Court Opinion

ID: 9747913
Source: CourtListenerOpinion
Date Created: 2023-08-27 15:42:26.382823+00
Date Added: 2024-06-11T07:25:28.659008
License: Public Domain

MOSK, J.,
I respectfully dissent.
In August 1948, Vasillos S. Lambros (Lambros) bought a whole life insurance policy from Metropolitan Life Insurance Company (MetLife). Lambros purchased the policy from a New York company in the District of Columbia and moved to California, from which, for many years, he paid premiums to MetLife. In 1998, Lambros paid the full annual premium and *51then during the year covered by that premium exercised his right to surrender the policy and receive the cash surrender value. He also requested the return of that portion of the premium attributable to the period after the surrender of the policy—i.e., the unearned premium. MetLife refused to return the unearned premium. The majority hold that even though there is no reference in the policy to what happens to unearned premiums upon surrender of the policy, the provision for cash surrender value provides what the policyholder receives upon surrender of the policy, and thus the return of unearned premium is, in effect, excluded by the policy.
It is important to distinguish between cash surrender value and premiums. Under the express terms of the MetLife policy, when Lambros surrendered his policy, he was entitled to receive certain “benefits” that he had already accrued. Those benefits consisted of the “cash value” (or “cash surrender value”) and “the amount of any dividend accumulations then outstanding to the credit of this Policy.” Lambros’s policy provides that cash surrender value is “computed by the Standard Nonforfeiture Value Method producing values equal to the full net level premium reserve for the fifteenth and all subsequent anniversaries including those not shown.” The policy also specifies that “[t]he cash value at any time 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.” The cash surrender value on life insurance policies is a “property right[]” created by the policy. (State ex rel. Pacific Mut. Life Ins. Co. v. Larson (1943) 152 Fla. 729 [12 So.2d 896, 897].)
Premiums are payments for the insurance and other rights that accrue under the policy. Although premium payments may be one aspect of the computation of cash value, “ ‘[t]here 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.’ [Citations.]” (Jennings v. Prudential Ins. Co. (1975) 48 Cal.App.3d 8,18 [121 Cal.Rptr. 125] (Jennings), quoting Equitable Life Assurance Soc. v. Johnson (1942) 53 Cal.App.2d 49, 74 [127 P.2d 95].)
Cash surrender value is, like the insurance itself, a “benefit” that is acquired by paying the premium. But the return of an unearned premium is not a benefit. Return of an unearned premium is a right under any or all of contractual, quasi-contractual or statutory law theories. A leading authority has said, “[a]s a general rule, an insurer is entitled only to such premium as the risk carried reasonably warrants. It follows that where a greater premium has been paid, or a premium has been paid for which there has been no corresponding assumption of risk, the unearned premium should be returned to the insured. To illustrate, upon canceling a policy an insurer must return *52the advance premiums which have been paid and are unearned. [¶] The duty of the insurer to return unearned premiums is contractual or quasi-contractual in nature.” (5 Couch on Insurance (3d ed. 1997) § 79:6, pp. 79-10 to 79-11.)
In coming to my conclusion, I rely upon California law. Although originally New York or Washington, D.C. law would have applied because those were the locations of performance, by accepting premium payments in California for the policy, MetLife waived the right to assert that a law other than California law applied. (Blair v. New York Life Ins. Co. (1940) 40 Cal.App.2d 494, 498-499 [104 P.2d 1075]; see also Baekgaard v. Carreiro (9th Cir. 1956) 237 F.2d 459, 466, fn. 3.)
Insurance Code section 481, subdivision (a) (section 481) requires the return of unearned premiums “[u]nless the insurance contract otherwise provides.”1 The majority hold that the contract “otherwise provides” for the unearned premium by not including it in what has to be given to the surrendering policyholder. I believe that the obligation to return an unearned premium is an implied-in-fact or implied-in-law term of the policy. And if that obligation cannot be implied, there being no reference to that obligation in the policy, return of the unearned premium is required by section 481.
1. Majority’s Interpretation
In inteipreting an insurance policy, it is “a cardinal rule of interpretation ... that, where a provision of an insurance policy is susceptible of two constructions, it should be construed most strongly in favor of the policyholder.” (Island v. Fireman’s Fund Indem. Co. (1947) 30 Cal.2d 541, 548 [184 P.2d 153].) Moreover, “[a]ny uncertainties or ambiguities in the policy will be resolved against the insurer.” (Vargas v. Athena Assurance Co. (2001) 95 Cal.App.4th 461, 465 [115 Cal.Rptr.2d 426]; Continental Casualty Co. v. Phoenix Constr. Co. (1956) 46 Cal.2d 423, 437 [296 P.2d 801].) Although the insured-insurer relationship may not be a true fiduciary relationship, courts have imposed “ ‘special and heightened’ ” duties on an insurer because of the relationship. (Vu v. Prudential Property & Casualty Ins. Co. (2001) 26 Cal.4th 1142, 1150 [113 Cal.Rptr.2d 70, 33 P.3d 487].)
The majority’s interpretation of the policy fails to take into account the distinction between cash surrender value and premiums. In reaching their *53conclusion that the policy’s silence as to the return or retention of unearned premiums means they need not be returned, the majority rely upon Jennings, supra, 48 Cal.App.3d at page 18, which said, without explanation, that in a particular policy the cash value option “exclud[es] the return of so-called ‘unearned’ premiums.” The language in Jennings appears to be based on the fact that the tabular cash value was calculated to the date to which the premiums were paid without any provision for an interest discount for the period after the surrender of the policy. Thus, the unearned premium was factored into the surrender value. The policyholder received the full cash value for the entire premium period no matter when he surrendered his policy. That the court in Jennings relied on this factor is demonstrated by its statement that “[t]he fact that the cash surrender value was calculated under the policy according to the date to which the premium had been paid, made the cash value greater than it would have been if calculated as of the date of surrender. [Citation omitted.] It is not unfair to permit the insurer to retain the premiums in consideration of the insured’s right to exercise the cash value option at the agreed tabular values.” (Id. at p. 19, fn. omitted.)
Here, however, MetLife reduced the cash surrender value by the rate of 5 percent per annum from the surrender date to the end of the period for which the premium was paid. Thus, MetLife retained all of the value of the unearned premium, or even more, without any consideration, except it kept the policy in effect without any right to do so under the policy and without the insured’s consent. Lambros did not receive the full cash value for the entire premium paid.
In view of the distinction between cash surrender benefits and premium payments, the absence of any language covering the disposition of unearned premiums upon surrender of the policy, and the rules of interpretation applied to insurance policies, I do not agree with the majority’s interpretation of the policy.
2. Implied-in-fact term
There being no term expressly covering what should be done with the unearned premium, consideration must be given to whether such a term may be implied. California statutes provide that contractual terms may be implied not only “as necessary to carry [the] contract ... into effect” (Civ. Code, § 1656), but also for “things that in law or usage are considered as incidental to a contract” (ibid.) and for “[stipulations which are necessary to make a contract reasonable, or conformable to usage....” (Civ. Code, § 1655.) “ ‘Neither law nor equity requires that every term and condition be set forth in a contract. The usual and reasonable terms found in similar contracts may be considered, unexpressed provisions of the contract may be inferred from *54the writing, external facts may be relied upon, and custom and usage may be resorted to in an effort to supply a deficiency if it does not alter or vary the terms of the agreement’ ...” (Frankel v. Board of Dental Examiners (1996) 46 Cal.App.4th 534, 545 [54 Cal.Rptr.2d 128].) “Our Civil Code provides that ‘Stipulations which are necessary to make a contract reasonable ... are implied ....’ (Civ. Code, § 1655.)” (Walker v. Occidental Life Ins. Co. (1967) 67 Cal.2d 518, 523 [63 Cal.Rptr. 45, 432 P.2d 741].)
It is common for an insurer to return an unearned premium upon cancellation or surrender of a policy. (6 Couch on Insurance (2d ed. 1985) § 34:29, pp. 884—886; 5 Couch on Insurance, supra, § 79:2, p. 79-7.) It is normally assumed that there will be a return of a payment for a product or service that by mutual agreement is not provided. Such a return of an unearned premium is a usual and expected term of an agreement. The subject of unearned premiums is not expressly covered by the MetLife policy. Thus, the provision for the return of the unearned premium should be implied in that policy.
3. Implied-in-law term
Even if the return of unearned premiums cannot be implied in fact, it should be implied in law. Lambros paid a premium for insurance for an entire year. He is entitled by the policy to surrender that policy during the year and receive certain earned benefits. By surrendering the policy, he communicated that he no longer wanted the insurance for the remainder of the year. He should not have to pay for something he does not want. MetLife may have left the insurance in effect for the remainder of the year, but Lambros did not bargain for that coverage, and there is nothing in the policy that provided for it. MetLife’s withholding the unearned premiums results in its retaining monies that are not covered by the insurance contract. Thus, Lambros paid for a service that by mutual agreement he is not to receive. MetLife should not be able to keep those payments.
In other contexts, a party who has paid for consideration not fully received is entitled to the return of the monies paid attributable to that consideration. For example, it is established that “ ‘where one party has paid the full consideration for the contract, in accordance with its terms, and the other party has not performed, or has only partially performed, the party so performing will be entitled to recover back the consideration paid by him, or its value, in toto or pro tanto as the failure to perform by the other party is total or only partial.’ ” (Tulsa Opera House Co. v. Mitchell (1933) 165 Okla. 61 [24 P.2d 997, 1001], quoting Bell v. Kanawha Traction & Electric Co. (1919) 83 W.Va. 640 [98 S.E. 885]; see also Taylor v. Grand Lodge A.O.U.W. (1905) 96 Minn. 441 [105 N.W. 408, 410-411] [“ ‘Where the risk has not been run, whether its not having been run was owing *55to the fault, pleasure, or will of the insured or to any other cause, the premium shall be returned, because a policy of insurance is a contract of indemnity’ ”]; Grove v. Charles W. Barrett Co. (1923) 87 Cal.App. 165, 167 [261 P. 739]; Morlock v. Fink (1927) 81 Cal.App. 686, 688 [254 P. 578] [common count for money had and received].)
There is no difference between payment for something that will, by mutual consent, be terminated, and payment on a contract, the consideration of which has failed. In the latter situation, it is accepted that the payor is entitled to the return of its money. (See United States v. Barlow (1889) 132 U.S. 271, 281-282, [33 L.Ed. 346, 10 S.Ct. 77]; Louisiana v. Wood (1880) 102 U.S. 294, 298-299 [26 L.Ed. 153].) So here too, Lambros should have his unearned premium returned.
Similarly, “a person who has paid money to another as full performance of a contract voidable by the payor for mistake and who has received a part of the agreed exchange is entitled, at his election, to keep what he has received and to have restitution of so much of his payment as has not been compensated for by the other’s part performance.” (Levy v. Wolff (1956) 46 Cal.2d 367, 368 [294 P2d 945]; see also Rest., Restitution, § 25.) The same principle should apply when a contract is, in effect, terminated under its own terms.
An insurer that retains unearned premiums upon a valid surrender of the policy without express authorization is unjustly enriched. (See Major-Blakeney Corp. v. Jenkins (1953) 121 Cal.App.2d 325, 339 [263 P.2d 655] [unjust enrichment “presupposes the acceptance and retention of a benefit by one party retained without payment of the reasonable value”]; Midwest Sports Mktg. v. Hillerich & Bradsby of Can. (Minn. Ct. App. 1996) 552 N.W.2d 254, 268 [it is “ ‘morally wrong’ ” for one party to enrich itself at the expense of another].) Thus, the return of the unearned premium upon surrender of the policy, even if not implied in fact, should be implied in law.
The 1996 amendment to Insurance Code section 10164.2 referred to by the majority is not inconsistent with my position. Originally, that provision provided that when a policy is “canceled,” the “insured or owner” is entitled to the return of “all unearned premiums and other moneys due the insured or owner in relation to that policy” within a specified time. (Stats. 1989, ch. 713, §3, p. 2345.) In adding a number of provisions in 1996, the Legislature changed the language concerning the return of unearned premiums to read that when a policy is “surrendered by the policy owner,” the “owner” is entitled to the return of “all moneys due in relation to that policy” within a specified time. (Ins. Code, § 10164.2, subd. (a).) As the Legislative Counsel’s digest provides, the statute, inter aha, made time periods “applicable only to the surrender by the [policy] owner.” (Legis. Counsel Dig., Assem. Bill No. 293 (1995-1996 Reg. Sess.).)
*56The former version of Insurance Code section 10164.2 referred to a return of unearned premiums and “other moneys.” The amended version effected a mere change and simplification in phraseology by deleting the reference to unearned premiums and adding “all moneys due.” (Italics added.) The term “all moneys due” includes unearned premiums. A “mere change in phraseology, incident to a revision of the statute, does not result in a change of meaning unless the intent to make such a change clearly appears.” (DeCastro West Chodorow & Burns, Inc. v. Superior Court (1996) 47 Cal.App.4th 410, 418 [54 Cal.Rptr.2d 792].) Therefore, the change in language does not preclude implying by law a requirement that an insurer return unearned premiums in the event of cancellation.
4. Statute
Even if the return of the unearned premium is not an implied term of the policy, it is required by section 481.1 do not believe that the language of the policy may be interpreted to exclude the return of the unearned premium. Therefore, if nothing regarding the unearned premium may be implied, the status of the unearned premium is not covered at all. Then, the clear mandate of section 481 requires the return of the unearned premium.
Although the court in Jennings, supra, 48 Cal.App.3d at page 18 expressed some doubt that section 481 covered life insurance, I see no basis for that doubt. There is no reference to excluding life insurance. When the Legislature desired to exclude a type of insurance, it did so expressly. (§ 481, subd. (c) [excluding ocean marine insurance]; see 2B Sutherland, Statutes and Statutory Construction (6th ed. 2000) § 49:11, p. 120 [subsequent legislation as interpretive device].)
CONCLUSION
I would reverse the summary judgment because I believe that Lambros’s claim under his policy has merit. I do not express any opinion on the claim under Business and Professions Code section 17200 et seq. (unfair competition law), other than to note that Lambros has not pleaded a violation of any statute. (See Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone (1999) 20 Cal.4th 163, 180 [83 Cal.Rptr.2d 548, 973 P.2d 527]; Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 619 [17 Cal.Rptr.2d 708].)
On August 14, 2003, the opinion was modified to read as printed above. Appellant’s petition for review by the Supreme Court was denied November 12, 2003.

 Section 481 provides as follows: “(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: ... [f] ... (b) No contract for individual motor vehicle liability or homeowners’ multiple-peril insurance may contain a provision which mandates that the premium for such policy shall be fully earned upon the happening of any contingency except the expiration of the policy itself. This subdivision shall not apply to policy fees or membership fees.”