Keniston v. American National Insurance

Plaintiff appeals from a summary judgment entered in favor of defendant American National Insurance Company in a class action plaintiff filed against American, Budget Financial Corporation and Budget Finance Plan.

The action was brought to recover a portion of credit insurance premiums allegedly refunded by American to Budget pursuant to the provisions of group credit life and group credit disability insurance policies which American issued to Budget, and under which plaintiff and the other members of the class became insured upon borrowing money from Budget and paying premiums for coverage under the group policies.

The complaint alleged: defendants Budget Financial Corporation and its subsidiary, Budget Finance Plan, are licensed personal property brokers under the laws of California; defendant American is an insurance company authorized to transact, and transacting, business in California; beginning in 1959 American issued to Budget various policies of group credit life and group credit disability insurance which provided that persons borrowing money from Budget could become insured thereunder against the contingency of death or disability, or both, with regard to their indebtedness to Budget; when a borrower was included as an insured under the group policy, he was charged a premium which was added to the amount of his loan, and he received a certificate from American indicating that he was insured under the master policy issued to Budget; the class represented by plaintiff included all persons who borrowed money from Budget after 1959 and became insured under the master policy upon paying the required premium; at all times the claim and loss experience of American with regard to the group credit insurance written for Budget was favorable and, “during each of the years dealt with herein,”^[1] American returned a sum of money to Budget in the form of “dividends” or “premium refunds”; substantially all of the premiums were paid by plaintiff class, and the premium refunds exceeded Budget’s contributions and expenses of administering the policies; therefore, under Insurance Code sections 10214 and 10270.65, the sums were the property of the members of the class; the entire amount of each of the premium refunds paid by American to Budget was retained by Budget for its own use and was not paid to, or applied for the benefit of, the class, as required by sections 10214 and 10270.65.

It was further alleged: defendants participated in a “common plan”

Pursuant to leave of court, plaintiff filed an amendment to the complaint alleging: Budget was authorized by plaintiff class to purchase credit insurance on its behalf; therefore, in purchasing the insurance Budget was acting as the “agent and fiduciary” of the class, and in such capacity had a duty to obtain credit insurance at the lowest possible rate; instead, Budget sought out the highest rate as part of the plan to make a profit for itself at the expense of plaintiff class; Budget was acting as agent for American by collecting the premiums from the class members and remitting the premiums to American; the acts of Budget in receiving and retaining profits from American were within the scope of its agency; therefore American, as principal, was responsible for the wrongful acts of Budget.

Based upon the foregoing allegations plaintiff, on behalf of himself and all members of the class, sought judgment for $100,000 compensatory damages^[2] and $100,000 punitive damages.

American and Budget filed answers denying all allegations of the complaint and the amended complaint. These answers also pleaded affirmative defenses, including various statutes of limitation. Thereafter, American moved for summary judgment. (Code Civ. Proc., § 437c.) Supporting and opposing declarations were filed. The motion was granted and summary judgment was entered in favor of American.^[3] On this appeal, plaintiff contends that American “failed to controvert all causes of action alleged in the complaint.” By this statement, appellant apparently means that the declarations filed in support of the motion did not set forth facts

Appellant sought recovery, first, on the theory that under Insurance Code sections 10214 and 10270.65 he and the class members were entitled to all of the premium refunds paid by respondent to Budget except that portion which represented Budget’s contributions and costs of administering the credit insurance program. Section 10214 provides: “If hereafter any dividend is paid or any premium refunded under any policy of group life insurance heretofore or hereafter issued, the excess, if any, of the aggregate dividends or premium refunds under such policy over the aggregate expenditures for insurance under such policy made from funds contributed by the policyholder, or by an employer of insured persons or by union or association to which such insured persons belong, including expenditures made in connection with the administration of such policy, shall be applied by the policyholder for the benefit of such insured employees generally or their dependents or insured members generally or their dependents.” Section 10270.65 contains identical provisions with respect to a policy of group disability insurance.

Appellant also sought recovery on theories which may be summarized as follows: (1) respondent violated its duty to appellant by charging excessive rates for credit insurance, and by failing to see that Budget paid members of the insured class their rightful share of the premium refunds; (2) Budget acted as respondent’s agent in administering the credit insurance program, and therefore respondent was liable for Budget’s allegedly wrongful act of withholding premium refunds from the class; and (3) respondent and Budget engaged in a conspiracy whereby unlawful rebates were paid by respondent to Budget.

Among other affidavits submitted by American in support of its motion for summary judgment was that of W. L. Harlan, which stated, preliminarily, that: from September 15, 1966, to July 1970^[4] he was the manager of respondent’s credit insurance division; in this position he had charge of the issuance and administration of all group policies of credit life and credit disability insurance issued by respondent; in the course of performing these duties, affiant had acquired personal knowledge of the facts set forth, and if sworn as a witness he could testify competently to such facts. Mr. Harlan then stated: respondent issued several group policies of credit life and credit disability insurance to Budget Finance Plan; these policies

Thus, under the provisions of the master policies, any refunds of credit insurance premiums were to be paid to Budget, not to appellant or to members of the class he purported to represent. A policy of group insurance is a contract, and the rights and duties of the parties thereto are governed by the provisions of the master policy. (See Boseman v. Insurance Co. (1937) 301 U.S. 196 , 202-203 [ 81 L.Ed. 1036 , 1039-1040, 57 S.Ct. 686 , 110 A.L.R. 732 ].) Therefore,, where the master policy expressly provides that premium refunds or dividends are to be paid to the policyholder, the individual members of the group insured under the policy have no right to receive such payments from the insurer. (Slattery v. Pullman Co. (1959) 38 Del.Ch. 387 [ 153 A.2d 575 , 577].) If, under Insurance Code sections 10214 and 10270.65, Budget was required to pay appellant a portion of the premium refunds received from respondent, American, nevertheless respondent would have no liability to appellant because of Budget’s alleged refusal to pay appellant.

Respondent had no knowledge of the amounts of Budget’s administrative expenses, and thus was not in position to know whether Budget was entitled to retain for itself the entire sum refunded. Contrary to appellant’s contention, respondent had no duty to obtain such knowledge by conducting an audit of Budget pursuant to California Administrative Code, title 10, section 2248.8,^[5] adopted under authority of Government Code section 11409 et seq. These provisions have no application to the facts alleged. If appellant class is entitled to a premium refund under Insurance Code sections 10214 and 10270.65, the duty to make such refund is imposed upon Budget by these statutes, and is not one “delegated” to Budget by respondent, the insurer.

In opposition to the motion, appellant submitted three declarations of his attorneys. These declarations set forth the following facts: at the request of Budget, respondent reinsured, with Transnational Insurance Company and Transnational Life Insurance Company, 100 percent of the risk under the group credit insurance policies issued by respondent to Budget; Transnational was a subsidiary of Budget.^[6] The declarations also purported to set forth “facts” showing that the experience rating refunds alleged to have been paid by respondent to Budget actually were paid to Transnational, thereby diverting from Budget the funds to which appellant and his class were entitled.

We note at the outset that the subject matter of the declarations was improper, for it was not directed to any of the issues raised by the pleadings and, in fact, was directly contrary to the allegation in appellant’s complaint that respondent had paid the refunds to Budget. Affidavits on a motion for summary judgment must be directed to the issues raised by the pleadings. (Family Service Agency of Santa Barbara v. Ames (1958) 166 Cal.App.2d 344 , 348 [ 333 P.2d 152 ].) “The counteraffidavits filed in response to a defendant’s motion for summary judgment may not create issues outside the pleadings; are not a substitute for an amendment to the pleadings; and are an ineffective defense to the motion unless they ‘set forth facts showing that ... a good cause of action exists upon the merits.’” (Craig v. Earl (1961) 194 Cal.App.2d 652 , 656 [ 15 Cal. Rptr. 207 ].)

Aside from the improper subject matter of the opposing declarations, however, they were defective as to form and content. They did not comply with the requirements of Code of Civil Procedure section 437c, which provides in part: “The affidavit or affidavits in opposition to said motion shall be made by the plaintiff ... or by any other person having knowledge of the facts, and together shall set forth facts showing that . . .