Lambros v. Metropolitan Life Insurance

3 Cal. Rptr. 3d 320, 111 Cal. App. 4th 43

• Court: California Court of Appeal
• Decided: August 14, 2003
• Docket: B158405
• Status: Published

Opinions

Opinion

ARMSTRONG, J.

This case concerns the application of Insurance Code section 481 to appellant Vasillos S. Lambros’s life insurance policy, issued by respondent Metropolitan Life Insurance Company(MetLife). That statute provides that “(a) Unless the insurance contract otherwise provides, a person insured is entitled to a return of premium if the policy is canceled, rejected, surrendered, or rescinded, as follows: ... (2) Where the insurance is made for a definite period of time and the insured surrenders his policy, to such proportion of the premium as corresponds with the unexpired time....” (Ins. Code, § 481, subd. (a)(2).)

On respondent’s motion for summary judgment, the trial court determined that appellant’s policy did “otherwise provide.” We agree, and affirm the ensuing judgment in favor of MetLife.

Facts

On August 20, 1948, in Washington D.C., appellant bought a $100,000 whole life insurance policy from MetLife. The policy had an annual premium of $2,420, payable once a year on the anniversary of the policy’s purchase. The policy provided that payment of the annual premium maintained the policy for a period of 12 months.

The policy also provided that appellant could surrender the policy and “receive a Cash Surrender Value which shall be equal to the cash value according to the table on page 5, plus the reserve on any paid-up dividend additions and plus the amount of any dividend accumulations then outstanding to the credit of this Policy, and less any indebtedness, including interest then accrued, for which this Policy is security to the Company.”

The “table on page 5” sets forth the “benefits available at the end of the year indicated,” based on “number of years policy has been in force with all due premiums paid,” for the next 31 years.¹ In the section which immediately follows the table, the policy provides that “The cash value at anytime prior to the end of the period for which premiums have been paid shall be the cash value at the end of such period less interest from the date of payment to the end of such period at the effective rate of 5 percent per annum.”

Text following the table explained that the benefits on surrender “are computed by the Standard Nonforfeiture Value Method producing values equal to the full net level premium reserve for the fifteenth and all subsequent anniversaries....”

In September 1998, after paying his August 1998 premium, appellant submitted a request to surrender his policy. On or about October 23, 1998, MetLife sent him a check for $5,951 and a statement which explained that the amount was calculated by adding the cash value of $80,538 to the “current dividend” of $4,795² and the “terminal dividend” of $7,200, then subtracting the total of an outstanding loan and the interest on that loan. The statement also showed that the policy would remain in effect until August 20, 1999. The cash value did not include a refund of any portion of the premium paid on August 20, 1998.

Appellant sued MetLife for breach of contract and for violation of Business and Professions Code section 17200 et seq.,³ contending that nothing in the policy allowed MetLife to respond to his request for surrender by continuing coverage and retaining the full premium, and that MetLife was obligated instead to terminate coverage and refund a portion of his premium. MetLife moved for summary judgment, as did appellant.⁴

In addition to the undisputed facts set forth above, MetLife proposed as undisputed that “[t]he Policy did not contain a provision for a refund of any part of the annual premium when it was surrendered prior to the end of a Policy year.” Appellant agreed that the policy did not contain such a provision, but contended that by operation of law, Insurance Code section 481 was incorporated into the policy and made a part of it.

In the separate statement which accompanied his cross-motion for summary judgment, appellant proffered evidence concerning MetLife’s policies and practices regarding refund of premiums in policies such as his. Some of this evidence comes from the deposition of Jeanne Keller, supervisor of MetLife’s rates and values department. She testified that MetLife does not refund premiums when policies such as appellant’s are surrendered for cash value, and that MetLife so notifies policyholders at the time of surrender.⁵

Appellant also proffered documents relating to a 1943 resolution of the MetLife board, in which that board noted that the cash surrender value of a whole life policy (then termed an “ordinary policy”) was approximately the same as the sum the insured could secure by taking out the maximum available loan on the policy. The board also noted that if the loan option was chosen, the policy would remain in force. The board thus resolved that when a policy was surrendered prior to the next premium due date, “in the event of death or disability of the insured on or before such due date, the same death or disability benefit be granted that would have been granted had the amount of the cash surrender been advanced as a loan.” MetLife decided not to mention this practice in sales presentations, because it could be changed.

The trial court granted MetLife’s motion and denied appellant’s, determining that nothing in the policy entitled appellant to a refund of premiums and that Insurance Code section 481 did not apply because the statute does not apply to life insurance, citing Jennings v. Prudential Ins. Co. (1975) 48 Cal.App.3d 8 [121 Cal.Rptr. 125], and because the policy, in the words of Insurance Code section 481, “otherwise provides.” The court also determined that the cause of action under Business and Professions Code section 17200 was derived from the contract claim and fell with it.

Discussion

In Jennings v. Prudential Ins. Co., supra, 48 Cal.App.3d 8, the insured surrendered his life insurance policy, deposited the insurance company’s check for the cash surrender value, and died a few days later. The insured’s widow sued for policy benefits, contending, inter aha, that because the insurance company had not fulfilled its Insurance Code section 481 obligation to return premiums, the policy remained in force. (48 Cal.App.3d at p. 16.) The trial court rejected the contention and we affirmed.

We ruled that “We find no merit in appellant’s contention that Insurance Code section 481 is applicable. Appellant cites no authority applying section 481 to the cash surrender option of a life insurance policy. One court has noted that section 481 is ‘obviously applicable to insurance such as fire insurance, but less obviously applicable to fife insurance or annuities.... [¶] ... There can be no doubt that from [an] early date the Legislature treated return premiums as one thing, and cash paid on surrender or cancellation of life policies as quite another.’ (Equitable Life etc. Soc. v. Johnson [(1942)] 53 Cal.App.2d 49, 73, 74 [127 P.2d 95]; see also State v. Larson (1943) 152 Fla. 729 [12 So.2d 896, 897].)” (Jennings v. Prudential Ins. Co., supra, 48 Cal.App.3d at p. 18.)

Appellant contends that this statement is dicta, and does not amount to a holding that Insurance Code section 481 is inapplicable to life insurance policies. He attacks Equitable Life etc. Soc. v Johnson, supra, 53 Cal.App.2d 49, cited by Jennings, on the same ground. We need not concern ourselves with the arguments, because Jennings was clearly right when it went on to say that “By its terms section 481 is applicable ‘[u]nless the insurance contract otherwise provides, ...’ (See Jensen v. Allstate Ins. Co.[(1973)] 32 Cal.App.3d 789, 793-794 [108 Cal.Rptr. 498].) Thus it is within the power of the parties to contract that upon the insured’s decision to surrender the policy, the amount to be returned to the insured shall be governed by the terms of the cash value option and tables contained in the policy, excluding the return of so-called ‘unearned’ premiums.” (Jennings v. Prudential Ins. Co., supra, 48 Cal.App.3d at p. 18.)⁶

Appellant’s argument is essentially that Insurance Code section 481 applies unless a policy specifically states, perhaps in precisely these words, that premiums will not be refunded when the policy is surrendered. We do not think that the Insurance Code requires anything so literal. Appellant’s policy tells policyholders exactly what they will receive on surrender. It says that cash surrender value will be paid, and that cash surrender value consists of the cash value according to the table in the policy, plus the reserve on paid-up dividend additions, plus the amount of any dividend accumulations then outstanding, less any indebtedness.

Further, the policy specifically recognizes that surrender may occur prior to the end of a paid-up policy period and provides that in that case, the cash value is “the cash value at the end of such period less interest from the date of payment to the end of such period at the effective rate of 5 percent per annum.”

This policy is not ambiguous, triggering the rule that ambiguities must be construed against the drafter. (Vargas v. Athena Assurance Co. (2001) 95 Cal.App.4th 461, 465 [115 Cal.Rptr.2d 426].) Instead, the question of value on surrender is fully covered. The policy describes the exclusive method of determining surrender value. By telling the policyholder what will be paid, the policy explains what will not be paid. There is no specific reference to premiums, but none is necessary. On any fair reading of the policy, surrender value does not include a return of premiums.

Like the policy in Jennings, appellant’s policy specifies that the surrender value, even before the end of a policy period, will be calculated with reference to the tables contained in the policy and other matters. Refund of premiums is not included in the calculation.

Appellant seeks to distinguish Jennings by arguing that the policy in that case was not identical to the one before us here, in that this policy, unlike the Jennings policy, discounts the surrender value if the surrender is made prior to the end of the period for which premiums have been paid. The distinction is not, for our purposes, meaningful. Jennings did not base its holding on the substance of the method of calculation of surrender value, but on the fact that the policy set forth such a method, one which did not involve a refund of premiums. We find that Jennings thus correctly interpreted the statute.⁷

The Unfair Competition Act Claim

In this context, “unfair competition” means “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.” (Bus. & Prof. Code, § 17200 et seq.; Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180 [83 Cal.Rptr.2d 548, 973 P.2d 527].)

Appellant argues that the cause of action survives summary judgment because the evidence is that MetLife breached its contract, violated Insurance Code section 481, and engaged in unfair and fraudulent business practices. As we have seen, appellant did not establish even a triable issue on breach of contract. Since we have found that MetLife had no obligation under Insurance Code section 481 on this policy, we cannot see even a triable issue on whether it breached any statutory obligation.

Nor do we see a triable issue on unfair or deceptive practices. Appellant relies on the facts concerning the MetLife board’s 1943 resolution, the fact that the cash surrender statement includes the information that the policy does not provide for premium refunds, and the fact that the policy does not state, in those precise words, that premiums will not be refunded on cash surrender. Appellant argues that these facts show a pattern of fraud and deception: MetLife decided not to refund premiums although it knew that it should, then concealed the information about this improper practices from its customers. The facts do not support any such inferences.

In 1943, MetLife decided to continue coverage for its insureds under certain circumstances. Nothing in the resolution or other documents proffered by appellant so much as indicates that MetLife attempted to wrongfully withhold a refund which was due under any statute or under the policy. The policy does not include the words “premiums will not be refunded,” but it does set forth the method of calculation of the cash surrender value, thus informing the policyholder that premiums will not be refunded. The fact that the statement explaining the cash value includes certain information does not logically imply that MetLife fraudulently concealed the information before it issued the check. Appellant presented no evidence of any unfair or fraudulent business act or practice or any unfair, deceptive, untrue or misleading advertising.

Appellant also argues that his claims brought on behalf of the general public survive even if his individual claims do not. Those claims are that MetLife does not refund premiums when a pre-1987 whole Ufe policy such as appellant’s is surrendered, thus breaching its contracts and violating Insurance Code section 481, and the same fraudulent and deceptive practices theories discussed above. As we have seen, there is no triable issue on any of the claims.

Disposition

The judgment is affirmed. Respondent to recover costs on appeal.

Turner, R J., concurred.

1 In the early 1990’s, appellant requested that information for later years, not included on the table. MetLife supplied that information.

2 MetLife proposed as undisputed that the sum represented a dividend through August of 1999. Appellant disputed the fact, contending that the “current dividend” represented only a dividend through October 23, 1998, the day of his surrender. MetLife’s factual citations are to the deposition and declaration of one of its managers, who testified that the dividend was, as MetLife asserts, one through August of 1999, and that because the amount of the dividend due in August of 1999 had not been determined when appellant surrendered his policy, MetLife gave appellant the same amount he had received in August of 1998, its standard practice. Appellant cited the testimony that the 1999 amount was determined with reference to the previous year’s dividend. He also cited the provision of the policy which requires MetLife to pay a dividend at the end of the year and argued that the policy did not allow MetLife to pay a year-end dividend before the end of the year, and thus that it did not do so.

3 He also sued for breach of fiduciary duty and negligence, but demurrer was sustained as to those causes of action, without leave to amend.

4 The parties’ separate statements of undisputed facts, supporting documents, and responses to those statements are included in the clerk’s transcript, but the motions themselves are not. MetLife has provided us with its motion, in an appendix. We rely on the trial court’s description of appellant’s motion.

5 After 1987, MetLife issued policies which specify that cash value includes a refund of part of the premiums.

6 We note, too, that for a time the Legislature specifically provided for life insurance policies: in 1989, section 10164.2 was added to the Insurance Code. It provided that when a life insurance policy was cancelled, “the insurer shall return to the insured or owner all unearned premiums and other moneys due the insured or owner in relation to that policy ...,” and set a time limit. (Stats. 1989, ch. 713, § 3, p. 2345.) However, the statute was amended'in 1996 to eliminate the reference to unearned premiums. It now provides only that the insurer must return “all moneys due in relation to that policy ....” (Ins. Code § 10164.2, subd. (a).) When it repealed the provision concerning the return of premiums, the Legislature left no room for courts to add the term, as implied by law. We thus disagree with the dissent on this point. The Legislature has spoken on the law.

7 We do not agree with the dissent that this case may be determined under the doctrine of implied-in-fact contract terms. Only terms which are necessary to carry a contract into effect may be implied into that contract. (Civ. Code, § 1656.)