Filed 9/28/17 Rosen v. Pacific Life Insurance Co. CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

Appeal from a judgment of the Superior Court of Orange County, Geoffrey T. Glass, Judge. Affirmed.

Law Offices of Rick L. Raynsford and Rick L. Raynsford for Plaintiff and Appellant.

Finlayson Toffer Roosevelt & Lilly LLP and Matthew E. Lilly for Defendant and Respondent.

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Plaintiff Peggy Rosen (Rosen) claimed life insurance proceeds after her husband passed away. Defendant Pacific Life Insurance Company (Pacific Life) denied the claim on the ground the policy had lapsed for lack of payment. Rosen sued, arguing she, as the beneficiary, should have been given notice before the policy was terminated. The court entered summary judgment in favor of Pacific Life, finding Rosen was not entitled to notice. Rosen appealed.

The sole issue on appeal is whether Rosen was entitled to notice of the pending lapse as an “other person having an interest in the individual life insurance policy” under Insurance Code section 10113.71, subdivision (b)(1).[1] We conclude she was not and affirm the judgment.

FACTS

The material facts are undisputed. Rosen’s late husband was the sole owner of a life insurance policy on his own life, which named Rosen as the sole beneficiary. The policy provided that if the husband failed to make a premium payment, it would enter into a 61‑day grace period to make up the payment. Failing that, the policy would lapse. The policy was entered into in 1999. Rosen made some of the payments on the policy.

On November 8, 2012, Pacific Life sent Rosen’s husband and his agent a notice that the policy had entered into a grace period due to nonpayment and that the policy would lapse if payment was not received by January 8, 2013. On December 10, 2012, Pacific Life sent a second notice stating the policy would lapse if payment was not received by January 10, 2013. No payment was made, and Pacific Life sent Rosen’s husband and his agent a notice on January 10, 2013, that the policy had lapsed. Rosen’s husband died on September 6, 2013, and she made a claim on the policy later that month. At that point, she was notified the policy had been terminated.

DISCUSSION

Section 10113.71 was enacted in 2012, effective on January 1, 2013. Pacific Life argued, inter alia, that the statute was not retroactive, and thus its notice requirements did not apply at the time the premium payment was missed. But the trial court resolved the case as though the statute did apply. Because we conclude the court’s ruling must be affirmed on the same basis the trial court used to decide the summary judgment motion, we will do the same.

Assuming then, without deciding, that section 10113.71 does apply in this case, the issue on appeal revolves around a single phrase in that statute, and thus, to provide context, we set forth the statute in full. It provides: “(a) Each life insurance policy issued or delivered in this state shall contain a provision for a grace period of not less than 60 days from the premium due date. The 60‑day grace period shall not run concurrently with the period of paid coverage. The provision shall provide that the policy shall remain in force during the grace period.

“(b)(1) A notice of pending lapse and termination of a life insurance policy shall not be effective unless mailed by the insurer to the named policy owner, a designee named pursuant to Section 10113.72 for an individual life insurance policy, and a known assignee or other person having an interest in the individual life insurance policy, at least 30 days prior to the effective date of termination if termination is for nonpayment of premium.

“(2) This subdivision shall not apply to nonrenewal.

“(3) Notice shall be given to the policy owner and to the designee by first‑class United States mail within 30 days after a premium is due and unpaid. However, notices made to assignees pursuant to this section may be done electronically with the consent of the assignee.

“(c) For purposes of this section, a life insurance policy includes, but is not limited to, an individual life insurance policy and a group life insurance policy, except where otherwise provided.” (Italics added.)

The question on appeal is whether Rosen was an “other person having an interest in the individual life insurance policy,” (which we refer to as an “interested person”) such that the lapse of the policy was ineffective because Pacific Life did not give her notice of the impending lapse. She contends she qualifies as an interested person because she was the sole beneficiary.

We review a summary judgment de novo. (Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 334.)

“Our primary task when faced with a question of statutory construction is to determine the intent of the Legislature, and we begin by looking to the statutory language. [Citation.] We must give ‘the language its usual, ordinary import and accord[] significance, if possible, to every word, phrase and sentence in pursuance of the legislative purpose. A construction making some words surplusage is to be avoided. The words of the statute must be construed in context, keeping in mind the statutory purpose, and statutes or statutory sections relating to the same subject must be harmonized, both internally and with each other, to the extent possible.’” (McCarther v. Pacific Telesis Group (2010) 48 Cal.4th 104, 110.) “[S]tatutory language is to be understood in context, with the whole of a statute considered when attempting to construe each part.” (Mendoza v. Nordstrom, Inc. (2017) 2 Cal.5th 1074, 1087.)

In construing the phrase “other person having an interest in the individual life insurance policy,” we begin with context. The phrase appears in the following list: “the named policy owner, a designee named pursuant to Section 10113.72 for an individual life insurance policy, and a known assignee or other person having an interest in the individual life insurance policy.” (§ 10113.71, subd. (b)(1), italics added.) Each item in the list is conjoined by “and,” with the interested‑person phrase being linked to “assignee” by “or.” This suggests the “interest” in question is similar in nature to an assignee. That reading is confirmed by section 10113.71, subdivision (b)(3), which provides that owners and designees are to receive notices by first class mail, but “notices made to assignees pursuant to this section may be done electronically with the consent of the assignee,” with no mention of interested persons. The fact that the Legislature did not feel the need to repeat the interested-person phrase suggests it is close enough in nature to an assignee to not require repetition.

In light of this context, we reject Rosen’s contention that beneficiaries are entitled to notice under section 10113.71. “[T]here is a vast difference between the assignee of the insured and a mere beneficiary in a life insurance policy.” (Mutual Benefit Life Ins. Co. v. Clark (1927) 81 Cal.App. 546, 554.) “Where the policy of insurance names a third person as beneficiary, the policy is then a contract made for the benefit of a third person and the third person is called the ‘beneficiary.’ The beneficiary is not a party to the contract and is not the owner thereof, and where a policy of insurance reserves to the insured the right to change the beneficiary, the interest of a designated beneficiary, prior to the death of the insured, is that of a mere expectancy of an incompleted gift, subject to revocation at the will of the insured.” ( Id. at p. 553-554.) An assignee, by contrast, is akin to an owner: “If the insured assigns such a policy he thereby ceases to be a party to the contract of insurance and his assignee becomes the owner and takes the place of the insured in the contract of insurance.” (Id. at p. 553.)

There is an evident purpose to the list. The list includes the owner of the policy, known assignees of the owner’s rights, and anyone the owner has indicated is to receive notices. In other words, people who may be obligated to make payments on the policy, and their designees. This does not include beneficiaries, unless the beneficiary is a designee pursuant to section 10113.72.[2]

Another consideration supporting our holding is that the Legislature has amply demonstrated its ability to use the term “beneficiary.” Pacific Life cites 86 statutes in the Insurance Code that contain the term “beneficiary” or “beneficiaries.” The Legislature is also familiar with notices being sent to beneficiaries, as demonstrated in section 10192, which provides for notices to beneficiaries of “paid up” life insurance policies: “If a policy of life insurance becomes paid up pursuant to a paid up nonforfeiture benefit, the insurer shall send a notice to the owner of the policy not later than six months after the date the paid up nonforfeiture benefit becomes effective, and once every five years thereafter. The notice shall advise the owner of the policy that the owner, within six months after the date of the notice, may request the insurer to send notices to all direct beneficiaries named in the policy. If so requested, the insurer shall send the notices by first‑class mail to the addresses of the beneficiaries as supplied by the owner.” We conclude that the omission of beneficiaries in section 10113.71, subd. (b)(1), was intentional.

Rosen contends, with little explanation, that omitting beneficiaries as interested persons would render that phrase meaningless, because the statute already specifies assignees. We disagree. Life insurance policies may be transferred in a variety of ways: “A life or disability policy may pass by transfer, will or succession to any person, whether or not the transferee has an insurable interest. Such transferee may recover upon it whatever the insured might have recovered.” (§ 10130.) “‘An insurance policy in legal contemplation is property, which can be sold, assigned or bequeathed by the owner thereof.’” (Chase v. Leiter (1950) 96 Cal.App.2d 439, 456.) Given the variety of ways rights to a life insurance contract may be transferred, the interested-person phrase provides meaning by covering transfers akin to an assignment.

Rosen offers two other ways she might qualify as an interested person: her community property interest, and the fact that she had an insurable interest in her husband’s life. Neither qualify.

As to Rosen’s community property interest, Pacific Life persuasively argues that requiring notice to all individuals with a community property interest “would place an impossible burden on insurers to determine who should receive notice of a pending lapse. Insurers are not privy to the financial affairs between spouses (or ex‑spouses) and have no way to determine whether funds used to pay premiums were community or separate property.” This is a familiar concern. In Blethen v. Pacific Mut. Life Ins. Co. (1926) 198 Cal. 91, a wife sought to recover half of the proceeds of a life insurance policy taken out by her ex‑husband, which was community property. The ex‑husband had changed the beneficiary to be his sister, and upon his death, the proceeds were paid to her. (Id. at p. 96.) The court held the insurance company was not liable, reasoning to hold otherwise would impose an “almost intolerable burden . . . upon insurance companies of determining in each instance, prior to the payment of the policy, whether or not the premiums were paid out of community funds, and if so, what proportion was so paid, as well as the burden of investigating any change which may have occurred in the marital situation and relations of the insured.” (Id. at p. 102.) This concern is reflected in section 10113.71, subdivision (b)(1), which lists parties who are known to the insurer: the owner, a designee, and a known assignee or interested person. This does not include a spouse who, for all the insurer knows, may or may not have a community interest.

As with beneficiaries, the term “spouse” is also common in the Insurance Code. Pacific Life cites 51 such statutes using the term “spouse.” Had the Legislature intended to include spouses, it could have done so explicitly. The fact that it did not suggests it did not intend spouses to receive notices.

Finally, Rosen’s contention regarding her insurable interest in her husband’s life is based on a simple misunderstanding. Rosen had an insurance interest in her husband’s life — not her husband’s life insurance policy. (§ 10110.1, subd. (a) [“An insurable interest, with reference to life and disability insurance, is an interest based upon a reasonable expectation of pecuniary advantage through the continued life, health, or bodily safety of another person and consequent loss by reason of that person’s death or disability or a substantial interest engendered by love and affection in the case of individuals closely related by blood or law”].) This simply means Rosen met the insurable-interest requirement to take out her own policy on her husband’s life. (§ 10110.1, subd. (f) [“An insurable interest shall be required to exist at the time the contract of life or disability insurance becomes effective, but need not exist at the time the loss occurs”]; Jimenez v. Protective Life Ins. Co. (1992) 8 Cal.App.4th 528, 536 [“The law is clear that a person taking out a policy of insurance upon the life of another must have an insurable interest in the life of the other person. Otherwise, the policy is a mere wager on the life of the person insured, and the policy is void as against public policy”].) Rosen’s insurable interest in her husband’s life did not entitle her to notice of the potential lapse of a policy she did not own.

DISPOSITION

The judgment is affirmed. Pacific Life shall recover its costs incurred on appeal.

IKOLA, J.

WE CONCUR:

BEDSWORTH, ACTING P. J.

MOORE, J.