ELFSTROM v. NEW YORK LIFE INSURANCE COMPANY (1967)

OPINION

Plaintiff, president and principal stockholder of Fullerton Publishing Company, brought this action to collect life insurance benefits from defendant alleging that is minor daughter was insured under a group life plan carried by the publishing company with defendant.   Defendant answered, denying liability, and cross-complained for rescission and declaratory relief.   Following a trial by the court, judgment was rendered for defendant on the complaint and cross-complaint.   Plaintiff appeals.

In 1955, defendant issued a group policy to the publishing company under a “self accounting” or “self administering” plan under which the employer, through its bookkeeper, Sabina Still, received applications, issued individual certificates of insurance, remitted premiums, and rendered monthly statements to defendant.

In June 1958 plaintiff's minor daughter, Brenda, began to work for the publishing company on a part-time basis after school hours.   Being then under the age of 19, she was carried as plaintiff's dependent and not as an insured employee.   In the fall and spring of 1958–1959 and 1959–1960, until she was forced to leave because of illness, Brenda was a full-time resident student at the University of Southern California.   In the summer of 1959 she worked at the publishing company following a morning class at Fullerton Junior College.   From January 1959 to june 1959 she received $50.00 per month;  from June 1959 to September 1959, $200.00 per month;  and in the succeeding months, $100.00 per month.   Her 19th birthday was December 23, 1959, after which, under the terms of the master policy, she could no longer be carried as a dependent.

In August 1959, prior to his departure on an extended trip to Europe, plaintiff, aware of Brenda's impending 19th birthday, told his bookkeeper to take care of his daughter's insurance.   Presumably pursuant to that instruction, in August 1959, Sabina Still had Brenda sign an enrollment application in blank and placed it in a pending file.   On November 30, 1959, Mrs. Still dated and filled in the blank spaces in the application form to request “Class C” coverage for $4,000, giving Brenda's basic salary as $200.00 per month and her date of employment as June 1, 1959, and prepared a certificate of insurance naming plaintiff as beneficiary.   The certificate was either delivered to Brenda or left on plaintiff's desk.   From December 1959 the monthly premium checks to defendant included an amount for premiums for Brenda's insurance.

In the spring of 1960 Brenda became ill and left the university.   On June 1, 1960, defendant paid her claim in the sum of $149.39 for certain medical expenses.   She died on June 8, 1960.

Plaintiff filed with defendant proof of death and a claim for $4,000, the alleged life insurance coverage on Brenda.   Plaintiff was thereafter informed that defendant had investigated the claim and objected to its payment on the ground that Brenda was ineligible because she was not a full-time employee working at least 32 hours a week as required by the master policy and she was not drawing a salary of 4200.00 per month as required for “Class C” coverage.   Upon learning of defendant's objection, plaintiff instructed Mrs. Still to submit to defendant an adjusted monthly report showing that Brenda should have been enrolled as an officer of the publishing company and to remit the difference in premiums which amounted to $91.84.   Plaintiff thereafter filed with defendant a claim for $20,000 on the theory that Brenda was covered as an officer.   Defendant accepted the additional premium but in October, 1960, tendered its repayment and gave written notice that the insurance as to Brenda was rescinded.

Plaintiff alleged four causes of action.   The first claimed $20,000, alleging that Brenda had met the requirements for coverage as an officer;  the second sought $4,000 on the ground that Brenda was an employee who met the requirements for “Class C” coverage;  the third and fourth causes of action sought $20,000 and $4,000 respectively on the ground that defendant had waived the eligibility requirements for Brenda's coverage.

The court rendered judgment for defendant as to all causes of action and, on the cross-complaint, ordered rescission.

Plaintiff does not attack the judgment as to his claim for $20,000.¹  He seeks reversal only as to that portion of the judgment denying recovery of $4,000 for Brenda's alleged coverage as an employee.

Plaintiff contends that (1) the finding that the enrollment application contained material misrepresentations is unsupported by the evidence;  (2) Mrs. Still was, as a matter of law, the agent of the defendant and, hence, defendant either waived the conditions of eligibility which it now seeks to assert, or is estopped from objecting to coverage;  and (3) defendant, by issuing a certificate of insurance, accepting premiums, and paying the bill for medical expenses, is estopped from denying coverage.

 The contention that the application did not contain material misrepresentations is without merit.   Under the master policy, in order to be eligible for “Class C” coverage for $4,000, the employee must earn at least $200.00 per month.   Brenda's application was for “Class C” coverage and stated that her basic pay was $200.00 per month when, in fact, as the court found, she was receiving substantially less.   The misrepresentation was obviously material to the contract of insurance.  (Sects. 334 and 360, Ins. Code.)

 In addition to the foregoing, the application represented that it was signed on November 30, 1959, although the undisputed evidence was that Brenda signed it in blank in August, 1959.   As of November 30, 1959, and for several months prior thereto, Brenda had been a full-time resident student at the University of Southern California;  she was not a full-time, active employee working 32 hours per week as required by the master policy.   Non-disclosure of this fact constituted a concealment of a material fact.  Section 332 of the Insurance Code provides:

“Each party to a contract of insurance shall communicate to the other, in good faith, all facts within his knowledge which are or which he believes to be material to the contract and as to which he makes no warranty, and which the other has not the means of ascertaining.”

(See Robinson v. Occidental Life Insurance Co., 131 Cal.App.2d 581, 281 P.2d 39;  Cohen v. Penn Mut. Life Ins. Co., 48 Cal.2d 720, 725–726, 312 P.2d 241;  New York Life Ins. Co. v. Gist, 9 Cir., 63 F.2d 732.)

 The true facts were known to Brenda, Mrs. Still, and the plaintiff.   By signing the application in blank and delivering it to Mrs. Still, Brenda authorized Mrs. Still to secure insurance coverage for her and assumed responsibility for the representations made in her application.

“Ordinarily one who procures another to obtain insurance for him thereby makes such person his agent and assumes full responsibility for his acts.”

(Purcell v. Pacific Automobile Ins. Co., 19 Cal.App.2d 230, 233, 64 P.2d 1114, 1115;  Bennett v. Northwestern Nat. Ins. Co., 84 Cal.App. 130, 257 P. 586;  Solomon v. Federal Ins. Co., 176 Cal. 133, 167 P. 859;  Universal Ins. Co. v. Manhattan Motor Line, 82 Cal.App.2d 425, 431, 186 P.2d 327.)

Plaintiff's basic contention is that Mrs. Still was, as a matter of law, the agent of the defendant and defendant therefore either waived the conditions of eligibility or is estopped to assert them.

 In this state, however, it has been held that in administering a group policy, an employer does not act as the agent of the insurer, but acts as the agent of the employee or for himself.  (Blos v. Bankers Life Co., 133 Cal.App.2d 147, 150–151, 283 P.2d 744;  Eason v. Aetna Life Ins. Co., 212 Cal.App.2d 607, 611, 28 Cal.Rptr. 291.)   Both cases relied upon Boseman v. Connecticut General Life Ins. Co., 301 U.S. 196 at page 204, 57 S.Ct. 686 at page 690, 81 L.Ed. 1036, where the court stated:

“Employers regard group insurance not only as protection at low cost for their employees but also as advantageous to themselves in that it makes for loyalty, lessens turn-over and the like.   When procuring the policy, obtaining applications of employees, taking pay roll deduction orders, reporting changes in the insured group, paying premiums, and, generally, in doing whatever may serve to obtain and keep the insurance in force, employers act not as agents of the insurer, but for their employees or for themselves.”

Defendant relies upon John Hancock Mut. Life Ins. Co. of Boston v. Dorman, 9 Cir., 108 F.2d 220, which is in apparent conflict with the California decisions although the court in Blos v. Bankers Life Co., supra, 133 Cal.App.2d 147 at page 151, 283 P.2d 744 distinguished Dorman on the ground that the individual certificate of insurance in Dorman contained terms and conditions not included in the master policy.   Significantly, Eason v. Aetna LIfe Ins. Co., supra, 212 Cal.App.2d 607, 28 Cal.Rptr. 291, made no reference to Dorman.

Conflicting decisions on this issue have been summarized as follows in Appeleman, Insurance Law and Practice, Vol. 1 at pp. 54–55:

“There is a distinct conflict of authority as to whether the employer acts as the agent of the insured or of the insurer in making the contract and keeping it in force.   A number of cases have followed the more or less conventional rule that persons not regularly appointed agents or acting solely for the benefit of the company must be regarded as agents of the insured and have so held.   In most respects, this rule would seem to be a sound one.   The reason for it, however, could better be rested upon another ground.   After all, the real insured is not the employee but the entity or group of employees;  each employee is in the nature of a beneficiary entitled to receive certain privileges or benefits by reason of that insurance.   Therefore, the employer, as representative of that entity, really is the agent of the insured.

“A number of cases, however, feeling that in this type of insurance liberal rules of construction ought to prevail and the individual employee not subjected to loss because of the acts of the employer, over whom he has o control, have held that the employer is the agent of the company rather than of the insured.   While this view may not rest upon quite as sound a legal footing, it is, in some respects, a more equitable view.   From the strict legal point of view, it is to some extent justified in that the employer collects the premiums from the employees and pays them over to the insurer, in that he often issues, cancels, and otherwise controls the individual policies which are issued to the employees, and, further, that the employees have no knowledge or control over the representations which the employer may make to the insurer.”

 In the instant case, there is substantial evidence that the group insurance was to be a “self accounting” or “self administering” plan.   The employer, not the insurer, designated Mrs. Still as the one to maintain records, take applications, issue individual certificates, and to make monthly reports to the insurer.   Neither the names of the employees nor their employment records were ever submitted to the defendant.   Nor is this a case where an employer has made an honest mistake in supposing a person to be a bona fide employee qualified for the insurance.   Based upon the evidence and the law as stated in Blos v. Bankers Life Co., supra, 133 Cal.App.2d 147, 283 P.2d 744, and Eason v. Aetna Life Ins. Co., supra, 212 Cal.App.2d 607, 28 Cal.Rptr. 291, the trial court properly found, in the circumstances here presented, that Mrs. Still was acting as the agent of the alleged insured and not of the defendant.

Plaintiff contends that section 10209 of the Insurance Code ² imposed on defendant a non-delegable duty to issue individual certificates of insurance so that by delegating that responsibility to Mrs. Still in contravention of the statute, defendant is estopped to deny coverage.   No relevant authorities are cited for this proposition and we find none to support it.  Espree v. Western PIoneer Ins. Co., 159 Cal.App.2d Supp. 875, 324 P.2d 749, cited by plaintiff, is not in point.   In that case, plaintiff sued the insurance company to recover the cost of repairing a vehicle damaged in a collision.   Plaintiff purchased insurance coverage when he bought the vehicle and received a certificate which recited coverage for risks including “collision or upset.”   The certificate contained none of the exclusions or conditions of the insurance policy which, although delivered to the lien holder, was never delivered to the owner as required by section 383.5 of the Insurance Code.   In these circumstances, it was held that the insurer could not rely on conditions or exclusions not disclosed to the insured in the manner provided by statute.

 In the instant case the master policy did contain the provision required by section 10209 of the Insurance Code and individual certificates were issued by delivery in blank to the employer for delivery to an employee upon enrollment.   We find nothing in the statute which proscribes this procedure.

 It was not incumbent on the defendant, as suggested by plaintiff, to investigate each employee application prior to the issuance of an individual certificate.   The purpose sought to be accomplished by group insurance, namely low-cost insurance to members of a defined group, would be largely defeated if each individual application had to be investigated by the insurance company.   In Schrader v. Prudential Insurance Co. of America, 5 Cir., 280 F.2d 355 at page 362, the court observed:

“A considerable part of the low cost of group hospitalization insurance is attributable to handling the insurance on a group basis and not on an individual basis.   This Court is not willing to require that an insurance company go to the extra expense, passed on to policy holders by way of higher premiums, of handling health impairments in group insurance in the same manner as health impairments in individual insurance, where the applicant has consciously misrepresented the true facts in breach of his duty of good faith.”

 Even assuming that Mrs. Still was the agent of the insurer, the findings that defendant did not waive the conditions of eligibility nor was estopped to assert them, are supported by substantial evidence.

“Whether a waiver has occurred is usually a question of fact the determination of which, if supported by substantial evidence, will not be disturbed on appeal (Grantham v. State Farm, etc., Ins. Co., 126 Cal.App.2d Supp. 855, 862, 272 P.2d 959, 48 A.L.R.2d 1088;  Phillips v. Reserve Life Ins. Co., 128 Cal.App.2d 540, 547, 275 P.2d 554), unless the only inference which can be drawn from the evidence is to the contrary.  (Huttlinger v. Far West Enterprises, 131 Cal.App.2d 808, 811, 281 P.2d 554;  O'Connell v. Weitzman, 168 Cal.App.2d 400, 404, 336 P.2d 592.)   The rule is the same for estoppel.  (Cardosa v. Fireman's Fund Ins. Co., 144 Cal.App.2d 279, 282–283, 300 P.2d 875;  Sawyer v. City of San Diego, 138 Cal.App.2d 652, 662, 292 P.2d 233.)”  (Scott v. Federal Life Ins. Co., 200 Cal.App.2d 384, 392, 19 Cal.Rptr. 258, 263.)

 To constitute a waiver of a policy provision by the insurer, there must have been a intentional relinquishment of a known right or conduct so inconsistent with the intent to enforce the right as to induce a reasonable belief that the right has been relinquished.  (Record v. Indemnity Ins. Co., 103 Cal.App.2d 434, 229 P.2d 851;  See Scott v. Federal Life Ins. Co., supra, 200 Cal.App.2d 384, 391, 19 Cal.Rptr. 258.)

 Although, ordinarily, knowledge of an agent is knowledge of the insurer (Layton v. New York Life Ins. Co., 55 Cal.App. 202, 202 P. 958;  Kleiber Motor Truck Co. v. International Indemnity Co., 106 Cal.App. 709, 289 P. 865), knowledge is not imputable when the agent is acting adversely or fraudulently against the interest of the insurer (Mutual Life Ins. Co. v. Hilton–Green, 241 U.S. 613, 36 S.Ct. 676, 60 L.Ed. 1202;  Adler v. New York Life Ins. Co., 8 Cir., 33 F.2d 827).

 In the instant case the alleged insured (Brenda), the beneficiary (plaintiff), and Mrs. Still (the alleged, agent of insurer), knew that the insured was ineligible under the terms of the master policy.   It may be reasonably inferred from the evidence that in enrolling Brenda, despite the knowledge that she was ineligible, Mrs. Still was acting in the interest of and under the direction of plaintiff who was, to all intents and purposes, her employer.   In these circumstances, knowledge of Mrs. Still may not be imputed to defendant.

 The finding that defendant was not estopped to assert ineligibility is likewise supported by substantial evidence.

“ ‘[T]he party relying upon the doctrine of equitable estoppel must prove the existence of the four required elements essential to its application:  (1) that the party to be estopped must be apprised of the facts;  (2) he must intend that his conduct will be acted upon, or act in such a manner that he intended his conduct to be acted upon;  (3) the party asserting the estoppel must be ignorant of the true state of the facts;  and (4) he must rely upon the conduct to his injury.  [Citations] * * *.’ ”

(Crestline Mobile Homes Mfg. Co. v. Pacific Finance Corp., 54 Cal.2d 773, 778–779, 8 Cal.Rptr. 448, 356 P.2d 192;  Scott v. Federal Life Ins. Co., supra, 200 Cal.App.2d 384, 391, 19 Cal.Rptr. 258.)

 The essential elements for estoppel were not here present.   Defendant was not apprised of the facts;  plaintiff and Brenda were not ignorant of the true facts;  and there is no evidence that either plaintiff or Brenda relied to their detriment on defendant's conduct.   Significantly, the cover sheet of the certificate of insurance which was issued by Mrs. Still upon Brenda's purported enrollment plainly provided:

“New York Life Certifies that, subject to the provisions and conditions of the above-numbered Group Policy, you are insured under that policy as of the effective date of this certificate, if you are then at active full-time work (otherwise as of the day you return to active full-time work).”  (Emphasis supplied.]

Brenda was not a full-time, active employee on December 1, 1959, nor did she thereafter ever acquire that status prior to her death.

 The fact that a medical bill was paid by defendant cannot, in the circumstances here presented, form the basis for an estoppel.   Defendant was led into making the payment through the misrepresentation and concealment of material facts by the insured.   Estoppel does not operate in such circumstances.  (John Hancock etc. Ins. Co. v. Markowitz, 62 Cal.App.2d 388, 408, 144 P.2d 899.)

 Plaintiff's contention that the judgment on the cross-complaint for rescission was invalid by reason of section 650 of the Insurance Code is without merit.   That section provides:

“Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this part such right may be exercised at any time previous to the commencement of an action on the contract.”

The instant action was filed on October 18, 1961, but prior thereto, on October 21, 1960, defendant refunded the excess premiums paid for Brenda's coverage and gave the employer a written notice of rescission.

The judgments on the complaint and cross-complaint are affirmed.

FOOTNOTES

1.   Brenda had been an assistant treasurer of the publishing company from April 11, 1958, but the court found that she did not otherwise meet the requirements for coverage as an officer.

2.   10209 of the Insurance Code provides, in part, as follows:  “EXcept as provided by Sections 10203.5, 10203.6 and 10203.8, the policy shall contain a provision that the insurer will issue to the employer for delivery to the insured employee an individual certificate setting forth:  (a) A statement as to the insurance protection to which the employee is entitled and to whom payable.  * * * ”

TAMARA, Associate Justice.

McCABE, P.J., and KERRIGAN, J., concur.