Neff v. New York Life Insurance , 30 Cal. 2d 165 ( 1947 )

CARTER, J.

I dissent.

The majority opinion places the stamp of approval upon a rank and palpable fraud perpetrated by defendant upon its sick, disabled and unsuspecting policy holder. True, the majority does this under the guise of protecting the defendant against the assertion by plaintiff of a stale claim, but in so holding the majority disregards the realities and imposes upon the policy holder a burden and duty beyond the realm of reasonableness, and permits the insurance company to avoid its obligation because it was able to conceal its fraud and deceit for a long enough period of time to permit it to interpose the plea of the statute of limitation. Such a holding is contrary to the modern concept of the relationship between insurer and insured which wisely places upon the insurer the imperative duty to speak truthfully, if it speaks at all, respecting the rights of its insured. And if it fraudulently conceals from its insured matters which should have been disclosed, it should not be permitted to rely upon the rigid rules of law applicable to a case where such relationship does not exist. Many lawyers and almost every layman will admit that a reading of their insurance policies leaves them in a state of confusion and uncertainty, and it is the common practice to seek advice from their insurance companies as to their rights as insureds. True they are not required to accept such advice, but it is a matter of common knowledge that most laymen do. Thus the insurer becomes the adviser of its insureds as to their respective rights and obligations, and it must be conceded that such advice is accepted and followed in a vast majority of eases. Such is the situation in the case at bar, and defendant should not be permitted to evade its obligation to its insured because of the latter’s failure to discover that he had been ill advised and for that reason had not asserted his rights at an earlier date.

I am in full accord with the views expressed by the District Court of Appeal, Second District, Division One, when this case was before that Honorable Court, and I adopt, as a part of this dissent, the opinion of that Court prepared by the Honorable Thomas P. White, Associate Justice of said Court, and concurred in by the Honorable John M. York, Presiding Justice, and the Honorable Wm. C. Doran, Associate Justice thereof. Said opinion is as follows: ‘ ‘ This action was brought by appellant as administrator of the estate of Arthur V. Neff, deceased, seeking to recover the amount of certain disability benefits to which said decedent was allegedly entitled at the time of his death under the terms of an insurance policy, and also the amount of the annual premiums on the policy which the decedent paid during the last ten years of his lifetime.

“The action went to trial upon plaintiff’s second amended complaint, general demurrers to the prior complaints having been sustained. Defendant did not demur to the second amended complaint, but filed an answer thereto, denying the allegations as to fraud, and mistake and pleading that the purported causes of action were barred by the statute of limitations : Subdivision 1 of section 337; subdivision 4 of section 338; and section 353 of the Code of Civil Procedure.

“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 and judgment for defendant entered. Plaintiff has appealed from the judgment.

“From the first cause of action in the second amended complaint, it appears that in 1926 insured was totally disabled by tuberculosis of both lungs. On or about April 1, 1927, insured presented due written proof in accordance with the requirements of the policy ‘that he had, on said December 1st, 1926, become wholly and presumably permanently disabled by bodily disease, and that said proofs informed defendant he was then and would presumably continue to be prevented from engaging in any occupation whatsoever for remuneration or profits, and that such a disability had by said April 1st, 1927, existed continuously for more than sixty (60) days before date of such proofs; and at said time and place, the said insured requested the defendant to provide for him and pay to him such benefits as he may have been entitled to under the terms of said policy.’ In said complaint it is further alleged ‘That the defendant, New York Life Insurance Company, on or about May 7th, 1927, fraudulently, unlawfully and with the intent to deceive and defraud the said insured, represented to the said insured that he was not entitled to any benefits under said policy by reason of the disability from which he was then suffering 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 the defendant that the plaintiff was “permanently, continuously and wholly prevented thereby, for life, from pursuing some gainful occupation”; that the said insured believed the fraudulent, unlawful and wrongful representations pertaining to said policy, and the rights of said insured thereunder, and relied until the .date of his death, upon the statements and' representations of the defendant with respect thereto, and was thereby prevented from making any further claims and from receiving any benefits thereunder at any time during his lifetime. That at the time of said representations and statements by the defendant, as aforesaid, and thereafter during the life of the said insured, the defendant well and truly knew the condition of the said insured and nature and character of the disability from which he suffered, which said disease and disability was total and presumably permanent within the meaning of said policy of life insurance, and that said statement and representation on the part of the defendant were made with the intent to deceive the insured, and to enable the said defendant to withhold the disability benefits to which the said insured was then and thereafter entitled, and that said insured was actually deceived thereby, and believed that said statements and repre-. sentations were true and correct. That in truth and in fact said policy did not contain any requirement that the insured must show that the disability from which he was then suffering would permanently, continuously, and wholly prevent the said insured for life, from pursuing some gainful occupation, and the defendant well and truly knew that such wrongful required proof could not possibly be furnished during his lifetime.’ In said second amended complaint it is further alleged that insured’s widow (who was the beneficiary of the life insurance provided for by the same policy, and who was sole beneficiary and executrix named in the will of the insured) likewise relied upon and believed defendant’s fraudulent representation made to her after the death of insured in 1937, that no disability benefits had accrued under the terms of said policy, and by such fraudulent misrepresentation and concealment of the liability of defendant under the correct interpretation of said policy, she was induced to surrender said policy of insurance to defendant upon receiving credit for the life benefit, and, believing defendant’s representation that insured was entitled to no disability benefits under said policy, she failed to offer insured's will for probate or to press the claim of his estate for such disability benefits. She died April 1, 1943. In March, 1943, during her last illness, plaintiff (who is the son of insured and his said widow) discovered correspondence had between insured and defendant in 1927, which caused him to inquire as to the existence of the instant cause of action. December 10, 1943, some nine months after the plaintiff’s discovery of the facts allegedly constituting such cause of action, the complaint was filed.

“On the instant appeal, we are required to assume the truth of all allegations of the complaint, which undoubtedly states a cause of action on contract. Neither subdivision 4 of section 338 nor section 353 of the Code of Civil Procedure can be applied, but, as contended by respondent, the time limited by subdivision 1 of section 337 ordinarily would have commenced to run against each annual instalment as it became due under the disability benefit clause of the policy, from the year 1928 to 1937, respectively.

“Appellant calls our attention to cases holding that ‘a fraudulent concealment of the fact, upon the existence of which the cause of action accrues, is a good answer to the plea of the statute of limitations’ (Kane v. Cook, 8 Cal. 449; Kimball v. Pacific Gas & Elec. Co., 220 Cal. 203 [30 P.2d 39] ; Pacific Emp. Ins. Co. v. Industrial Acc. Com., 66 Cal.App.2d 376, 380 [152 P.2d 501].)

“Respondent’s argument that insured’s condition was known to him and could not have been concealed by the insurer is beside the point. From the complaint, it clearly appears that the insurer concealed from the insured and his widow the fact that disability benefits had accrued under the terms of the policy of insurance. That was a fact the existence of which was essential to the cause of action. Such alleged concealment is not excused by the fact that the insured was in possession of the policy. (Menk v. Home Ins. Co., 76 Cal. 50 [14 P. 837, 18 P. 117, 9 Am.St.Rep. 158] ; Vierra v. New York Life Ins. Co., 119 Cal.App. 352 [6 P.2d 349].)

“The front page of the policy herein sued upon (a copy of which is attached to the second amended complaint) provides that defendant will pay to the insured $300 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 (in the fine print on the inside of the policy) provides that said benefits shall be paid when the insured ‘has become wholly disabled by bodily . . . disease so that he is and will be presumably thereby permanently and continuously prevented from engaging in any occupation whatsoever for remuneration or profit. . . .’ (Emphasis added.)

“From the second amended complaint, it clearly appears that the insured presented to the insurer proof of disability which he believed would, and which, as alleged, if true, did in fact meet the requirements of the policy and entitled the insured to disability benefits. It is alleged that respondent, in refusing to make the payments requested by the insured, departed from the language of the policy and attempted to explain its meaning to the insured. The complaint alleges that the insured understood from such explanation that the policy required proof that the insured was disabled for his entire life and not merely that presumably he was so disabled. Such interpretation of the policy, it is alleged, was erroneous. That it was first adopted by respondent (not the insured) is shown by the allegations of the second amended complaint that insured presented due proof of disability as required by the policy, that respondent rejected his claim on the ground that it did not appear from that insured was ‘permanently, continuously, and wholly prevented thereby, for life, from pursuing some gainful occupation.’ (Emphasis added.) When an insurer undertakes to explain the meaning of its policy, it owes a duty to the insured to do so accurately and truthfully (Morrison v. Mutual L. Ins. of N. Y., 15 Cal.2d 579, 588 [103 P.2d 963]), and when an insurer varies the language of a policy in rejecting a claim, it does so at its own peril. It would be palpably unjust to permit an insurer to take advantage of the insured’s delay in bringing action when such delay as is alleged herein was occasioned by the fraudulent and misleading statements of the insurer. (Bonacci v. Massachusetts Bonding & Ins. Co., 58 Cal.App.2d 657, 666 [137 P.2d 487].) Such alleged erroneous interpretation of a policy and statements respecting the rights of the insured may amount to fraudulent concealment of a fact upon the existence of which the cause of action accrues, and if so, tolls the running of the statute of limitations until the death of the insured’s widow and successor in interest on April 1, 1943. The instant action was filed December 10, 1943, well within the period provided by subdivision 1, section 337, of the Code of Civil Procedure, if the insured’s widow had a cause of action at the time of her death.

“In the instant action it is alleged that the insured presented his claim for disability under the terms of the policy, in that he had become ‘wholly disabled by bodily . . . disease so that he is and will be presumably thereby permanently and continuously prevented from engaging in any occupation whatsoever for renumeration or profit. . . .’ (Emphasis added.) In rejecting the insured’s claim the insurer did not predicate such rejection on the ground that the proofs submitted did not establish the fact that the insured would be ‘presumably’ permanently disabled, but on the ground that the insurer interpreted the policy to mean that before the insured was eligible for benefits thereunder it must appear to the satisfaction of the insurer that the insured ‘will be’ (not presumably) ‘permanently and continuously and wholly prevented thereby, for life, from pursuing some gainful occupation.’ Had the insurer rejected the insured’s claim on the ground that he would not, under the language of the policy, be ‘presumably’ permanently disabled, there can be no doubt that under the statute of limitations his action would be barred. But the insurer did not do that. Instead it proceeded to interpret the policy as requiring not presumptive evidence of permanent disability, but evidence satisfactory to the insurer that the insured would in fact be ‘prevented thereby for life from pursuing some gainful occupation.’ Nothing is said in the policy about disability for life, it provided only that satisfactory proof that the insured would ‘presumably’ be permanently disabled would suffice to entitle him to benefits. Had it not been for the allegedly incorrect interpretation put upon the terms of the policy by the insurer, the insured during his lifetime and his widow after his death might have taken the necessary steps to establish his or her rights under the policy as they understood its terms; but through the company’s alleged representations the insured and his widow were led to believe that proof that he was ‘presumably’ permanently disabled was insufficient and that proof was required to show that he ‘will be permanently, continuously and wholly prevented’ by his affliction from pursuing some gainful occupation ‘for life.’ The second amended complaint alleges that such proof could not be furnished by the insured at any time during his life. The object and purpose of the contract being insurance or indemnity against disability, the courts in construing the. rights and duties of the parties thereto should strive to effectuate that purpose. The ease before us involves an insurer whose duty of good faith in dealing with the insured is well established. (See 13 Appleman Ins. Law and Practice, 37; Vance on Insurance (1930) 74.)

“With reference to statutes of limitation, it might be observed that they are not so rigid as they are sometimes regarded, and the period of such statutes will be extended or tolled upon the occurrence of certain events. As was said in Bollinger v. National Fire Ins. Co., 25 Cal.2d 399, 411 [154 P.2d 399] : ‘It is established that the running of the statute of limitations may be suspended by causes not mentioned in the statute itself. (Braun v. Sauerwein, 10 Wall. (77 U.S.) 218, 223 [19 L.Ed. 895]; Collins v. Woodworth, 109 F.2d 628, 629.) It is settled in this state that fraudulent concealment by the defendant of the facts upon which a cause of action is based (Kimball v. Pacific Gas & Elec. Co., 220 Cal. 203 [30 P.2d 39]) or mistake as to the facts constituting the cause of action (Davis etc. Co. v. Advance etc. Works, Inc., 38 Cal.App.2d 270 [100 P.2d 1067]; see 16 Cal.Jur. 505) will prevent the running of the period until discovery. ’

“Respondent earnestly insists that appellant has not successfully pleaded an estoppel. Bearing in mind the duty owed by the insurer to the insured when the former undertakes to explain the meaning of the policy and the peril attaching to the insurer when in making such explanation it varies the language of the policy, we are persuaded that the facts pleaded in the second amended complaint and set forth in the offer of proof, unless controverted, were sufficient to raise an estoppel and toll the statute of limitations. (Morrison v. Mutual L. Ins. of N. Y., supra, pp. 588, 589; Bollinger v. National Fire Ins. Co., supra, p. 411.) Principles of equity and justice are controlling here and require that the second amended complaint be heard on its merits. The allegations of the second amended complaint set forth that the insured was induced to change his position with reference to his rights under the policy by reason of the statements and conduct of the insurer; that such statements were untrue, and that by reason of the acts and conduct of the insurer the insured suffered prejudice. This was sufficient to set in motion the doctrine of equitable estoppel.

“We have examined the cases of Fleishbein v. Western Auto S. Agency, 19 Cal.App.2d 424, 427 [65 P.2d 928]; Cohen v. Metropolitan Life Ins. Co., 32 Cal.App.2d 337, 347 [89 P.2d 732], and other eases relied upon by respondent, and are impressed that nothing therein contained militates against the conclusion at which we have herein arrived. The insured was not required to assume that the insurer would mislead him, and courts are inclined to hold that one can act upon the assumption that there exists no intention to cheat or defraud him. ‘No one has a right, either in law or in morals, to complain because another has placed too great reliance upon the truth of what he himself has stated.’ (Togni v. Taminelli, 11 Cal.App. 7, 14 [103 P. 899].) As was stated by this court in Laraway v. First National Bank of LaVerne, 39 Cal.App.2d 718, 730 [104 P.2d 95] : ‘The fact, as urged by respondents, that means of knowledge were open to appellant, does not necessarily debar her from relief. It is only when the circumstances are such that inquiry becomes a duty that the failure to make it becomes a negligent omission. . . . We find nothing in the evidence here that would excite the suspicions of an ordinarily prudent person situated as appellant was or that would put him on inquiry. Even if we concede that some of the representations made by respondents related more or less to matters of opinion, nevertheless expressions of opinion, to avoid an action for deceit or fraud, should be of an opinion honestly entertained by the person making the same . . . (citing cases) . . . ; and whether representations are of a fact or matters of opinion depends largely on the circumstances.’ (Citing cases.)

“Where the delay in commencing an action is induced by the conduct of the offending party, it cannot be availed of by him as a defense. An estoppel may also arise where a party has been induced by another ‘to refrain from using such means or taking such actions as lay in his power, by which he might have retrieved his position and saved himself from loss.’ (Miles v. Bank of America etc. Assn., 17 Cal.App.2d 389, 399 [62 P.2d 177].) The same case, at page 398, is authority for the statement that ‘An estoppel may arise although there was no designed fraud on the part of the person sought to be estopped.’

“In Bollinger v. National Fire Ins. Co., supra, page 405, the court said: ‘While courts are diligent to protect insurance companies from fraudulent claims and to enforce all regulations necessary to their protection, it must not be for'gotten that the primary function of insurance is to insure. When claims are honestly made, care should be taken to prevent technical forfeitures such as would ensue, from an unreasonable enforcement of a rule of procedure unrelated to the merits.’ (Citing cases.) (Italics added.) And at page 407 we find the following: ‘Under the circumstances of the present case it would be manifestly unjust for this court to prevent a trial on the merits, which the law favors.’ (Citing cases.)

“The second amended complaint states a cause of action. The judgment is therefore reversed and the cause remanded for a new trial.”