pleaded in full.) It is alleged that defendant ‘offered and advertised’ dividends as stated in the schedule. Plaintiff received defendant's ‘form letters and advertising material’ and relied thereon in its subsequent dealings with defendant. On August 25, 1950, defendant wrote plaintiff to the effect that defendant's board of directors had authorized an increase of 5 per cent in its schedule of dividends payable to any groups of workmen's compensation insureds whose percentage loss ratio for the insured period was under 50%. As ‘the group of insureds constituting the plaintiff association’ had been insured for workmen's compensation by defendant since October 1, 1948, defendant knew that its letter of August 25, 1950 would be interpreted by plaintiff as an offer to provide such insurance with dividend benefits of 5% in addition to those listed in the above-mentioned schedule, and the letter was so interpreted by plaintiff.
During late August 1950, ‘plaintiff, both orally and in writing, informed defendant that plaintiff accepted defendant's offer to insure plaintiff against workmen's compensation liability on the terms stated above; * * * on or about October 11, 1950, defendant issued its standard workmen's compensation and employer's liability policy of insurance to plaintiff covering the period of October 1, 1950 to October 1, 1951, and issued individual policies to the members of plaintiff association indicating by endorsement on each of said policies that they were issued as a part of a group plan of insurance.’ The premium paid to defendant ‘by the insureds' for the year beginning October 1, 1950 totaled $387,003. Between October 1, 1950 and about August 1, 1952, when plaintiff's dividend was computed, the actual losses paid by defendant on account of workmen's compensation insurance ‘for plaintiff's members' for the year beginning October 1, 1950 came to about $75,000. Prior to the computation of plaintiff's dividend, defendant established a reserve of about $111,000 to provide for unsettled claims with respect to workmen's compensation insurance for the year beginning October 1, 1950. According to the above-mentioned schedule of dividends, the amount of paid premiums which should have been refunded to plaintiff was $77,400, or 20% of such premiums. Defendant arbitrarily and without plaintiff's consent reduced its dividend to one-fourth of the scheduled rate, and tendered plaintiff three checks totaling $13,959, in full settlement of dividend rights for the year beginning October 1, 1950. The parties later agreed that plaintiff might cash those checks without prejudice to plaintiff's claim for additional dividends for the year in question. There follows an allegation that at all times from October 1, 1950 to date, defendant had an earned surplus of over $850,000 from which dividends due plaintiff could lawfully be paid.
Count II is a common count for money had and received, alleging that within two years last past defendant became indebted to plaintiff in the amount of $77,400, of which only $13,959 had been paid, leaving a balance due of $63,441.
Court III repeats the allegations contained in Count I. It alleges that defendant made oral and written representations to plaintiff prior to October 1, 1950, to the effect that defendant would pay dividends to plaintiff according to the above-mentioned schedule and that defendant's board of directors had authorized the 5 per cent increase in its dividend schedule. There follow allegations that those representations were made to plaintiff with the intention that plaintiff rely on them and be induced thereby to take out workmen's compensation insurance with defendant, that plaintiff believed the representations to be true, relied on them and was, in fact, induced thereby to accept defendant's offer to insure plaintiff. Plaintiff also alleges that before defendant's representations were made to plaintiff, defendant's board of directors adopted a resolution providing that no dividend under participating workmen's compensation insurance policies (such as plaintiff's policy) would be due, owing or payable unless and until the board of directors specifically authorized the payment of dividends on policies issued in a particular month of a particular year. This resolution was allegedly adopted in order to give defendant technical grounds on which to justify ‘arbitrary and discriminatory dividend action’; plaintiff had no knowledge of it; its existence was fraudulently concealed from plaintiff because defendant knew plaintiff would not have purchased insurance from defendant had plaintiff known of the resolution. There follow allegations that because plaintiff discontinued doing business with defendant on August 1, 1951 and placed its insurance with one of defendant's competitors, defendant has used every pretext possible to deprive plaintiff of its dividend. Plaintiff also alleges intentional discrimination against it in that other employers' groups insured with defendant under the same circumstances received dividends computed on a substantially higher basis than the basis on which plaintiff's dividend was computed. Because of this allegedly malicious and oppressive conduct on the part of defendant, plaintiff seeks $50,000 punitive damages in addition to the recovery sought under Counts I and II.
The complaint should be given a liberal construction. Code Civ.Proc. § 452; Speegle v. Board of Fire Underwriters, 29 Cal.2d 34, 172 P.2d 867; County of Los Angeles v. Security First Nat. Bank, 84 Cal.App.2d 575, 191 P.2d 78; Ryan v. Jacques, 103 Cal. 280, 37 P. 186; Hunter v. Freeman, 105 Cal.App.2d 129, 133, 233 P.2d 65.
Although the complaint leaves much to be desired as a clear and concise statement of the facts constituting the cause of action and is subject to criticism for uncertainty, we are of the opinion that the first cause of action is sufficient, as against defendant's motion.
It appears from the cases, and, we believe, is commonly known, that it is the practice of insurance companies to issue literature and other advertising, stating the returns and advantages a policyholder may expect to receive. When stated as estimates they presumably are based on past experience, which, indeed, is the foundation upon which the business of insurance is built. The general rule with respect to such representations and statements made by an insurer in the solicitation of business is stated in 44 C.J.S., Insurance, § 229a, p. 1202, as follows: ‘Representations made in a prospectus, circular, or other papers issued by insurer or its agent are generally construed not to be a part of the contract evidenced by a policy, especially where the prospectus or paper, containing the representations is not referred to, or attached to, the policy, or where, although attached, there is no reference in either the policy or the paper to the other * * *.’ See also 29 Am.Jur. 195; 13 Appleton on Insurance Law and Practice 281–6, § 7534; Blos v. Bankers Life Co., 133 Cal.App.2d 147, 283 P.2d 744; Toth v. Metropolitan Life Ins. Co., 123 Cal.App. 185, 188, 11 P.2d 94; American Can Co. v. Agricultural Ins. Co., 12 Cal.App. 133, 135, 106 P. 720; Herman v. Mutual Life Ins. Co. of New York, 3 Cir., 108 F.2d 678, 127 A.L.R. 1458.
The rule has been applied in many cases. See 29 Am.Jur. 195; 44 C.J.S., Insurance, § 299, p. 1202; Maddox v. Mutual Life Ins. Co., 193 Ky. 38, 237 S.W. 949, 22 A.L.R. 1284; 127 A.L.R. 1464. The question has arisen frequently because the prospective investor must depend upon statements of the company for information concerning the cost of insurance and the returns to be expected, whether they be of sums fixed and certain, or only additional benefits which, although they may be received by the policyholder, the company does not undertake to pay as a part of the insurance contract or by separate agreement. The question whether a statement of the company amounts to an offer susceptible of acceptance or a mere prediction or estimate can be answered only from the facts of the individual case. A typical case is Blos v. Bankers Life Co., surpa, 133 Cal.App.2d 147, 283 P.2d 744, 745, which is relied upon by defendant. Blos, one of a group of insureds, was relying upon a bulletin of defendant with respect to the conditions or time when a policy would become effective, which stated “This bulletin is merely a description of benefits provided and is not a contract.” Blos contended that he became insured when, according to the bulletin, the policy became effective. The policy fixed a later date and this was held to be controlling, although it exclude Blos from coverage. Defendant may upon a trial develop facts similar to those in Blos' case but they are not to be found in the allegations of the complaint.
Neither party pleaded the terms of the policy. So far as the pleadings disclose, defendant's obligations under its policy were only those which pertained to liability under workmen's compensation laws. It therefore does not appear from the pleadings that the policy purported to state defendant's obligation with respect to dividends, although as we shall presently point out, the company recognized that there was some obligation to pay them. The action purports to be upon a collateral agreement entered into by defendant and plaintiff, as agent for its members. Defendant's offer to pay dividends is alleged to have been an inducement to plaintiff to take out insurance with defendant and it is alleged that plaintiff acted in reliance upon that offer. It is not alleged that the offer was conditional, except that the dividends were to be paid out of surplus and it was sufficiently alleged that a surplus existed which was applicable to the payment of the dividends that might become due. It is not alleged that the offer of defendant was couched in terms which reserved to defendant the discretion to pay or withhold payment of dividends, nor that it was a mere representation or prediction that dividends might be paid. The offer as alleged in the complaint was to pay dividends according to a certain schedule calculated upon the ratio of losses to premiums and the allegation of the complaint is that it was accepted unconditionally, not only in writing but by insuring with defendant in reliance upon the offer. Moreover, it was alleged that before the insurance was taken out defendant informed plaintiff by letter that defendant's board of directors had authorized an increase of 5 per cent of the scheduled dividends and ‘that defendant knew * * * that said letter of August 25, 1950, would be interpreted by plaintiff as an offer by defendant to provide workmen's compensation insurance with dividend benefits of 5% in addition to the percentages listed in the schedule set forth in paragraph III herein, provided that plaintiff's percentage loss ratio would be under 60%; that said letter was so interpreted by plaintiff.’
It is sufficiently alleged that plaintiff understood that defendant's ‘form letters and other written advertising material’ and its letter last referred to constituted an offer to pay dividends according to the schedule and that defendant had knowledge of plaintiff's understanding and reliance thereon. Findings to this effect would have been within the scope of the complaint.
Defendant merely asserts that it issued only ‘advertising letters and circulars,’ which, it says, ‘cannot be the basis of a claim against an insurance company.’ Since the letters and circulars were not copied and the complaint pleaded only their legal effect, there is nothing in the record to support this argument. Even if it be assumed that defendant intended its representations to be understood as holding out only a hope of dividends, that intention would not be controlling if plaintiff reasonably interpreted them as a promise. It will be for the trial court to determine whether plaintiff reasonably gave them that interpretation and whether defendant believed they would be so interpreted. The allegations of the complaint bring into play the rule of section 1649 Civil Code: ‘If the terms of a promise are in any respect ambiguous or uncertain, it must be interpreted in the sense in which the promisor believed, at the time of making it, that the promisee understood it.’ See Granger v. New Jersey Ins. Co., 108 Cal.App. 290, 291 P. 698.
If plaintiff's interpretation was a reasonable one, it should prevail over an intention on the part of defendant, not expressed in the writings, that it might or might not pay dividends in accordance with the schedule. The Restatement, Contracts, Section 71, Comment (a), states the rule as follows: ‘If the manifestations of intention of either party are uncertain or ambiguous, and he has no reason to know that they may bear a different meaning to the other party from that which he himself attaches to them, his manifestations are operative in the formation of a contract only in the event that the other party attaches to them the same meaning.’
Another rule is that if there is uncertainty in the language of a contract it should be interpreted most strongly against the party who caused the uncertainty to exist. Civ. Code, § 1653.
These canons of interpretation aid in construing the allegations of the complaint. They will also assist the trial court in determining from the evidence whether defendant's advertising and other efforts to sell its policies would reasonably appear to its prospects as a promise of tangible benefits or only as a mirage.
We know of no reason why a contract, such as the one alleged, if valid, may not be enforced. The contract as alleged is not invalid. The law permits refunds to holders of workmen's compensation policies in the nature of dividends. Ins.Code § 11738;1 State Compensation Ins. Fund v. Industrial Acc. Comm., 56 Cal.App.2d 443, 132 P.2d 890. If there was any ground of illegality not appearing on the face of the complaint it was a matter of defense. Defendant does not question the validity of promises to pay dividends under participating policies but contends that under section 7512 of the Insurance Code such promises are unlawful and void unless provided for in the policy. But section 11738 of the Insurance Code governs with respect to participating workmen's compensation policies and it contains no such provision. And defendant did pay dividends.
The general rule that all negotiations by way of proposals and arrangements made or entered into in contemplation of a written agreement relating to the subject of the negotiations are deemed to be merged in the agreement is frequently applied to contracts of insurance (see cases cited above), but it has no application to engagements entered into with respect to subject matter which is not expected to be and is not within the scope of the written agreement that is subsequently executed. ‘It has long been the rule that when the parties have not incorporated into an instrument all of the terms of their contract, evidence is admissible to prove the existence of a separate oral agreement as to any matter on which the document is silent and which is not inconsistent with its terms. [Citing cases.]’ American Ind. Sales Corp. v. Airscope, Inc., 44 Cal.2d 393, 397, 282 P.2d 504, 507. The rule is applicable to insurance policies as well as to other contracts unless such collateral contracts of insurance are prohibited by statute. We are of the opinion that the contract pleaded falls within the rule respecting separate, independent agreements.
It is unfortunate that the trial court did not have before it the written contract of the parties. It may be that one of the grounds for the court's ruling was the supposition that the policy had to contain the entire agreement of the parties with respect to the payment of dividends and that it was not alleged that it contained any promise to pay them. This is one of the arguments of defendant on the appeal. It is an untenable argument. The complaint was silent as to the terms of the policy, but if it was deemed uncertain in this respect it could have been amended by incorporating the policy. There was no demurrer to the complaint and if it is uncertain because of the omission to plead the policy defendant cannot justify the judgment upon that ground. Uncertainty would not be a good reason for excluding evidence, nor would any defect be a sufficient reason unless it clearly appeared that the complaint could not be amended to cure the defect. We must look to the substance of the cause of action attempted to be stated. We are of the opinion that if plaintiff should succeed in proving the allegations of its complaint it would have established a valid agreement for the payment of dividends in excess of those already paid.
Defendant argues that it does not appear that plaintiff has capacity to sue on behalf of its several members who were insured, although they would be the ones entitled to the dividends. The complaint was subject to this objection, but plaintiff sought leave to amend by alleging that defendant executed a rider which was attached to plaintiff's policy and which read as follows: ‘It is understood and agreed that the earned premium and loss experience policy [sic] to which this endorsement is attached shall be combined for the purposes of dividend computation with all policies bearing this endorsement issued to members of the Contractors Safety Association, Inc.; it is further understood and agreed that any dividend occurring [sic] under the policy is to be paid by the California Compensation Insurance Company in one check issued to the Contractors Safety Association, Inc., and the endorsement of the Contractors Safety Association, Inc. upon such check shall be as to each member insured a full and complete relief [sic] of the company's obligation to such insured for the insured's share of the dividend.’ Defendant objected to the amendment upon the ground that plaintiff had not pleaded the entire policy and should not be allowed to plead only a part of it. The objection was sustained. It was not a good objection. Plaintiff was suing on defendant's alleged special contract to pay dividends. The proposed writing related only to that agreement and since the writing purported to make plaintiff payee of the dividends it was, so far as alleged in the complaint, collateral to the insurance obligations, whether it was attached to or separate from the policy. The amendment should have been allowed and we must give effect to it as if it had been allowed. It would have obviated the objection of defendant that plaintiff had no authority to sue for the dividends since it would have established a right in plaintiff to collect and receive as the agent of its members, any and all sums that might become payable to them as dividends. As between plaintiff and defendant, plaintiff was a trustee for its members to whom the dividends might become due and as such it would have the right to enforce payment by suit. Moreover the complaint alleged and the answer admitted that defendant did pay to plaintiff, as dividends, the sum of $13,939.31.—If, notwithstanding its agreement to pay the dividends to plaintiff, defendant was in doubt as to plaintiff's authority to represent its members in the matter and whether a judgment would be binding upon them, the point could have been raised on demurrer, or the court could have ordered that they be brought in as parties to the action. Code Civ.Proc. § 389. The proper procedure is to bring in all necessary parties, not to dismiss the action because they are not present. Toomey v. Toomey, 13 Cal.2d 317, 89 P.2d 634; De Olazabal v. Mix, 24 Cal.App.2d 258, 74 P.2d 787. Moreover, mere uncertainty whether new parties should be brought in, which is the present case, did not warrant a summary disposition of the cause without a trial on the merits. It was error to sustain defendant's motion as to the first cause of action.
We are of the opinion that the second cause of action stated sufficient facts inasmuch as the allegation of the receipt of money by defendant for plaintiff's use and benefit is predicated upon the facts alleged in the first cause of action.
The third cause of action may be disposed of summarily. It does not state sufficient facts to constitute a cause of action for fraud. It alleges the promise to pay dividends but does not allege that the promise was made without intention to perform it. It alleges that defendant's directors adopted a resolution that dividends would only be paid as ordered by the board but it does not allege that in adopting the resolution, or otherwise, defendant had an intention not to pay the dividends that might be earned. Since defendant did pay dividends in a lesser sum than was claimed by plaintiff, the facts alleged do not show deceit or the making of false promises but merely a disagreement as to the amount of dividends that were due.
Defendant argues further that dividends are payable only out of ‘surplus accumulated from premiums on workmen's compensation policies issued pursuant to laws of this State governing workmen's compensation insurance’, section 11738, Insurance Code, and that the complaint did not allege that the alleged surplus of $850,000 came from that source. It is alleged that defendant is engaged ‘in the business of issuing contracts of workmen's compensation and employer's liability insurance, etc.’ and that defendant had ‘an earned surplus' in excess of $850,000 out of which the dividends due plaintiff could lawfully be paid. This was sufficient as against defendant's motion.
The judgment is reversed.
1. ‘Participating policies: Right of insurer to issue: Refunds to be made from surplus. Nothing in this article shall affect the right of any insurer to issue compensation participating policies. A refund by reason of a participating provision in a compensation policy shall not be made to policyholders by any insurer except from surplus accumulated from premiums on workmen's compensation policies issued pursuant to laws of this State governing workmen's compensation insurance.’
FN2. ‘Consideration not specified in policy or application. An insurer, or an insurance agent, broker, or solicitor, personally or otherwise, shall not offer or pay, directly or indirectly, as an inducement to enter into an insurance contract, any valuable consideration which is not clearly specified, promised or provided for in the policy, or application for the insurance, and any such consideration not appearing in the policy is an unlawful rebate.’. FN2. ‘Consideration not specified in policy or application. An insurer, or an insurance agent, broker, or solicitor, personally or otherwise, shall not offer or pay, directly or indirectly, as an inducement to enter into an insurance contract, any valuable consideration which is not clearly specified, promised or provided for in the policy, or application for the insurance, and any such consideration not appearing in the policy is an unlawful rebate.’
SHINN, Presiding Justice.
PARKER WOOD and VALLEÉ JJ., concur.