Neff v. New York Life Insurance

180 P.2d 900, 30 Cal. 2d 165, 171 A.L.R. 563, 1947 Cal. LEXIS 160

• Court: California Supreme Court
• Decided: May 29, 1947
• Docket: L. A. 19345
• Status: Published

Opinions

SPENCE, J.

Plaintiff, as administrator of the estate of Arthur V. Neff, deceased, brought this action to recover a ten-year accrual of disability payments to which the decedent was allegedly entitled at the time of his death under the terms of a life insurance policy, and to recover also the amount of the annual premiums on the policy which the decedent paid during said period. Issue was joined upon plaintiff’s second amended complaint, which pleaded, as successive causes of action, defendant’s fraud and mistake in its representation of the insured’s rights under the disability clause of his policy. At the commencement of the trial, and after the first witness was sworn, defendant interposed an objection to the introduction of any evidence, on the ground that “the second amended complaint shows on its face that the alleged causes of action are barred by the statute of limitations' ’ and consequently fails to show any cause of action. The objection was sustained over plaintiff’s offer of proof, and judgment for defendant was entered. In appealing from that judgment, plaintiff argues that defendant’s conduct estops it from relying upon the statute in avoidance of plaintiff’s claim. But assuming the truth of all of plaintiff’s allegations, as required under the circumstances of the trial court’s ruling, plaintiff’s position cannot be sustained.

From the first cause of action in the second amended complaint, it appears that in December, 1926, the insured was totally disabled by tuberculosis of both lungs. On or about April 1, 1927, the insured presented due written proof, as required by the terms of his policy, informing defendant that he had “become wholly and presumably permanently disabled by bodily disease,” that he “was then and would presumably continue to be prevented from engaging in any occupation whatsoever for remuneration or profit,” and that such disability had “existed continuously for more than sixty (60) days before date of such proofs”; and at that time the insured requested “defendant to provide for him and pay to him such benefits as he may have been entitled to under the terms of said policy.” The policy, a copy of which is attached to said complaint, provides, on its front page, that defendant would pay to the insured $800 per annum “during the lifetime of the Insured, if the Insured becomes wholly and permanently disabled before age 60, subject to all the terms and conditions contained in Section 1 hereof”; and section 1, on the inside of the policy, provides that said benefits would be paid when the insured “has become wholly disabled by bodily injury or disease so that he is and will be presumably, thereby permanently and continuously prevented from engaging in any occupation whatsoever for remuneration or profit. . . .” The policy also provides that the annual premiums would be waived during the continuance of such total and presumably permanent disability.

It is further alleged in the first cause of action that defendant, knowing that insured was disabled within the meaning of the policy, “fraudulently, unlawfully and with the intent to deceive and defraud” the insured, “represented” to him that “he was not entitled to any benefits under said policy” by reason of his disability and “fraudulently, wrongfully and unlawfully disclaimed any and all liability under the disability benefits of said policy on the ground that it did not appear to” defendant that the insured “was ‘permanently, continuously and wholly prevented thereby, for life, from pursuing some gainful occupation’ that the policy did not require that the insured present proof that he was disabled “for life” and “defendant well and truly knew that such wrongfully required proof could not possibly be furnished during his lifetime”; that the insured “relied until the date of his death” upon defendant’s representations as to his rights under the policy, made no further claim for disability payments and continued to pay the annual premiums; and that said “disease and disability continued until and caused his death” on August 28, 1937.

It is further alleged in the first cause of action that the insured’s widow, who was the beneficiary of the life insurance provisions in the same policy and who was the sole beneficiary and executrix named in his will, “requested the defendant to . . . pay to her such sums as were then due” under the policy, and that defendant “fraudulently” represented that “payment of the face of the policy and accrued dividends” were the only sums due her; that by reason of said representations and defendant’s concealment of its liability for the accrued “disability benefits” and the “wrongfully . . . collected” premiums, she was induced in September, 1937, to surrender the policy to defendant upon receiving credit for the life benefit only, and she failed to offer the insured’s will for probate or to prosecute the claim of his estate for the accrued disability benefits and annual premiums; and that she died on April 1, 1943. It is finally alleged that in March, 1943, during the widow’s last illness and when she was “an incompetent,” plaintiff, who is the son of the insured and his said widow, discovered correspondence had between insured and defendant in 1927, which caused him to consult counsel as to the existence of this cause of action; and that a copy of the policy “herein sued upon” was then obtained from defendant.

Plaintiff’s second cause of action correlates the above sequence of events with defendant’s alleged mistake in its successive dealings with the insured and the widow as to the pertinent provisions of the policy.

The original complaint was filed on December 18, 1943, some nine months after plaintiff’s discovery of the correspondence of 1927 setting forth defendant’s disclaimer of liability on the disability claim in question. Plaintiff seeks to recover: (1) ten annual disability benefits—1928 to 1937, inclusive—claimed to have accrued in favor of the insured under the terms of the policy; and (2) ten annual premiums claimed to have been improperly collected from the insured during the same period. It is apparent that the applicable statute of limitations is the four-year period prescribed by subdivision 1 of section 337 of the Code of Civil Procedure, and that plaintiff pleads defendant’s fraud and mistake as falling in the same category with respect to considerations of timeliness in discovering the alleged cause of action.

In" resolving the question of the correctness of the trial court’s judgment against plaintiff on the basis of his pleading and offer of proof, the legislative policy in prescribing a period of limitations for the commencement of actions must be borne in mind. “The statute of limitations is a statute of repose, enacted as a matter of public policy to fix a limit within which an action must be brought, or the obligation is presumed to have been paid, and is intended to run against those who are neglectful of their rights, and who fail to use reasonable and proper diligence in the enforcement thereof. . . . These statutes are declared to be ‘among the most beneficial to be found in our books. ’ ‘They rest upon sound policy, and tend to the peace and welfare of society;’ . . . The underlying purpose of statutes of limitation is to prevent the unexpected enforcement of stale claims concerning which persons interested have been thrown off their guard by want of prosecution.” (1 Wood, Limitations, pp. 8-9.)

However, plaintiff relies on the rule in this state that a party, by reason of the fraudulent concealment of a fact, upon the existence of which the cause of action depends, may be estopped to set up the defense of the statute of limitations. (Kimball v. Pacific Gas & Electric Co., 220 Cal. 203, 210 [30 P.2d 39]; Pashley v. Pacific Electric Railway Co., 25 Cal.2d 226, 229-232 [153 P.2d 325].) In fine with this position plaintiff argues that defendant, either through fraud, or mistake in the interpretation of its policy, concealed the “fact” of the insured’s right to disability benefits in consequence of his submission of proof to defendant in 1927, and that such conduct tolled the running of the statute upon the insured’s claim until plaintiff discovered the “misrepresentation” in 1943, sixteen years later. Accordingly, plaintiff cites defendant’s letter of May 4, 1927, to its agent, which was promptly transmitted to the insured, in rejection of his claim for disability benefits. This letter, introduced in the record by plaintiff as part of his offer of proof, reads, so far as here material, as follows: “Please advise the insured under the above numbered policy that the Company has now completed its investigation in respect to his claim for disability benefits and from the evidence submitted and information obtained by the Company, it does not appear to the Company that he is wholly and permanently disabled within the meaning of the provision in the policy. It does not appear that he will be permanently, continuously and wholly prevented thereby, for life, from pursuing some gainful occupation. The Company does not feel justified, therefore, in approving claim for disability benefits.”

Conceding for the purposes of discussion here that the insured was disabled within the meaning of the policy and eligible to the benefits provided thereunder, it is apparent that defendant’s above-quoted letter was an unconditional denial of liability to the insured and gave rise to an immediate cause of action in favor of the insured. At that time the insured was in possession of all the facts concerning the state of his health and the extent of his disability, and he likewise was in possession of the policy defining his insurance rights. However, the insured made no further claim on defendant but continued for ten years to pay the annual premiums on the policy until his death in 1937. Thereafter that same year, the widow, upon being informed by defendant that she “was entitled to receive only the death benefits and accrued dividends in accordance with the express terms and provisions of the [insurance] contract,” surrendered the policy and did not question defendant’s reiteration of its position as to non-liability for any benefits owing to the insured. Then six years later, in 1943, plaintiff “discovered” the “correspondence had between insured and defendant in 1927” and consulted counsel preliminary to commencing this action. But plaintiff’s “act of discovery” uncovered no fact that was not known to the insured during the last ten years of his lifetime and likewise known to his widow, who died six years later. The situation here is simply one where plaintiff undertook in 1943 an inquiry which could have been made as readily by the insured as early as 1927 when defendant, by letter, first rejected his claim and thereafter consistently maintained that position of nonliability for the succeeding ten years of the insured’s life without challenge on his part. Then in 1937, the widow, having at her disposal the same writing from defendant for investigation had she elected to assert any surviving rights of the insured to disability benefits, nevertheless failed to have herself appointed his personal representative for the purpose of prosecuting any claim which the insured might have had against defendant and was content simply with the “death benefits” and “accrued dividends” owing to her by defendant as life beneficiary under the policy. That the widow thereafter surrendered the policy to defendant at its request is of no significance with respect to the timeliness of the assertion of a claim for disability benefits owing to the insured, for defendant’s letter of disclaimer of liability, as above mentioned, remained in her possession until her death, and had she chosen to make such investigation as plaintiff later undertook upon the same factual premise, presumably she too might have obtained from defendant a copy of the policy which she had previously relinquished. Under the circumstances the conclusion is inescapable that plaintiff, as personal representative of the insured, belatedly attempts to assert a cause of action that allegedly accrued to the insured as the result of an alleged representation which was made sixteen years earlier by defendant and which was allowed to stand undisputed for that entire period of time by the aggrieved parties—the insured and his widow—though the same facts on which plaintiff here relies for relief were at all times known to them.

“[A] failure to discover a cause of action does not, as in the case of its fraudulent concealment, suspend the running of the statute of limitations.” (Scafidi v. Western Loan & Building Co., 72 Cal.App.2d 550, 566 [165 P.2d 260].) In line with this principle such cases as Kimball v. Pacific Gas & Electric Co., supra, 220 Cal. 203, and Pashley v. Pacific Electric Railway Co., supra, 25 Cal.2d 226, cited by plaintiff, stand upon a wholly distinguishable factual premise. Thus, in the Kimball case there was concealed from plaintiff a fact essential to his statement of a cause of action against the particular corporate . defendant for personal injuries—the employment relationship between the person causing the injuries and said corporate defendant—and it was held that such concealment amounted to a fraud which tolled the statute of limitations. And in the Pashley case defendant’s employees concealed from plaintiff certain material facts concerning the extent of the eye injury which served as the basis for the measurement of his recovery and which would obviously influence his commencing suit, so that the statute was tolled while such suppression of plaintiff’s cause of action- endured. However, here there is no comparable factor of deception involved, as defendant concealed no fact but plainly stated that it denied liability upon the insured’s disability claim; and for sixteen years, until plaintiff chose to challenge the merits of such rejection, defendant’s stand of nonliability went uncontested.

Plaintiff argues that defendant’s interpretation of its policy so as to relieve it of liability misled the insured and his widow as to the insured’s right to disabilty benefits and so, in effect, amounted to the concealment of the “fact” of the insured’s cause of action. In this connection plaintiff cites the settled rule that an insurer has the duty of exercising good faith in its dealings with the insured and cannot take any unfair advantage of him. (See 12 Appleman, Insurance Law and Practice, § 7291, p. 390; Farrar v. Policy Solders Life Insurance Assn., 3 Cal.App.2d 87, 93 [39 P.2d 229].) But defendant’s acts cannot be relied upon to bring plaintiff within the rule mentioned for that would mean that no insurer could deny liability without indefinitely suspending the running of the statute of limitations until perchance the insured, or his heirs after his death, might obtain at some future time legal advice indicating the view that liability existed. Here defendant clearly stated in its letter of May 4, 1927, that it did not feel justified in approving the insured’s claim for disability benefits as “from the evidence submitted and information obtained by the Company, it does not appear to the Company that he is wholly and permanently disabled within the meaning of the provision in the policy.” Defendant, concealing no fact from the insured, was free to take this position. The insured, knowing all the facts which were known to defendant, was then free to litigate the issue of the liability which defendant had denied. It is a matter of common knowledge that there are often differences of opinion concerning liability under insurance policies and no mere denial of liability, even though it be alleged to have been made through fraud or mistake, should be held sufficient, without more, to deprive the insurer of its privilege of having the disputed liability litigated within the period prescribed by the statute of limitations.

It is clear that the issue to be determined here—the timeliness of plaintiff’s assertion of the alleged cause of action— has no concern with the settled rule cited by plaintiff that in the construction of “uncertainties or ambiguities” in an insurance policy, “the one which is most favorable to the insured and which will give life, force and effect to the policy should be adopted.” (Narver v. California State Life Insurance Co., 211 Cal. 176, 180 [294 P. 393].) Nor, contrary to plaintiff’s theory, is this a situation similar to one where an insured leaves entirely in the hands of the insurer the matter of providing him with full insurance coverage and is entitled to rely on the insurer not to mislead him by issuing a policy that gives him less protection (Golden Gate Motor Transport Co. v. Great American Indemnity Co., 6 Cal.2d 439, 442 [58 P.2d 374]); and in such circumstances the insured’s failure to check the terms of his policy upon receiving it will not prevent his recovery for a loss that he relied upon the insurer to cover. (Raulet v. Northwestern etc. Ins. Co., 157 Cal. 213, 229-230 [107 P. 292].)

Likewise an analysis of the equitable estoppel cases cited by plaintiff discloses that they were decided upon distinguishable factual considerations. First to be noted are the cases where the estoppel doctrine was applied to sustain the plaintiff but the question of the statute of limitations was not involved: Morrison v. Mutual Life Insurance of New York, 15 Cal.2d 579, 588 [103 P.2d 963]; Glickman v. New York Life Insurance Co., 16 Cal.2d 626, 634-635 [107 P.2d 252, 131 A.L.R. 1292] ; and Bonacci v. Massachusetts Bonding & Insurance Co., 58 Cal.App.2d 657, 662-663 [137 P.2d 487], Second to be noted are the cases where the statute of limitations was an issue, and under varying and distinctive factual premises the estoppel doctrine was applied against its assertion: Rutherford v. Rideout Bank, 11 Cal.2d 479, 486 [80 P.2d 978, 117 A.L.R. 383], and Laraway v. First National Bank of La Verne, 39 Cal.App.2d 718, 728-729 [104 P.2d 95], where there was a confidential relationship between the parties which operated to excuse the plaintiff from failing to make earlier discovery of the cause of action; Adams v. California Mutual Building & Loan Assn., 18 Cal.2d 487, 489 [116 P.2d 75], Calistoga National Bank v. Calistoga Vineyard Co., 7 Cal.App.2d 65, 72 [46 P.2d 246], and Miles v. Bank of America etc. Assn., 17 Cal.App.2d 389, 397-399 [62 P.2d 177], where delay in the commencement of action was due to reliance upon representations that an amicable adjustment or determination of the claim would be made without suit; and Bollinger v. National Fire Insurance Co., 25 Cal.2d 399, 410-411 [154 P.2d 399], where plaintiff brought timely action on an insurance policy but through error of the trial court a nonsuit was entered against him, and his new action filed in another court would have been commenced well within the shortened limitations period provided by the insurance contract had it not been for the insurer’s procurement of a number of continuances which delayed the parties in reaching trial on the first action—a peculiar sequence of events deemed to be of controlling importance in suspending the running of the statute of limitations and relieving plaintiff from suffering a “technical forfeiture” of his insurance rights.

The significant factors to be noted here are the following: (1) defendant plainly advised the insured, and later his widow, that the insured had no disability rights under the policy; (2) there was no confidential relationship between defendant and the insured or his widow which would relieve either of them from the duty to make diligent inquiry into the merit of defendant’s position if either deemed it to be not well taken under the terms of the insurance contract (Shapiro v. Equitable Life Assurance Soc., 76 Cal.App.2d 75, 87-89 [172 P.2d 725]); and (3) there were no deceptive assurances by defendant tending to lull the insured or his widow into a sense of security and to forbear suit for the statutory period (Jackson v. Master Molding Corp., 16 Cal.2d 824, 828 [108 P.2d 673]), but rather defendant’s unconditional denial of liability was sufficient to put each on notice that legal action would be required to cause defendant’s recognition of the insured’s disability claim.

The statute of limitations here appears as “a defense . . . upon the very face of” plaintiff’s second amended complaint and he has failed to plead facts which would estop defendant from asserting such defense. (Fleishbein v. Western Auto Supply Agency, 19 Cal.App.2d 424, 427 [65 P.2d 928] ; Cohen v. Metropolitan Life Insurance Co., 32 Cal.App. 2d 337, 347 [89 P.2d 732].) Any other view would practically nullify the legislative policy in prescribing a limitation upon the time within which suit may be commenced upon an insured’s claim after the insurance company’s unconditional denial of liability thereon, when all facts essential to the statement of a cause of action are within the knowledge of the aggrieved party. As defendant states in illustration of this point, “if, perchance, plaintiff had not found this [May, 1927] correspondence when he did, then insured’s grandson, rummaging through his grandfather’s papers forty years after his death, might just as well have ‘discovered’ this purported cause of action, petitioned for letters of administration upon the insured’s estate, and filed this action in the year 1977.” But “statutes of limitations are vital to the welfare of society . . . they promote respose by giving security and stability to human affairs . . . they stimulate to activity and punish negligence.” (Wood v. Carpenter, 101 U.S. 135, 139 [25 L.Ed 807] ; see, also, Fontana Land Co. v. Laughlin, 199 Cal. 625, 636 [250 P. 669, 48 A.L.R. 1308], and cases there cited.)

In these circumstances the trial court did not err in sustaining defendant’s objection to plaintiff’s introduction of evidence on the issue of the statute of limitations. The record discloses that plaintiff was urged to make his “offer of proof as complete as” possible, but he still was unable to show an “enforceable cause of action.” However, plaintiff cites section 597 of the Code of Civil Procedure as requiring the trial court nevertheless to proceed to the trial of such specific defense as the statute of limitations when pleaded in defendant’s answer. Such position cannot be sustained. The cited code section merely states a procedural rule which authorizes the trial court in proper cases to avoid an unjustifiable expenditure of time in the trial of issues relating to the merits of an action when it appears after the trial of the special defense that plaintiff in any event could not recover. (Booth v. Bond, 56 Cal.App.2d 153, 156-157 [132 P.2d 520].) It has no application here where it can be clearly seen, both from plaintiff’s pleading and his “comprehensive” offer of proof, that he cannot present a cause of action not barred by the statute.

The judgment is affirmed.

Gibson, C. J., Traynor, J., Schauer, J., concurred.

Shenk, J., and Edmonds, J., did not participate herein.