Opinion
For Opinion on Hearing, see 63 Cal.Rptr. 50, 432 P.2d 746.
William H. Phelps, Fall River Mills, for appellant.
Glenn D. Newton, Redding, for respondent.
FRIEDMAN, Justice.
This is an action on an employee's group life insurance policy. Plaintiff, widow of the insured, appeals from a judgment denying recovery of $14,000, the amount of coverage provided her husband before his retirement. The husband had retired about six weeks before his death. Defendant, The Equitable Life Assurance Society of the United States, interprets the policy to provide reduced insurance of $1,000 upon retirement of the covered employee. Whether the insurance in force at the death of the insured was $14,000 or $1,000 depends entirely upon an interpretation of the policy.
Edgar C. Humphrey, the insured, had been an employee of Pacific Gas and Electric Company. He was born September 18, 1901. In 1955 he came under a master group life insurance policy covering Pacific Gas and Electric Company employees. Equitable was the insuring company. At the time of coverage he was issued an individual certificate of insurance containing a descriptive statement of the insurance protection. In 1960 Mr. Humphrey suffered a six-week spell of illness. Medical examinations in 1960 and 1961 disclosed arteriosclerotic heart disease and pulmonary emphysema. He continued working until July 27, 1962, when illness forced him to stop work. On August 15, 1962, he was placed on sick leave status. By December 26, 1962, he had consumed all his accumulated vacation and sick leave. At that time he took a six-month leave of absence. In April 1963, after consulting with company officials, he applied for retirement status, to become effective July 1, 1963. His application was granted. Pacific Gas and The trial court found that Mr. Humphrey had become totally disabled on July 27, 1962. He had passed his sixtieth birthday by that date.
A rider attached to the group policy effective on July 1, 1959, amended the policy section entitled AMOUNT OF INSURANCE. The rider contained a tabulation, setting forth the amounts of insurance provided to employees in various salary brackets. Following the tabulation was a series of provisos, two of which are pertinent here and are quoted in the margin below. The policy contained another section entitled INDIVIDUAL TERMINATIONS, which we set out below (as amended by a rider effective July 1, 1955).
The provisos declare:
'The insurance of any employee shall automatically cease upon the occurrence of any of the following events:
Under the AMOUNT OF INSURANCE section (specifically subparagraph b of the fifth proviso) Mr. Humphrey's total disability, which commenced July 27, 1962, entitled him to $14,000 coverage for a period not to exceed that fixed by the INDIVIDUAL TERMINATIONS provision. Plaintiff points out that under the latter provisions Mr. Humphrey would have been entitled to continued coverage as a disabled person up to December 1963, one year from the termination of his paid sick leave; that, had he not retired on July 1, 1963, the amount of insurance in force at the time Plaintiff charges ambiguity in the policy in relation to Mr. Humphrey's dual status as a retired employee and as one within the maximum period of coverage provided for a disabled employee. In O'Doan v. Insur. Co. of North America, 243 A.C.A. 71, 77, 52 Cal.Rptr. 184, 188, also involving an employee's group policy, we summarized the standard rules of insurance policy interpretation, stating: 'If the policy language is clear, the contract must be given effect as executed by the parties. [Citation.] If the language is ambiguous, any reasonable doubt will be resolved against the insurance carrier. [Citation.] The rule of construction against the insurer may not be invoked when the policy is clear. [Citation.] A policy provision is ambiguous only when, on its face, it is capable of two different constructions, both of which are reasonable. [Citations.] No term of a policy is ambiguous if its meaning can be ascertained by fair inference from the remaining terms. [Citations.]'
The section on INDIVIDUAL TERMINATIONS deals only with the duration of coverage, not its amount. A clause calling for cessation of coverage upon the individual's termination of employment is a common feature of group policies. (See Juhl v. John Hancock Mut. Life Ins. Co., 107 Cal.App.2d 188, 236 P.2d 628; Note: Group Policy-Termination of Employment, 68 A.L.R.2d 8.) Such clauses usually extend the duration of death benefit coverage during total disability for a period not to exceed 12 months. (See 68 A.L.R.2d at pp. 104-107.) The present clause conforms to the general pattern of such 'extension of death benefit' clauses. In addition, by extending coverage throughout the period of the employee's retirement, the policy in suit declares another exception to the rule of cessation upon termination of employment. There is nothing ambiguous about these extension provisions. Possibly, when he died six weeks after his retirement, Mr. Humphrey had the dual status of a disabled-plus-retired employee; possibly only that of a retired employee. In either event, he was a member of the covered group at the time of his death.
The amount in force at Mr. Humphrey's death was a separate subject, governed by the AMOUNT OF INSURANCE section of the policy. Subparagraph a of the fifth proviso reduces the amount in force to $1,000 upon the employee's retirement. For a disabled participant subparagraph b declares retention of the original amount in force 'subject to the reduction to $1,000 when retired.' In combination both subparagraphs fix $1,000 as the amount in force for a retired employee, even though he was previously covered as a disabled employee. Both subparagraphs reduced Mr. Humphrey's coverage to $1,000 when he retired on July 1, 1963. The policy is not ambiguous. It furnishes no reasonable basis for a claim that coverage continued at $14,000 after Mr. Humphrey's retirement. If the lawsuit turned upon the policy alone, there would be no occasion for invoking the rule of construction against the insurer.
Although plaintiff urges that the policy should not be so construed, she points more emphatically to the individual certificate of insurance issued to Mr. Humphrey in 1955. The certificate is a four-page printed document bearing the typed names of the insured employee and his beneficiary. Like the policy, it has separate sections on AMOUNT OF INSURANCE and TERMINATION OF INSURANCE. The former section states: 'The amount of insurance of any employee shall be reduced upon retirement to [$1,000 . Retirement means In the TERMINATION OF INSURANCE section of the certificate, a declaration that coverage would cease upon termination of employment was accompanied by the following statement:
The certificate issued to Mr. Humphrey in 1955 designated $500 as the reduced amount. Later amendments of the group policy increased the amount of reduced coverage to $1,000.
'Note: Cessation of active work by an employee will constitute termination of his employment except (1) where the employee is retired, in which case his insurance will be continued during the period of such retirement but at the reduced amount of [$1000]; (2) where the employee becomes disabled by injury or disease, in which case his insurance will be continued for the full period of such disability up to but not beyond one year (but see Total and Permanent Disability Provision); and (3) where the employee is given leave of absence, in which case his insurance will be continued for the full period of such leave of absence, except that for employees given leave of absence to enter military service insurance will not be continued beyond three months of such leave. At the expiration of the respective period mentioned in (2) and (3) above, unless the employee shall then return or shall have theretofore returned to active work, his insurance shall terminate automatically.'
The last quoted provision is plaintiff's chief source of reliance. She points to the first of the three described exceptions, that which reduces coverage to $1,000 upon retirement. She contrasts it sharply with the second exception, which declares extension of coverage during periods of disability up to one year without qualification as to amount. The latter, she points out, would lead the insured person to expect no reduction in insurance for a period of up to one year after becoming disabled. If, as happened here, the employee retired within the same year, then a conflict would ensue between the first and second exceptions. Such a conflict, she argues, would create an ambiguity which, according to familiar principles, should be construed in favor of the insured and against the carrier; so construed, the certificate should bind the company.
The pivotal question, then, is whether the individual certificate issued to the employee becomes part of the insurance contract, even though the contract is evidenced primarily by the master or group policy issued to the employer. There is no California decision on the point. Some decisions declare that the master or group policy issued to the employer is the entire contract, the certificate having no contractual status. On the other hand, it is said that the certificate is an 'integral part' of the master policy. Other decisions hold that the certificate is binding upon the parties in that questionable policy provisions will be construed by reference to the certificate. Some courts push
Plaintiff relies upon Fryer v. Kaiser Foundation Health Plan, 221 Cal.App.2d 674, 678, 34 Cal.Rptr. 688, where a group medical policy was supplemented by individual membership cards and directions for emergency calls. The court stated that all these documents constituted a single contract. The Fryer case represents at most an analogy. Statutory and contractual factors present here but not in the Fryer case make the analogy too distant to be helpful.
Boseman v. Connecticut General Life Ins. Co., 301 U.S. 196, 203, 57 S.Ct. 686, 81 L.Ed. 1036, 110 A.L.R. 732; additional cases cited 29A Am.Jur., Insurance, § 1760, p. 835, fn. 19.
Metropolitan Life Ins. Co. v. Whitler, 7 Cir., 172 F.2d 631, 633; see also, John Hancock Mut. Life Ins. Co. of Boston, Mass. v. Dorman, 9 Cir., 108 F.2d 220, 222.
See cases cited 1 Appleman, Insurance Law and Practice (rev. ed.) § 46, p. 68, fn. 26.
Inconsistencies in the decisions may be partially explained in terms of variant statutes and variations in contractual language. Certainly, generalizations are unreliable when they are drawn without reference to the public policy expressed by the statutes of the particular jurisdiction and when not rooted in the provisions of the operative documents defining the parties' relationship.
Section 10207 of the California Insurance Code requires each group life insurance policy to provide: '(a) The policy, the application of the employer and the individual applications, if any, of the employees constitute the entire contract of insurance.' Section 10209 demands a provision for delivery of an individual certificate to each employee, setting forth: '(a) A statement as to the insurance protection to which the employee is entitled and to whom payable.' Section 10209.1 requires the certificate to be 'individualized' by naming the covered employee; alternatively, if the employee pays none of the premiums, it may set forth 'a clear statement of the conditions of eligibility from which the employee can determine the circumstances under which he is insured under the master policy.'
These statutes express California public policy notions which must play a role here. Since, as declared by section 10207, the master policy and the applications form the entire contract, the certificate cannot be an operative part of the contract. On the other hand, as indicated in sections 10209 and 10209.1, the individual certificate is an indispensable part of the transaction, playing some role, however undefined. We infer that the Legislature intended a compromise solution, somewhere between the extremes of conferring full or no operative effect on the certificate. The solution, we suggest, was prompted by practical problems of draftsmanship confronting group life underwriters.
Insurance policies are lengthy, circumspect, complex and bristling with well-construed phrases. The certificate, on the other hand, should furnish each lay employee with a readable, relatively simple description of coverage. Regarded as an operative contractual document, the certificate might rival the policy in prolixity, complexity and unreadability. Deprived of all operative effect, it might amount to an inaccurate or even misleading description of coverage. Drawn with stringent contractual caution freed entirely from caution, the certificate would tend to fall short of its informative mission.
The statutes bespeak the aim of avoiding either extreme. Section 10207, excluding all material other than the policy and application from 'the contract,' permits the underwriter to draft a certificate less complex and more understandable than the policy itself. The code sections designating the content of the certificate demand compliance, however. A misleading certificate might become an enforcement matter for the Insurance Commissioner. As between the parties, the certificate would be binding in the sense that it would give meaning to an otherwise ambiguous policy. The certificate is not part of the contract, hence cannot be the source for transporting ambiguity into a clear contract.
The certificate issued to Mr. Humphrey stated explicitly that it was 'Subject to the terms and conditions of [the] Group Life Insurance Policy * * * which policy, and the application therefor, constitute the entire contract between the parties.' Although the draftsman created a possibility of confusion by injecting the element of amount of coverage into one of several clauses of the certificate's duration provisions, there is no evidence or finding that the insured was misled by conscious reliance Juhl v. John Hancock Mut. Life Ins. Co.,
Judgment affirmed.
PIERCE, P. J., and REGAN, J., concur.
'5. in the event the insurance of an employee who on or after the effective date of this amendment ceases active work because of disability by injury or disease, leave of absence or retirement, is continued in accordance with the provision hereof entitled INDIVIDUAL TERMINATIONS, the amount of insurance during such continuance shall be
a. $1000--in the case of any employee who becomes retired, except that an employee who is entitled to the death benefit of $1000 provided by the provisions hereof entitled TOTAL AND PERMANENT DISABILITY shall not be entitled to any insurance under this provision,[i]
b. the amount in force at the date of cessation of active work, subject to the reduction to $1000 when retired--in the case of any other employee.
'6. retirement, as used in this contract, means termination of service under conditions which would qualify an employee for a pension if he were a member of the Company's Retirement Plan.'
[i] The TOTAL AND PERMANENT DISABILITY clause mentioned here applies only to persons becoming disabled before age 60. It does not affect this case, where the insured had passed his sixtieth birthday at the time of disability.
'* * *
'(c) the termination of his employment in the classes of employees insured hereunder. Cessation of active work by an employee shall be deemed to constitute the termination of his employment except that under the circumstances stated below, for the purposes of insurance hereunder, employees shall be regarded as still in the employment of the Employer for the respective periods stated:
(a) where the employee is retired, for the full period of such retirement and retirement as used in this contract means termination of service under conditions which would qualify an employee for a pension if he were a member of the Company's Retirement Plan,
(b) where the employee becomes disabled by injury or disease: for the full period of such disability but not exceeding a maximum period of one year from the later of (i) the date of its commencement of (ii) the date of the termination of regular sick leave with pay granted directly because of such disability.'