TROYK v. FARMERS GROUP, INC











Filed 3/10/09; on rehearing






CERTIFIED FOR PARTIAL PUBLICATION^*

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

THOMAS E. TROYK, Plaintiff and Respondent, v. FARMERS GROUP, INC. et al., Defendants and Appellants.	D049983 (Super. Ct. No. GIC836844)
PREMATIC SERVICE CORPORATION (CALIFORNIA) et al., Movants.

APPEAL from a judgment of the Superior Court of San Diego County, Jay M. Bloom, Judge. Reversed and remanded with directions.

Coughlin Stoia Geller Rudman & Robbins, Timothy G. Blood, Pamela M. Parker, Kevin K. Green and Leslie E. Hurst for Plaintiff and Respondent.
Gibson, Dunn & Crutcher, Theodore J. Boutrous, Jr., Gail E. Lees, Christopher Chorba, James L. Zelenay, Jr., Kahn A. Scolnick; Skadden, Arps, Slate, Meagher & Flom, Raoul D. Kennedy, Douglas B. Adler and Darrel J. Hieber for Defendants and Appellants.
Fulbright & Jaworski, Richard R. Mainland, Peter H. Mason and Eric A Herzog for Movants.
Plaintiff Thomas E. Troyk filed a class action against defendants Farmers Group, Inc., doing business as Farmers Underwriters Association (FGI), and Farmers Insurance Exchange (FIE) (together Farmers) alleging causes of action for breach of contract and violation of Business and Professions Code section 17200 (Unfair Competition Law, hereafter UCL). He alleged FIE required him to pay a service charge for the payment of the premium for his automobile insurance policy's one-month term and, because the service charge was not stated in his policy, FIE violated the requirement of Insurance Code section 381, subdivision (f),^[1] that "premium" be stated in an insurance policy.
The trial court granted Troyk's request for class certification, granted Troyk's motion for summary judgment, and denied Farmers' motion for summary judgment. The court then entered judgment awarding Troyk and the other class members $115,556,827 for service charges paid by those members.
On appeal, Farmers contend: (1) the trial court erred by interpreting the term "premium," as used in section 381, subdivision (f), to include the service charge imposed for payment in full of the stated premium for the policy's one-month term; (2) even if the service charge is premium, they complied, either actually (because of incorporation by reference to other documents) or substantially, with section 381, subdivision (f)'s disclosure requirement; (3) the court erred by concluding Troyk proved his breach of contract and UCL causes of action and by awarding the class members full restitution for the service charges they paid; and (4) the judgment violates their constitutional right to due process of law.
Following oral argument in this appeal, we requested, and have received and considered, supplemental briefing by the parties on the issues whether: (1) Troyk had standing under Business and Professions Code section 17204 to bring this action; and (2) the issue of standing was raised in the trial court by Farmers and, if not, has that issue been waived.
Because we interpret the term "premium," as used in section 381, subdivision (f), to include a service charge imposed for the payment in full of the stated premium for an insurance policy's one-month term, we conclude Farmers violated that statute's disclosure requirement. However, because in moving for summary judgment Troyk did not show there is no triable issue on the element of causation regarding his standing to prosecute the UCL cause of action, we conclude the trial court erred by granting his motion for summary judgment.
FACTUAL AND PROCEDURAL BACKGROUND
FIE is a reciprocal or interinsurance exchange organized under California law (§ 1280 et seq.) and is licensed to sell insurance in California and Nevada. FIE is owned by its subscribers, who are deemed its insureds. (§ 1303 ["[E]ach subscriber shall be deemed an insured."].) FGI is a Nevada corporation, but not an insurance company, and is the attorney-in-fact for FIE and performs certain administrative services for FIE. Both FIE, as an insurer, and FGI, as its attorney-in-fact, are "subject to and regulated by all of the provisions of [the Insurance Code]," except as otherwise exempted. (§ 1281.) Prematic Service Corporation, a California corporation (Prematic California), is a wholly-owned subsidiary of FGI. Prematic Service Corporation, a Nevada corporation (Prematic Nevada), is a wholly-owned subsidiary of Prematic California. The sole business of Prematic California and Prematic Nevada (together Prematic) is to handle monthly billing for customers of FIE and other insurance companies by agreements with those customers.
FIE offers automobile insurance with policy terms of either six months or one month. If an insured chooses a six-month term, the premium is payable in either one lump-sum or two installments (under FIE's Two-Pay Plan). If the insured chooses a one-month term, FIE in effect converts its six-month policy into a one-month policy by issuing an endorsement called the "Monthly Payment Agreement" (i.e., endorsement form No. E0022), which provides:
"In consideration of the premium deposit, we agree to the following:

"(1) The policy period is amended to one Calendar month. It will commence with the effective date shown in the Declarations.

"(2) The policy shall continue in force for successive monthly periods if the premium is paid when due. The premium is due no later than on the expiration date of the then current monthly period.

"(3) The monthly premium shall be subject to future adjustment. Such adjustment will apply the then current rate on the semi-annual or annual anniversary of the policy whichever is indicated in the Declarations as applicable.

"This endorsement is part of your policy. It supersedes and controls anything to the contrary. It is otherwise subject to all other terms of the policy." (Italics added.)

However, to obtain a one-month, or monthly, term policy, FIE first requires that the insured enter into an agreement with Prematic (Prematic Agreement), pursuant to which Prematic agrees to send a monthly premium bill to the insured (requesting payment by check payable to Prematic) and, on receipt of the premium payment and its service charge (e.g., $5 per payment), forward the insured's payment to FIE (less Prematic's service charge).^[2]
In 1991 Troyk purchased an automobile insurance policy from FIE, which policy has since been continuously renewed. He chose to pay the stated premium monthly, rather than every six months, and, accordingly, entered into the Prematic Agreement discussed above. FIE then issued to Troyk its standard form of six-month policy, but with the Monthly Payment Agreement endorsement (form No. E0022) amending the six-month term to a one-month term. As renewed in 2005, the policy's declarations page lists the total premium to be paid over the course of six months, but leaves blank the space adjacent to the item "fees" and therefore does not include, either separately or as part of the total premium, any statement of Prematic's service charges. Furthermore, adjacent to the item "Total" is typed "Prematic" (rather than a dollar amount). The declarations page includes a reference to the Monthly Payment Agreement endorsement (form No. E0022) and lists the number assigned to Troyk's agreement with Prematic (i.e., "PREMATIC NO[.] A641249"). Since 1991, Troyk has received monthly bills from Prematic for FIE's stated premiums and Prematic's service charges, and has made payments to Prematic for the billed amounts (including its service charges).
In October 2004 Troyk filed the instant class action. In December, he filed the operative first amended complaint alleging causes of action for breach of contract and violation of the UCL. In particular, Troyk alleged he "has suffered an injury in fact and has lost money as a result of the conduct alleged." He further alleged:
"14. Farmers offers its personal lines automobile insurance policyholders two options for the term of insurance coverage. Under the first option, Farmers offers insurance coverage for a term of six months. Under the second option, Farmers offers insurance coverage for a term of one month.

"15. Regardless of whether the term of coverage is for one month or six months, the premium Farmers asserts it charges is the same for otherwise identical coverage and risk. That is, the premium Farmers states in its insurance policy is the same per month regardless of the length of the term.

"16. In fact, regardless of whether an insured chooses a six month term or one month term, Farmers uses the same policy and the same Declarations page, which lists the same premium amount for a six month period. If the insured desires a monthly term, Farmers adds an endorsement to the policy, which modifies the policy from six months to one month, for a premium that is one-sixth the premium for a six month term. The endorsement states that '[t]he policy period is amended to one Calendar month.' . . .

"17. Although the Declarations page states the total amount of premium, Farmers nonetheless charges policyholders who purchase insurance by the month additional premium which it euphemistically refers to as a 'service charge.' The service charge is not included anywhere in the policy, but is nonetheless added in addition to the premium stated in the policy.

"18. [Troyk] has purchased automobile insurance from Farmers. . . . The Declarations page of the policy period beginning on May 25, 2004 states that the premium for the policy for six months is $345.40.

"19. [Troyk] did not buy six months of insurance coverage. Instead, [he] bought insurance for a one month term. Like all policyholders who purchase a Farmers policy in one month terms, [his] policy contains the endorsement which states that '[t]he policy period is amended to one Calendar month.'

"20. Instead of charging [Troyk] one-sixth of the six month premium quoted on the Declarations page, Farmers improperly charged [him] an additional monthly premium of $5.00.

"21. [Troyk's] payments with respect to his Farmers' policy [were] paid to Prematic Service Corporation, which is a corporate affiliate of Farmers. Prematic Service Corporation, in collecting payments from Farmers' policyholders, acts as the agent of Farmers."

Troyk's complaint sought injunctive relief against Farmers and full restitution from Farmers of the service charges paid by members of the class and the general public.
The trial court granted Troyk's motion for class certification, certifying a class of those persons in California and Nevada who, between October 6, 2000, and August 26, 2005, purchased and paid for insurance policies from Farmers on a monthly basis and incurred service charges in addition to the premiums specified in their policies. It was apparently determined there are about 975,000 members in the certified class.
In August 2005 Prematic filed a motion to intervene in the action. The trial court denied the motion, finding the motion was untimely filed and FGI and Prematic had the same interest in the service charges. It also stated that it appeared Prematic's interests were being adequately represented by FGI.
In September, Troyk filed a motion for summary judgment or, in the alternative, summary adjudication of issues. Farmers also filed a motion for summary judgment.
On June 20, 2006, the trial court granted Troyk's motion for summary judgment and denied Farmers' motion. The court stated:
"When policyholders obtain car insurance through FIE, they have three payment options. They can (1) pay 100% up front; (2) pay 50% up front and 50% in 60 days; or (3) make payments monthly through a service offered by non-party Prematic Service Corporation. [Citations.] If the customer pays 100% up front, there is no 'service charge.' If the customer makes two payments of 50%, FIE charges a 'service charge.' [Citation.]

"However, if the policyholder chooses to make monthly payments, information is sent from FIE's agent to Prematic, [which] sets up a Prematic billing account. [Citations.] The policyholder is required to enter into an agreement with Prematic to make the monthly payments to Prematic, along with a 'service charge' for administering the plan. [Citations.] Prematic in turn forwards the payment to the insurer. [Citation.] The policy is amended from a six month to a one month policy. [Citations.] Prematic may terminate the agreement if the policyholder fails to make timely payments to Prematic. [Citation.]

"The insurance policy must provide a statement of the premium. (Ins. Code[,] § 381(f)[.]) It is a misdemeanor for any insurer to issue a policy in violation of § 381(f). (Ins. Code[,] § 383[.])

" 'Premium' in the law of insurance means the amount paid to the company for insurance. It is the sum which the insured is required to pay. [Citation.] The gross premium consists of two elements: the net premium and the loading. The net premium is the expected level of claims payments. The loading is added to the net premium to cover the expenses of the company and usually includes the administrative costs of the insurer and an element of profit. [Citation.] Thus, the 'service charge' paid by policyholders to Prematic is a premium under Ins. Code § 381(f) and should be disclosed as such on the declarations page. . . ."

Accordingly, the trial court found Farmers breached the insurance contract with the class members and also engaged in an unlawful business practice under the UCL by imposing the service charge undisclosed in the policy. It rejected Farmers' argument that they were not liable for service charges collected by Prematic, finding both FGI and Prematic are agents of FIE. It further found that although "Prematic is ostensibly performing FGI's duties as FIE's attorney in fact, in reality it appears FGI is still performing those duties." The court also stated: "FIE and its agent and attorney in fact, FGI, must comply with [I]nsurance [C]ode provisions, such as § 381(f). (Ins. Code[,] § 1281[.]) The premiums are collected by FIE's agents, FGI and Prematic. FIE could not provide insurance without its agents. What the agent receives, in legal effect[,] the insurer receives. [Citation.] Thus, FIE, FGI and Prematic are operating as a single enterprise to transact the business of insurance. Therefore, both FIE and FGI are liable for the [I]nsurance [C]ode violations, contract breaches and unfair business practices." The court concluded: "[S]ummary judgment is granted in favor of plaintiffs and [Farmers'] motion for summary judgment is denied. [Farmers] are liable for the premium amounts paid in excess of the premium stated on the declarations page of the class members' insurance contracts." The court found Farmers must pay restitution in the full amount of the service charges unlawfully acquired by Farmers from the class members during the class period.
The parties subsequently stipulated that the aggregate amount of service charges collected by Farmers (through Prematic) from the class members during the class period was $115,556,827.
On August 21, 2006, the trial court entered judgment for Troyk, as the class representative of the certified class, against FGI and FIE in the amount of $115,556,827. It retained jurisdiction "to determine and oversee an award distribution plan." The court subsequently issued an order awarding Troyk prejudgment interest and then interlineated its judgment to provide for an award of $21,655,032 in prejudgment interest.
On September 14, Farmers and Prematic each filed motions to set aside or vacate the judgment. The trial court denied the motions.
Farmers and Prematic each timely filed notices of appeal.^[3]
DISCUSSION
I
Summary Judgment Standard of Review
"[A]fter a motion for summary judgment has been granted [by a trial court], [an appellate court] review[s] the record de novo, considering all the evidence set forth in the moving and opposition papers except that to which objections have been made and sustained. [Citations.]" (Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 334; Saelzler v. Advanced Group 400 (2001) 25 Cal.4th 763, 767.) "The purpose of the law of summary judgment is to provide courts with a mechanism to cut through the parties' pleadings in order to determine whether, despite their allegations, trial is in fact necessary to resolve their dispute. [Citation.]" (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843 (Aguilar).)
Aguilar clarified the standards that apply to summary judgment motions under Code of Civil Procedure section 437c. (Aguilar, supra, 25 Cal.4th at pp. 843-857.) Generally, if all the papers submitted by the parties show there is no triable issue of material fact and the "moving party is entitled to a judgment as a matter of law" (Code Civ. Proc., § 437c, subd. (c)), the court must grant the motion for summary judgment. (Aguilar, at p. 843.) Code of Civil Procedure section 437c, subdivision (p)(1), states:
"A plaintiff or cross-complainant has met his or her burden of showing that there is no defense to a cause of action if that party has proved each element of the cause of action entitling the party to judgment on that cause of action. Once the plaintiff or cross-complainant has met that burden, the burden shifts to the defendant or cross-defendant to show that a triable issue of one or more material facts exists as to that cause of action or a defense thereto. The defendant or cross-defendant may not rely upon the mere allegations or denials of its pleadings to show that a triable issue of material fact exists but, instead, shall set forth the specific facts showing that a triable issue of material fact exists as to that cause of action or a defense thereto."

Aguilar made the following observations:
"First, and generally, from commencement to conclusion, the party moving for summary judgment bears the burden of persuasion that there is no triable issue of material fact and that he is entitled to judgment as a matter of law. . . . There is a triable issue of material fact if, and only if, the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof. . . .

"Second, and generally, the party moving for summary judgment bears an initial burden of production to make a prima facie showing of the nonexistence of any triable issue of material fact; if he carries his burden of production, he causes a shift, and the opposing party is then subjected to a burden of production of his own to make a prima facie showing of the existence of a triable issue of material fact. . . . A prima facie showing is one that is sufficient to support the position of the party in question. . . .

"Third, and generally, how the parties moving for, and opposing, summary judgment may each carry their burden of persuasion and/or production depends on which would bear what burden of proof at trial. . . . [I]f a plaintiff who would bear the burden of proof by a preponderance of evidence at trial moves for summary judgment, he must present evidence that would require a reasonable trier of fact to find any underlying material fact more likely than not--otherwise, he would not be entitled to judgment as a matter of law, but would have to present his evidence to a trier of fact." (Id. at pp. 850-851.)

Summary judgment law in California "no longer requires a plaintiff moving for summary judgment to disprove any defense asserted by the defendant as well as prove each element of his own cause of action." (Id. at p. 853.) It is sufficient for a plaintiff to prove each element of the cause of action. (Ibid.) Aguilar stated:
"To speak broadly, all of the foregoing discussion of summary judgment law in this state, like that of its federal counterpart, may be reduced to, and justified by, a single proposition: If a party moving for summary judgment in any action . . . would prevail at trial without submission of any issue of material fact to a trier of fact for determination, then he should prevail on summary judgment. In such a case, . . . the 'court should grant' the motion 'and avoid a . . . trial' rendered 'useless' by nonsuit or directed verdict or similar device. [Citations.]" (Id. at p. 855, italics added.)

On appellate review of an order granting or denying a motion for summary judgment, "we exercise 'an independent assessment of the correctness of the trial court's ruling, applying the same legal standard as the trial court in determining whether there are any genuine issues of material fact or whether the moving party is entitled to judgment as a matter of law.' [Citation.] 'The appellate court must examine only papers before the trial court when it considered the motion, and not documents filed later. [Citation.] Moreover, we construe the moving party's affidavits strictly, construe the opponent's affidavits liberally, and resolve doubts about the propriety of granting the motion in favor of the party opposing it.' [Citations.]" (Seo v. All-Makes Overhead Doors (2002) 97 Cal.App.4th 1193, 1201-1202.)
II
The Meaning of the Term "Premium"
as Used in Section 381, Subdivision (f)

Farmers contend the trial court erred by granting Troyk's motion for summary judgment and denying their motion for summary judgment because the court erroneously concluded the term "premium," as used in section 381, subdivision (f), includes the service charge imposed for payment of the stated premium for the one-month term.
A
Section 381, enacted in 1935, provides:
"A policy shall specify:

"(a) The parties between whom the contract is made.

"(b) The property or life insured.

"(c) The interest of the insured in property insured, if he is not the absolute owner thereof.

"(d) The risks insured against.

"(e) The period during which the insurance is to continue.

"(f) Either: [¶] (1) A statement of the premium, or [¶] (2) If the insurance is of a character where the exact premium is only determinable upon the termination of the contract, a statement of the basis and rates upon which the final premium is to be determined and paid." (Italics added.)^[4]

Neither section 381 nor any other provision of the Insurance Code defines the term "premium." Furthermore, the parties have not cited, nor have we found, any case that interprets the term "premium," as used in section 381, subdivision (f), in the context of service charges imposed for payment in full of the stated premium for insurance coverage for a one-month term. Accordingly, we consider that question to be one of first impression.
"Our task in interpreting a statute 'is to ascertain and effectuate legislative intent. [Citations.]' [Citation.] In order to do so, '[w]e turn first to the words of the statute themselves, recognizing that "they generally provide the most reliable indicator of legislative intent." [Citations.] When the language of a statute is "clear and unambiguous" and thus not reasonably susceptible of more than one meaning, " ' " 'there is no need for construction, and court should not indulge in it.' " ' " [Citations.]' [Citation.]" (People v. Leal (2004) 33 Cal.4th 999, 1007.) Alternatively stated, under the rules of statutory construction, "[i]t is settled that ' "[w]e are required to give effect to statutes 'according to the usual, ordinary import of the language employed in framing them.' [Citations.]" ' [Citation.] Stated otherwise, '[w]hen statutory language is thus clear and unambiguous there is no need for construction, and courts should not indulge in it.' [Citations.] [¶] We have declined to follow the plain meaning of a statute only when it would inevitably have frustrated the manifest purposes of the legislation as a whole or led to absurd results. [Citations.]" (People v. Belleci (1979) 24 Cal.3d 879, 884, superseded by constitutional amendment on another ground as noted in People v. Moore (1988) 201 Cal.App.3d 877, 885.) "It is our task to construe, not to amend, the statute. 'In the construction of a statute . . . the office of the judge is simply to ascertain and declare what is in terms or in substance contained therein, not to insert what has been omitted or omit what has been inserted . . . .' [Citation.] We may not, under the guise of construction, rewrite the law or give the words an effect different from the plain and direct import of the terms used." (California Fed. Savings & Loan Assn. v. City of Los Angeles (1995) 11 Cal.4th 342, 349.)
B
Based on our independent interpretation of the relevant statutory language, we conclude the clear and unambiguous meaning of the term "premium," as used in section 381, subdivision (f), includes a service charge imposed for payment in full of the stated insurance premium for a one-month term policy. As we stated in Interinsurance Exchange of the Automobile Club v. Superior Court (2007) 148 Cal.App.4th 1218 (Auto Club), "[i]t is commonly understood that a premium is the amount paid for certain insurance for a certain period of coverage." (Id. at p. 1230, fn. omitted.) Because section 381 "presumably is a consumer protection statute" (id. at p. 1226), the meaning of "premium," as used in section 381, subdivision (f), is interpreted from the perspective of the consumer (i.e., the insured). In the circumstances of this case, Troyk and the other class members were required to pay a service charge in addition to the stated premium to obtain and pay for a one-month term of insurance coverage.^[5] They could not obtain or pay for that one-month term policy by paying only the premium stated on the declarations page or elsewhere in the policy. Therefore, from the insureds' perspective in this case, "premium," for purposes of section 381, subdivision (f), is the total amount the insureds were required to pay to obtain insurance coverage for a one-month term (i.e., the stated premium plus the service charge imposed for payment in full of that stated premium).^[6]
Because FIE required the insureds to pay those service charges to obtain a one-month term policy, it is irrelevant that Prematic, instead of FIE, directly received that service charge. In any event, as we discuss below, because Prematic was acting as FIE's agent in billing and collecting from the insureds the stated premiums and required service charges and in forwarding the stated premiums (less the service charges) to FIE, FIE is charged with constructive receipt of those service charges for purposes of section 381, subdivision (f).^[7]
Although it is not the determinative test for premium under section 381, subdivision (f), consideration of this issue from an insurer's perspective provides additional support for our conclusion that "premium" includes the stated premium plus any service charge required to obtain insurance coverage for a certain period (e.g., a one-month term policy). As Farmers represent in their brief, the service charges were compensation "for the administrative services associated with . . . billing, collections, and forwarding of premium funds to [FIE]." Philip Moore, Prematic's president, stated in his declaration: "FIE insureds who wish to pay for their coverage on a monthly basis agree to pay Prematic a service fee in return for Prematic's performing the additional tasks needed to facilitate payment of premiums on a monthly basis."
Moore explained during his deposition that Prematic received the service charge "[f]or the expense of sending -- consolidating bills, for mailing bills to the customer, for receiving the premium payment, and . . . collecting the service fee and forwarding the premium payment to [FIE]." Therefore, in this case the service charges were imposed solely to cover the administrative expenses of creating and mailing monthly bills to insureds, receiving monthly payments, and forwarding the stated premiums to FIE (less the service charges Prematic retained). Those administrative expenses were necessarily incurred (albeit by Prematic) because FIE required its insureds to pay their stated premiums, plus service charges, to Prematic to obtain a one-month term policy. Had Prematic (or another agent) not performed those administrative services on FIE's behalf, FIE presumably would have directly performed those services and received the service charges. In that scenario, all of those administrative costs (i.e., billing and collection costs) presumably would be included among the insurer's costs of providing insurance coverage for a certain period of time (e.g., a one-month term).
From an insurer's perspective, the premium charged an insured for insurance coverage for a certain period presumably includes, and generally exceeds, all costs associated with providing that coverage. Therefore, an insurance premium includes not only the "net premium," or actuarial cost of the risk covered (i.e., expected amount of claims payments), but also the direct and indirect costs associated with providing that insurance coverage and any profit or additional assessment charged (e.g., "loading"). (Cf. Metropolitan Life Ins. Co. v. State Bd. of Equalization (1982) 32 Cal.3d 649, 660 [discussing elements of "gross premiums" for insurance company taxation purposes].)^[8] Because the direct administrative cost of creating and mailing bills for and collecting payments for the premium charged for insurance coverage provided for a certain policy period (e.g., a one-month term) is presumptively included among an insurer's costs of providing insurance coverage, that cost is presumptively part of the premium charged by an insurer for providing insurance coverage for a certain period. Accordingly, consideration of premium from an insurer's perspective supports our conclusion that an insurer's requirement that an insured pay a service charge for those administrative services, in addition to payment in full of the stated premium, is necessarily included within the term "premium," as used in section 381, subdivision (f).^[9]

TO BE CONTINUED AS PART II….



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