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

Sarah G. AMBERG, Plaintiff and Respondent, v. BANKERS LIFE COMPANY, Defendant and Appellant.

Civ. 35862.

Decided: September 21, 1970

Lillick, McHose, Wheat, Adams & Charles, Anthony Liebig, by Anthony Liegig, Los Angeles, for appellant. Howard L. Winton, Los Angeles, and John D. Gray, Oroville, by Howard L. Winton, Los Angeles, for respondent.

Defendant, Bankers Life Company, appeals from a judgment for $54,000 rendered against it and in favor of plaintiff Sarah Amberg, the widow of one Roland Amberg. The judgment was based on the verdict of the trial court that Amberg was covered by a policy of group life insurance written by the defendant in the sum of $40,000 and that Sarah as the beneficiary under the policy should recover that amount with interest of $14,000.

Defendant's sole contention on appeal is that the court erred in finding that Amberg was covered by the policy in question as a Class A insured.

Prior to January 29, 1964, Amberg was president of Roland Oldsmobile and holder of 50% of its stock. On that date Amberg sold his stock to his partner, James Kresl, and thereafter ceased to be an officer in the company. At that time, however, Amberg agreed to serve as a consultant for the remainder of the year. On April 14, 1964, Amberg died.

From March 31, 1960 through March 31, 1964, Roland Oldsmobile was a ‘participating unit’ under a group life insurance program contracted by Westland Associates (a cooperative association serving a number of automotive dealers) with the Union Central Life Insurance Co. (not a party to this action). On April 1, 1964, defendant Bankers Life Company replaced Union as life insurer of the Westland group. Both the Union policy and the Bankers policy contain similar classification provisions to the effect that the Class A (Class 1 under the Union policy) group eligible for $40,000 in life insurance consisted of actively employed proprietors, partners, and officers of the corporation (the so-called executive group).

It is undisputed that at the time Amgberg ceased to be an officer of the corporation, he ceased to be a member of the group eligible for Class 1 life insurance coverage under the Union policy or Class A coverage under Bankers Life policy.

Despite Amberg's ineligibility, Gertrude Muller, business manager of Roland Oldsmobile, whose duties included the collection and forwarding of premiums and the reporting of pertinent insurance information as required by the policy, continued to report Amberg's status to Westland as unchanged until April 15, 1964.

The sole question on appeal is whether this error on the part of Muller obligated defendant to pay benefits for Class A coverage to Amberg's beneficiary. The trial court in reaching its decision found Elfstrom v. New York Life Insurance Co., 67 Cal.2d 503, 63 Cal.Rptr. 35, 432 P.2d 731 to be determinative of this issue.

Our Supreme Court in Elfstrom in a landmark decision held that in group insurance programs the employer who aids in the administration of the program acts as agent for the insurer. Accordingly, the trial court in the instant case made the following findings of fact and conclusions of law.


‘III. It is true that defendant WESTLAND ASSOCIATES, INC. at all times pertinent to the within action was the agent of defendant BANKERS LIFE COMPANY, in connection with the adminis ration of the aforesaid group life policy.

‘* * *

‘VI. It is true that on or about April 1, 1964, defendant BANKERS LIFE COMPANY insured the life of Roland L. Amberg in the sum of $40,000, under its policy of group life insurance, bearing the number GL 5027.

‘* * *

‘XI. It is true that, Roland Oldsmobile, now known as Jim Kresl Oldsmobile, made monthly reports to defendant BANKERS LIFE COMPANY showing the employees of Roland Oldsmobile, now known as Jim Kresl Oldsmobile, covered under the group life policy, and showing said employees' respective classifications, and it is true that Roland Oldsmobile, now known as Jim Kresl Oldsmobile, remitted the premiums due for each of its employees to defendant BANKERS LIFE COMPANY.

‘XII. It is true that, at all times pertinent to the within action, Roland Oldsmobile, now known as Jim Kresl Oldsmobile, administered the subject group life insurance policy on behalf of defendant BANKERS LIFE COMPANY and it is true that Roland Oldsmobile, now known as Jim Kresl Oldsmobile, was the agent of defendant BANKERS LIFE COMPANY, in connection with the administration of the aforesaid group life insurance policy.

‘XIII. It is true that, at all times pertinent to the within action, Roland Oldsmobile, now known as Jim Kresl Oldsmobile, in its monthly reports to defendant BANKERS LIFE COMPANY showed Roland L. Amberg as an insured, classification A, $40,000 coverage, and it is true that Roland Oldamobile now known as Jim Kresl Oldsmoile, remitted to defendant BANKERS LIFE COMPANY the appropriate premium for Roland L. Amberg for Classification A, $40,000 coverage.

‘XIV. It is true that, at all times pertinent to the within action, Roland L. Amberg was erroneously designated as an officer by Roland Oldsmobile, now known as Jim Kresl Oldsmobile, in its monthly reports to defendant's agent WESTLAND ASSOCIATES, INC.

‘* * *

‘XVII. It is true that neither defendant BANKERS LIFE COMPANY, nor said defendant's predecessor, UNION CENTRAL INSURANCE COMPANY, nor Roland Oldsmobile, now known as Jim Kresl Oldsmobile, nor WESTLAND ASSOCIATES, INC., ever notified Roland L. Amberg that his group life insurance policy coverage had been terminated, either as a result of termination of employment or transfer to a class not eligible for insurance.


‘I. At all times pertinent herein, Roland Oldsmobile, now known as Jim Kresl Oldsmobile, was the agent of the defendant BANKERS LIFE COMPANY.

‘II. At all times pertinent herein, WESTLAND ASSOCIATES, INC., was the agent of defendant BANKERS LIFE COMPANY.

‘III. Defendant BANKERS LIFE COMPANY is bound by the act or acts of its agents, Roland Oldsmobile, now known as Jim Kresl Oldsmobile and WESTLAND ASSOCIATES, INC., in classifying Roland L. Amberg as an insured, Classification A, $40,000 coverage.

‘IV. That the life of Roland L. Amberg was insured by defendant BANKERS LIFE COMPANY in the sum of $40,000.’

As significant as Elfstrom is to the insurance law of California, it is not wholly determinative of the question presented here. The trial court's failure to limit the Elfstrom decision to both its factual perspectives and the corresponding legal rationales led it to erroneously conclude that the defendant herein was ‘bound by the act or acts of its agent’ and that ‘the life of Roland Amberg was insured by defendant for $40,000.’

As the court stated in Elfstrom, at p. 514, 63 Cal.Rptr. at p. 43, 432 P.2d at p. 739, ‘It does not inexorably follow from this conclusion, [that employer is agent of the insurer] however, that defendant is liable under the policy.’

The above referenced findings and conclusions are not supported by the evidence nor by principles of contract and agency law that are as germane to this case as the agency question settled by Elfstrom.

The court in Elfstrom adopted ‘the view that the employer acts as the agent of the insurer [based on the rationale that] * * * [a]n agency relationship is based upon consent by one person that another shall act in his behalf and be subject to his control.’ (Elfstrom, supra, at p. 513, 63 Cal.Rptr. at p. 42, 432 P.2d at p. 738.)

However, Elfstrom did not foreordain the seope and substance of the agency relationship in every given situation.1 To the contrary, the rationale that the agency relationship is based on the consent of the principal implies a power in the principal to limit or structure its agent's powers in any way consistent with the original insurance contract.

In the instant case the contract of insurance, in addition to the clear requirement of eligibility, contained the following:


‘No agent or other individual except an Officer of the Company has authority to make or modify this Policy or extend the time for payment of any premium.

‘No change in this Policy shall by valid unless made by endorsement hereon, or by amendment signed by the Group Policyholder and an Officer of the Company. * * * The Group Policyholder shall furnish such information as is necessary to administer this Policy whenever required by the Company. Clerical error on the part of the Group Policyholder in furnishing such information shall not invalidate insurance otherwise in force, nor continue insurance otherwise terminated.’ (Emphasis added.)

Thus, defendant by the specific provisions of its policies intended to limit the action of its agents and thereby limit the scope of its own liability. Defendant's clear intention was to insure only those persons who were eligible by the terms of the policy and to the amounts set out therein.

According to the Elfstrom rationale and holding, in order for us to contravene these specific provisions and thereby find that defendant ‘insured Amberg's life for $40,000’ there must be some conduct on the part of defendant or its agents which (1) created a contract of insurance for $40,000 on Amberg's life, or (2) which estopped defendant from denying such coverage.2

To be sure under Elfstrom, Westland and Mrs. Muller were agents of defendant in administering the policy. However, since under Elfstrom this agency relationship arises from activities in administering the policy it necessarily follows that the agency relationship between defendant and Westland and/or Muller was created simultaneously with the effective date of their policy—that is, April 1, 1964. Prior to that date there was no policy to administer.

Westland and Muller, as agents of appellant, had no actual authority to create insurance or to modify or waive the terms of the policy. Furthermore, there were no acts of Westland or Muller between April 1 and April 14, 1964, which created a contract of instrance for $40,000 on Amberg's life.

Plaintiff contends that, because of activity prior to April 1, 1964, in connection with the policy changeover the agency relationship detween Bankers Life and Westland predates the effective date of the policy. However, prior to April 1, 1964, the true relationship between Bankers Life and Westland was simply that of a seller of insurance and a prospective customer.

In January 1964, preparatory to taking over the master policy, Bankers Life Co. reviewed the enrollment cards which were then in use by the predecessor company. This review was to enable the defendant Bankers Life to calculate rates and to submit a proposal.

At the time Bankers Life took over it accepted its predecessor's enrollment cards which were then in the possession of Westland. It was contemplated that new enrollnent cards were to be prepared at a later time. Westland was asked by Bankers Life to update the beneficiary designations contained on the enrollment cards. Bankers Life picked up the first premium check in advance from Westland in March of 1964.

None of these acts are sufficient to construct an agency relationship between Mrs. Muller and Westland and Bankers Life prior to April 1, 1964.

Even if Mrs. Muller's acts prior to April 1, 1964 are imputed to appellant under the Elfstrom agency theory, appellant's obligation, if it is to exist at all, must rest upon the theory of Mrs. Muller's ostensible authority giving rise to estoppel.

Mrs. Muller, the office manager, was Amberg's secretary. She made out payroll deductions and remitted reports of new enrollments and changes in classifications to Westland, Union Central Life Insurance, and later to Bankers Life.

In January 1964, she was told that Amberg was no longer the owner. However, to her observations his activities were generally the same. As far as she knew his classification remained the same.

An individual certificate bearing Amberg's name apparently was prepared by Westland on a blank form furnished by the defendant. The certificate described the various classifications and amounts and did not indicate any particular classification for Amberg. Mrs. Muller did not prepare said certificate.

The certificate contained in rather large type the statements ‘[a]ll rights and benefits are determined by the Master Group Policy’ and ‘[a]ny change in amount of insurance as a result of a change in classification shall become effective as provided in the Group Policy.’

This certificate was placed in evidence through the testimony of an attorney representing the estate who said he received the certificate from Roland Oldsmobile along with other documents ‘which belonged to or were held for Mr. Amberg.’

There was no evidence that Amberg had actually received this certificate. It is clear that if Amberg had seen this certificate he would have been on notice of his ineligibility for Class A coverage as well as Mrs. Muller's lack of authority to so classify him. If he did not see it he could not have relied on it as evidence of his being covered.

Amberg took no part in the processing of the group insurance program.

Amberg and Kresl at the time of the sale of the stock did not discuss Amberg's group life insurance.

Westland and Bankers Life agreed that at the end of April 1964, Westland would make a report concerning the people who were covered and any changes of status. A report was made by Mrs. Muller and premiums forwarded for personnel of Roland Oldsmobile Co. on April 15, 1964. The report erroneously and without Amberg's knowledge listed him in Class A. This, and the preparation of the certificate, is the only activity by Mrs. Muller or Westland after April 1, 1964, which is reflected in the record.

Against this background, we must ask ourselves what acts or omissions on the part of defendant or its agents on or after April 1, 1964, could estop defendant from denying Class A coverage to a person who was clearly ineligible under the contract? The state of mind of Mrs. Muller and Amberg was critical.

Muller Knew that Amberg was no longer an owner but believed that Amderg's insurance status was unchanged. She, therefore, did not intend to waive any policy provision in favor of Amberg. This is necessarily the position of Westland as Muller acted as their sub-agent. Waiver requires an intentional relinquishment of a known right. (Scott v. Fed. Life Ins. Co., 200 Cal.App.2d 384, 19 Cal.Rptr. 258.)

‘An essential element of both estoppel and of waiver is knowledge of the true facts. There can be no waiver * * * except when there is an intention to relinquish a known right.’ (Anaheim Bldrs. Supply, Inc. v. Lincoln Nat. Life Ins. Co., 233 Cal.App.2d 400, at p. 401, 43 Cal.Rptr. 494, at p. 500.)

Furthermore, since neither Mrs. Muller nor Westland had the actual authority to waive any provision of the policy, defendant could not be ‘bound by their actions' unless their conduct created a reliance by Amberg which in turn would estop defendant from denying coverage. (Moriarty v. California W.S.L. Ins. Co., 22 Cal.App.2d 260, 70 P.2d 684.)

“Although waiver and equitable estoppel are not always distinguished in the cases, they rest upon different legal principles. There may be an epuitable estoppel where there is no waiver in the technical sense. Waiver is a voluntary relinquishment, expressly or impliedly, of a known right and depends upon the intention of one party only. Equitable estoppel is based upon the fundamental principle that ‘one's conduct has induced another to take such a position that he will be injured if the first is permitted to repudiate his acts.’ [Citation.]” (Morgan v. International Aviation Underwriters, Inc., 250 Cal.App.2d 176, at p. 180, 58 Cal.Rptr. 164, at p. 166.)

Plaintiff urges that Amberg was unfamiliar with the details of his policy. Aside from the findings that Amberg made no false representation and was therefore guilty of no fraud, the record is completely devoid of evidence as to Amberg's state of mind. In attempting to support the judgment, we are required to adopt all inferences most favorable to plaintiff. However, plaintiff is not aided either way. If Amberg was familiar with the policy, of course, he would know of his change of status. Finding that Amberg lacked knowledge avails the plaintiff of nothing because there is then no basis upon which to assume that Amberg reasonably believed he was covered for $40,000.

Neither defendant nor its agents did or omitted anything on or after April 1, 1964, upon which Amberg relied to his detriment. It does violence to logic to assume that if Amberg knew he was insured for $40,000 at one time (and he must have so known at the time of the original enrollment with Union) that he wouldn't also know that that high figure was payable because he occupied a particularly high position with the company.

Amberg could not have relied in good faith on Muller waiving or altering the policy provisions. A third party who deals with an agent and who knows of the agency is under a duty to ascertain its scope. (See 1 Witkin, Summary of California Law, Agency and Employment, § 39, p. 417.) Employees or third party beneficiaries to an insurance contract can gain no greater rights than are provided in the policy. (See 1 Appleman, Insurance Law & Practice, p. 59.)

It follows then that defendant was not estopped to deny Class A Coverage to Amberg. The court's fendings and conclusions to the effect that Amberg's life was insured for $40,000 are not supported by the evidence and are erroneous as a matter of law.

The court did find, however, and this finding is supported by the evidence, that ‘at all times pertinent to the within action, Roland L. Amberg was an employee of Roland Oldsmobile, now known as Jim Kresl Oldsmobile.’ According to the terms of the master policy, Amberg was then eligible for coverage in the amount of $5,000. The record supports the finding that premiums were paid on behalf of Amberg. Judgment should have been in favor of Amberg for $5,000.

This leaves us with the question of interest. In view of the fact that prior to trial, defendant made a tender of $5,000, which was declined by the plaintiff, interest is awarded from the date of entry of the original judgment.

Judgment is reduced to $5,000 with interest from August 28, 1969, and affirmed as modified.

Parties to bear their own costs on appeal.


1.  It is of interest to note that the Legislature in 1968, apparently as a result of the Elfstrom decision, amended section 10209 of the Insurance Code to provide, inter alia, ‘* * * The contract of insurance and individual certificate may contain provisions defining the extent to which the employer acts as the agent of the employee or may act as the agent of the insurer.’

2.  It is our interpretation of Elfstrom that the ostensible agency relationship between Mr. Elfstrom's secretary and his insurer causally precipitated Mr. Elfstrom's detrimental reliance on that relationship. It therefore followed that because of that detrimental reliance (the misbelief that Elfstrom's daughter was insured) Elfstrom was enabled to estop his insurer from denying liability for the payments on the death of Elfstrom's daughter.

COMPTON, Associate Justice.

ROTH, P. J., and HERNDON, J., concur.

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