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.

STORY CONTINUE FROM PART I….

C
The service charges FIE required Troyk and the other class members to pay were not imposed for the privilege of paying the premium for a six-month term policy in monthly installments or otherwise over time. Rather, as shown by the Monthly Payment Agreement endorsement (form No. E0022), the policy issued to the class members was for a one-month term, not a six-month term. Although FIE initially offered Troyk (and presumably the other class members) a six-month term policy that would not require payment of a service charge were the stated six-month premium paid in full, FIE also offered Troyk and the other class members the option to pay their premium on a monthly basis on the condition that they enter into the Prematic Agreement with, and paid a service charge to, Prematic for the payment of monthly premiums. On election of that monthly option, FIE issued the Monthly Payment Agreement endorsement (form No. E0022), amending the term of the policy from six months to one month. Therefore, the end result was that the class members did not have an FIE policy for a six-month term for which they paid monthly installments toward a six-month premium, but instead they had a one-month term for which they paid the stated premium in full (in addition to the service charge). The fact the Monthly Payment Agreement provided that class members had the right to extend the term of the one-month policy "for successive monthly periods if the premium is paid when due" supports, rather than weighs against, our conclusion. That language shows "the premium" is payable for the policy's one-month term. That agreement also provided: "The premium is due no later than on the expiration date of the then current monthly period." (Italics added.) That language likewise shows "the premium" is payable for the policy's one-month term. Furthermore, we note the Monthly Payment Agreement does not use the term "installment" or any other language that would suggest an insured will be paying each month only part of a greater premium for a period of coverage longer than one month (e.g., six months).
We conclude neither the Monthly Payment Agreement nor any of the other policy documents are reasonably susceptible of the interpretation proposed by Farmers.^[1] Rather, the policy documents are reasonably susceptible of only one interpretation--that each class member had a policy for a one-month, and not a six-month, term. Farmers' various machinations or devices (e.g., initially offering the class members a six-month term policy and then requiring them to enter into the Prematic Agreement with, and pay service charges to, Prematic to obtain a one-month term policy) do not obscure the fact the class members ultimately obtained a one-month term policy (albeit renewable monthly) for which FIE required them to pay a service charge (albeit to Prematic) in addition to payment in full of the stated premium for that one-month term. Therefore, the policy documents support our conclusion that in the circumstances of this case the term "premium," for purposes of section 381, subdivision (f), is the amount the class members were required to pay for 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). Accordingly, we are not persuaded by Farmers' assertion that the plain meaning of the policy documents is class members paid monthly installments of premium for which monthly service charges were imposed.
D
None of the cases or other authorities cited by Farmers persuade us the term "premium," as used in section 381, subdivision (f), does not include a service charge imposed for payment in full of the stated premium for a period of coverage (e.g., a one-month term). Contrary to Farmers' assertion, Auto Club is factually inapposite and does not support Farmers' position. In that case, the class members elected to pay the premiums for their one-year term policies in monthly installments, subject to additional charges for interest on the unpaid premium balance. (Auto Club, supra, 148 Cal.App.4th at p. 1222.) We held: "[T]he plain and ordinary meaning of the term 'premium,' as used in section 381, subdivision (f), does not include interest charged for the time value of money for utilizing the option of making payments of the annual premium in installments."^[2] (Auto Club, supra, 148 Cal.App.4th at p. 1237, italics added, fn. omitted.) Because in the instant case the class members paid service charges for payment in full of the premiums due for their one-month term policies, this case, unlike Auto Club, does not involve either payment of premium in installments over the period of coverage or any interest charged for the time value of money for making payments in installments. Accordingly, neither our holding nor our underlying reasoning in Auto Club provides support for Farmers' contention.^[3]
Similarly, we conclude the cases Farmers cite from other jurisdictions are also factually inapposite and do not support their position. (See, e.g., Blanchard v. Allstate Ins. Co. (La.App. 2000) 774 So.2d 1002; Cacamo v. Liberty Mut. Fire Ins. Co. (La.App. 2004) 885 So.2d 1248; Nakashima v. State Farm Mut. Auto. Ins. Co. (N.M.App. 2007) 153 P.3d 664.) Unlike the instant case, all of those cases involved true installment payments of premium.
We also are not persuaded to reach a different conclusion because of the State of California Department of Insurance's (DOI) purported longstanding administrative practice regarding monthly installment service charges. In particular, Farmers submitted the declaration of Milo Pearson in support of their motion for summary judgment. In his declaration, Pearson, a former DOI deputy commissioner, explained that, after the passage of Proposition 103 in 1988, the DOI treated monthly service charges as separate from premiums for purposes of automobile insurance rate approval. Assuming arguendo Pearson's declaration accurately describes DOI's past practices, we nevertheless are not persuaded to reach a different conclusion in this case because that purported past practice of the DOI involved service charges for true installment payments of premium over time, unlike the facts in this case. Furthermore, that purported past practice involved DOI rate approval, which involves a different purpose than the consumer protection policy disclosures required by section 381. In any event, the DOI's purported past practices do not control our de novo determination of the question of law on the meaning of the term "premium," as used in section 381, subdivision (f).
Similarly, we do not rely on the DOI's opinion letter dated April 25, 2006, which Troyk cites, in reaching our conclusion on the meaning of the term "premium," as used in section 381, subdivision (f). We discussed that opinion letter in Auto Club and concluded we were not bound by the DOI's administrative interpretation of statutory language, which is a question of law for our independent determination. (Auto Club, supra, 148 Cal.App.4th at pp. 1235-1237.) Furthermore, as we stated in Auto Club, "because the DOI has not issued a formal regulation or had a long-standing opinion on that question . . . , we do not defer to the DOI's opinion. [Citations.]" (Id. at p. 1236.) Rather than restating our reasoning for not relying on the DOI's opinion letter, we incorporate herein the reasoning we expressed in Auto Club. (Id. at pp. 1235-1237.)
Also, as in Auto Club, we do not rely on the taxation cases cited by Troyk and relied on by the trial court. (See, e.g., Metropolitan Life Ins. Co. v. State Bd. of Equalization, supra, 32 Cal.3d 649; Allstate Ins. Co. v. State Board of Equal. (1959) 169 Cal.App.2d 165; Interinsurance Exchange v. State Bd. of Equalization (1984) 156 Cal.App.3d 606.) Because those cases involve the interpretation of the term "gross premiums" for purposes of insurance company taxation and are otherwise factually inapposite, we do not rely on those taxation cases in interpreting the meaning of the term "premium," as used in section 381, subdivision (f). (Auto Club, supra, 148 Cal.App.4th at pp. 1232-1234.) Similarly, although Troyk cites two California Attorney General opinions in support of his position, "both opinions related to the definition of 'gross premiums' in the context of insurance company taxation. (See 9 Ops.Cal.Atty.Gen. 257 (1947); 58 Ops.Cal.Atty.Gen. 768 (1975).) Therefore, those opinions are factually and legally inapposite . . . ." (Auto Club, at p. 1235.) Accordingly, we do not rely on those opinions in interpreting the meaning of the term "premium," as used in section 381, subdivision (f).
E
Contrary to Farmers' assertion, the "rule of lenity" does not apply in this case. When language of a criminal statute is reasonably susceptible to two interpretations, the rule of lenity ordinarily supports an interpretation of that language favorable to a party who may be subject to criminal prosecution or penalties. (See, e.g., Harrott v. County of Kings (2001) 25 Cal.4th 1138, 1154; People v. Garcia (1999) 21 Cal.4th 1, 10-11; People ex rel. Lungren v. Superior Court (1996) 14 Cal.4th 294, 312; People v. Overstreet (1986) 42 Cal.3d 891, 896.) Farmers argue that because section 383 subjects FIE (and possibly FGI) to potential criminal prosecution or penalties for violation of section 381, subdivision (f), the rule of lenity applies in this case. Section 383 provides: "It is a misdemeanor: [¶] (a) For any insurer, or any agent of any insurer, to issue a policy in violation of the requirements of subdivision (f) of section 381. . . ." However, because the meaning of the term "premium," as used in section 381, subdivision (f), is clear and unambiguous and not reasonably susceptible to the interpretation proposed by Farmers, as discussed above, there is no ambiguity in section 381's language that would require us to consider the rule of lenity. (Auto Club, supra, 148 Cal.App.4th at p. 1237, fn. 15; Garcia, at pp. 10-11; Lungren, at p. 312; Overstreet, at p. 896.) In any event, because the two possible interpretations cited by Farmers do not "stand in relative equipoise" on consideration of the legislative intent of consumer protection underlying section 381, subdivision (f), the rule of lenity would not apply to require adoption of the interpretation proposed by Farmers. (People v. Jones (1988) 46 Cal.3d 585, 599; People v. Avery (2002) 27 Cal.4th 49, 58.)
F
Our interpretation of the term "premium," as used in section 381, subdivision (f), does not necessarily conflict with other provisions of the Insurance Code. Although Farmers cite various Insurance Code provisions (i.e., §§ 383.5, 480, 481, 1153, subd. (b), 1861.02, subd. (a)), they do not persuade us those provisions both have the same legislative purpose as section 381, subdivision (f), and use the term "premium" in a manner necessarily inconsistent with our interpretation of that term as used in section 381, subdivision (f). Therefore, the general rule favoring consistent interpretation of a term used throughout a code does not apply. (Hassan v. Mercury American River Hospital (2003) 31 Cal.4th 709, 716; People v. Roberge (2003) 29 Cal.4th 979, 987.)
III
Compliance with Section 381, Subdivision (f)
Farmers contend that, even if the service charge imposed in this case is premium required to be disclosed in the policy, FIE complied, either actually (because of incorporation by reference to other documents) or substantially, with section 381, subdivision (f)'s disclosure requirement.
A
Farmers argue FIE actually complied with section 381, subdivision (f)'s requirement that the service charge, as part of premium, be disclosed in the policy because the policies FIE issued to Troyk and the other class members incorporated by reference other documents that disclosed the service charge. Therefore, although the policies on their face did not expressly disclose the service charge, the policies' reference to other documents that did, in fact, expressly disclose the service charge resulted in actual compliance with section 381, subdivision (f)'s disclosure requirement.
"A contract may validly include the provisions of a document not physically a part of the basic contract. . . . 'It is, of course, the law that the parties may incorporate by reference into their contract the terms of some other document. [Citations.] But each case must turn on its facts. [Citation.] For the terms of another document to be incorporated into the document executed by the parties the reference must be clear and unequivocal, the reference must be called to the attention of the other party and he must consent thereto, and the terms of the incorporated document must be known or easily available to the contracting parties.' " (Williams Constr. Co. v. Standard-Pacific Corp. (1967) 254 Cal.App.2d 442, 454.) "The contract need not recite that it 'incorporates' another document, so long as it 'guide[s] the reader to the incorporated document.' [Citations.]" (Shaw v. Regents of University of California (1997) 58 Cal.App.4th 44, 54.)
Assuming arguendo that the doctrine of incorporation by reference can apply in the context of the insurance policy disclosures required by section 381 (and we have our doubts that it can), we nevertheless conclude the policies in this case did not clearly and unequivocally refer to and incorporate the service charge (i.e., part of premium) disclosed only in the Prematic Agreement and Prematic's bills.^[4] Farmers argue the doctrine of incorporation by reference applies in this case because FIE's declarations page "guided" Troyk and the class members to the Prematic Agreement and Prematic's monthly bills, both of which fully disclosed the service charge. Our review of Troyk's declarations page (which presumably also represents the class members' declarations pages) shows it contains only two references to Prematic: (1) "PREMATIC NO[.] A641249" appears below the section listing the policy number and effective period of coverage; and (2) "PREMATIC" appears in the "policy activity" section adjacent to the word "Total."^[5] Although the declarations page contained those truncated, vague and obtuse references to "Prematic," we conclude they were insufficient to clearly and unequivocally evidence an intent that the Prematic Agreement (including its disclosure of the service charge), or Prematic's monthly bills, be incorporated into the declarations page or other policy document. (Williams Constr. Co. v. Standard-Pacific Corp., supra, 254 Cal.App.2d at p. 454; cf. Fogel v. Farmers Group, Inc. (2008) 160 Cal.App.4th 1403, 1420 [policy's reference to a power of attorney did not incorporate by reference the subscription agreement naming FGI as the subscribers/insureds' attorney-in-fact].) Furthermore, "any ambiguity or uncertainty in an insurance policy is to be resolved against the insurer." (Continental Cas. Co. v. Phoenix Constr. Co. (1956) 46 Cal.2d 423, 437.) To the extent the references in the declarations page were ambiguous or uncertain regarding incorporation of the Prematic Agreement and Prematic's bills, we resolve that ambiguity or uncertainty against FIE. (Ibid.) Accordingly, we reject Farmers' assertion that the policy actually disclosed the service charge by incorporating by reference the Prematic Agreement and Prematic's bills.^[6]
B
Farmers also argue they substantially complied with section 381, subdivision (f), because FIE, at most, only technically deviated from section 381, subdivision (f)'s disclosure requirement. They argue that because Troyk and the other class members were, in fact, aware of the service charge imposed pursuant to the Prematic Agreement and Prematic's bills, FIE substantially complied with section 381, subdivision (f).
" 'Substantial compliance, as the phrase is used in the decisions, means actual compliance in respect to the substance essential to every reasonable objective of the statute.' [Citation.] Where there is compliance as to all matters of substance[,] technical deviations are not to be given the stature of noncompliance. [Citation.] Substance prevails over form. When the plaintiff embarks [on a course of substantial compliance], every reasonable objective of [the statute at issue] has been satisfied." (Southern Pac. Transportation Co. v. State Bd. of Equalization (1985) 175 Cal.App.3d 438, 442.) "Thus, the doctrine gives effect to our preference for substance over form, but it does not allow for an excuse to literal noncompliance in every situation." (Robertson v. Health Net of California, Inc. (2005) 132 Cal.App.4th 1419, 1430.) Furthermore, the doctrine of substantial compliance does not apply at all when a statute's requirements are mandatory, instead of merely directory. (Ibid.; D'Agostino v. Superior Court (1995) 33 Cal.App.4th 107, 117.) A mandatory statute "is one that is essential to the promotion of the overall statutory design and thus does not permit substantial compliance. [Citation.]" (Robertson, at p. 1430.)
We conclude section 381, subdivision (f)'s disclosure requirement is mandatory and not merely directory. Section 381, subdivision (f), requires that an insurance policy state the premium for insurance coverage. As we discussed above, that statute is a consumer protection statute. Therefore, it requires an express statement in an insurance policy of the premium charged by an insurer and does so presumably to protect consumers from confusion regarding the premium charged and to discourage insurers from misleading consumers regarding the amount of premium charged. Furthermore, that express statement of premium in a policy allows a consumer to easily compare that premium with premiums charged by other insurers for the same coverage, thereby promoting healthy comparison-shopping by consumers and presumably encouraging insurers to offer competitive premiums for their insurance. Were insurers allowed, by substantial compliance or otherwise, to state all or part of a premium in documents other than a policy, those underlying purposes of section 381, subdivision (f), would not be promoted. Because section 381, subdivision (f)'s disclosure requirement is essential to the overall promotion of the statutory design, we conclude that statute's disclosure requirement is mandatory. (Robertson v. Health Net of California, Inc., supra, 132 Cal.App.4th at p. 1430.) Accordingly, the doctrine of substantial compliance does not apply to the disclosures required by section 381, subdivision (f). (Robertson, at p. 1430; D'Agostino v. Superior Court, supra, 33 Cal.App.4th at p. 117.)
In any event, even if section 381, subdivision (f)'s disclosure requirement is not mandatory, we nevertheless would conclude that FIE did not actually comply in respect to the substance essential to every reasonable objective of the statute. (Southern Pac. Transportation Co. v. State Bd. of Equalization, supra, 175 Cal.App.3d at p. 442.) In the circumstances of this case, FIE did not state anywhere in the policy the service charge it required for full payment of the premium it stated in the policy. The amount of the service charge was not stated anywhere in the main policy, declarations page, or endorsements. Furthermore, none of the policy documents contain any reference to that service charge, nor do they disclose that the service charge is really part of the premium charged for the insurance coverage provided by FIE. The only statements of the amount of, and other information regarding, the service charge are set forth in nonpolicy documents (e.g., the Prematic Agreement and Prematic's bills). We conclude FIE did not actually comply in respect to the substance essential to every reasonable objective of section 381, subdivision (f), which objectives we discussed above. (Southern Pac. Transportation Co., at p. 442; cf. Allstate Ins. Co. v. Dean (1969) 269 Cal.App.2d 1, 3-4; Robertson v. Health Net of California, Inc., supra, 132 Cal.App.4th at pp. 1430-1431; Malek v. Blue Cross of California (2004) 121 Cal.App.4th 44, 72-73.) Farmers have not shown FIE substantially complied with section 381, subdivision (f)'s disclosure requirement.^[7]
IV
UCL Cause of Action
Farmers contend the trial court erred by concluding Troyk met his burden in moving for summary judgment by showing there were no triable issues of material fact and that he and the class members were entitled to judgment as a matter of law on the UCL cause of action. (Code Civ. Proc. § 437c, subd. (c); Aguilar, supra, 25 Cal.4th at p. 843.)
A
In Smith v. Wells Fargo Bank, N.A. (2005) 135 Cal.App.4th 1463, we described the basis for a UCL cause of action:
"[Business and Professions Code] [s]ection 17200 of the UCL defines 'unfair competition' as 'any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by Chapter 1 (commencing with [Business and Professions Code] Section 17500) of Part 3 of Division 7 . . . .' Therefore, an act or practice is 'unfair competition' under the UCL if it is forbidden by law or, even if not specifically prohibited by law, is deemed an unfair act or practice. As the California Supreme Court stated in Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, at page 1143: '[Business and Professions Code] [s]ection 17200 "borrows" violations from other laws by making them independently actionable as unfair competitive practices. [Citation.] In addition, under [Business and Professions Code] section 17200, "a practice may be deemed unfair even if not specifically proscribed by some other law." [Citation.]' The remedies available under the UCL are 'cumulative . . . to the remedies or penalties available under all other laws of this state.' ([Bus. & Prof. Code,] § 17205.) 'Under [Business and Professions Code] [section 17204], a private plaintiff may bring a UCL action even when "the conduct alleged to constitute unfair competition violates a statute for the direct enforcement of which there is no private right of action." [Citation.]' (Kasky v. Nike, Inc. (2002) 27 Cal.4th 939, 950, quoting Stop Youth Addiction, Inc. v. Lucky Stores, Inc. [(1998) 17 Cal.4th 553,] 565.) '[I]n enacting the UCL itself, and not by virtue of particular predicate statutes, . . . the Legislature has conferred upon private plaintiffs "specific power" [citation] to prosecute unfair competition claims.' (Stop Youth Addiction, Inc., supra, at p. 562.)

"By 'borrowing' violations of other laws, the UCL deems those violations 'unfair competition' independently actionable under the UCL. (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180.) 'Virtually any law--federal, state or local--can serve as a predicate for a [Business and Professions Code] section 17200 action. [Citation.]' (State Farm Fire & Casualty Co. v. Superior Court (1996) 45 Cal.App.4th 1093, 1102-1103, disapproved on another ground in Cel-Tech, at pp. 184-185.)" (Smith v. Wells Fargo Bank, N.A., supra, 135 Cal.App.4th at p. 1480, fn. omitted.)

As we noted in Smith, "on November 2, 2004, Proposition 64 passed, amending [Business and Professions Code] section 17204 to delete language expressly authorizing any person acting for the interests of the general public to bring a UCL cause of action, and to add language expressly authorizing 'any person who has suffered injury in fact and has lost money or property as a result of such unfair competition' to bring a UCL cause of action."^[8] (Smith v. Wells Fargo Bank, N.A., supra, 135 Cal.App.4th at p. 1480, fn. 13.)
B
Farmers initially argue that neither FIE nor FGI engaged in any predicate unlawful business practice or conduct that could constitute unfair competition and provide a basis for a UCL cause of action. They argue Troyk did not show FIE and FGI violated section 381, subdivision (f), which alleged violation would provide the predicate unlawful business practice or conduct for a UCL cause of action.^[9] However, as we concluded above, in the circumstances of this case the term "premium," as used in section 381, subdivision (f), is the amount Troyk and the other class members were required to pay for insurance coverage for a one-month term (i.e., the premium stated in the policy plus the service charge required for payment in full of that stated premium). The service charges FIE required Troyk and the other class members to pay were not imposed for the privilege of paying a six-month term premium in monthly installments or otherwise over time. Rather, as shown by the Monthly Payment Agreement endorsement (form No. E0022), the policies issued to the class members were for one-month terms, not six-month terms. Furthermore, we concluded above that the policy documents issued by FIE to the class members did not either actually or substantially comply with section 381, subdivision (f)'s disclosure requirement. Because none of the policy documents (i.e., main policy, declarations page, and endorsements) disclosed the service charge that FIE required the class members to pay (albeit to Prematic) when paying in full the stated premium for their one-month terms, FIE violated section 381, subdivision (f). That predicate statutory violation is an unlawful business practice constituting unfair competition under the UCL.
Although FGI apparently does not contend on appeal that it, as FIE's agent and attorney-in-fact, cannot be found to be liable together with FIE for FIE's violation of section 381, subdivision (f), and resultant unfair competition under the UCL, we nevertheless briefly address that issue. As FIE's attorney-in-fact, FGI performed managerial, underwriting, and administrative services for FIE, a reciprocal or interinsurance exchange. As noted in Fogel, "[t]he interinsurance exchange [i.e., FIE] is managed by the attorney-in-fact [i.e., FGI] . . . ."^[10] (Fogel v. Farmers Group, Inc., supra, 160 Cal.App.4th at p. 1407, italics added.) Delos v. Farmers Group, Inc. (1979) 93 Cal.App.3d 642 stated: "[FGI] was formed to render management services for [FIE] for which [FGI] received a percentage of premiums paid by [FIE's] policyholders." (Id. at p. 652.) In particular, FGI, as FIE's managing arm, presumably drafted the policy documents in this case and executed the class members' policies on FIE's behalf.^[11] Therefore, because FGI, as FIE's managing agent, was directly involved in the drafting and execution of the class members' policies, it must at least share with FIE responsibility for the UCL unlawful business practice resulting from FIE's violation of section 381, subdivision (f).
Furthermore, section 1281 provides: "Reciprocal or interinsurance exchanges, the exchange thereof, the subscribers, attorneys in fact, agents, and representatives, and all matters incident to or concerned with such contracts and relationship, shall be subject to and regulated by all of the provisions of this code, whether or not such provisions specifically refer to reciprocal or interinsurance exchanges, except as otherwise exempted in this chapter."^[12] (Italics added.) Because FGI, as FIE's attorney-in-fact, presumably directly drafted, or at least managed and approved the drafting of, the policy documents for the class members, FGI is "subject to and regulated by" section 381, subdivision (f)'s disclosure requirement and is therefore liable for any violation of that statute. (§ 1281.) Accordingly, there can be no reasonable dispute that FGI may be liable for the violation of section 381, subdivision (f), based on FIE's failure to disclose the service charge in the class members' policies.^[13] Because FGI may be liable for the instant violation of section 381, subdivision (f), it likewise may be liable, together with FIE, for the UCL unlawful business practice based on that violation.^[14]
C


TO BE CONTINUED AS PART III….

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