Estate of Barr

104 Cal.App.2d 506 (1951) Estate of GERTRUDE K. BARR, Deceased. THOMAS H. KUCHEL, as State Controller, etc., Appellant,

v.

HELEN BARR McCORMACK, Respondent.

Civ. No. 18349. California Court of Appeals. Second Dist., Div. Two.

May 31, 1951. James W. Hickey, Morton L. Barker, Richard K. Yeamans and Vincent J. McMahon for Appellant.

Calvin H. Conron, Jr., for Respondent.

WILSON, J.

This is an appeal by the State Controller from an order sustaining objections to the report of the inheritance tax appraiser. The sole question for determination is whether the proceeds of an annuity contract paid on the death of the annuitant to her named beneficiary are exempt from inheritance tax by reason of the insurance exemption.

On January 6, 1930, decedent obtained from the Pacific Mutual Life Insurance Company of California a "Retirement Income Bond" which provided for the payment of an income to her of $100 a month commencing at age 65. Annual premiums of $590.40 were paid from that date until the maturity date in 1948, when decedent became 65 and began to draw the $100 monthly payments. On March 18, 1949, Mrs. Barr died and the insurance company paid to her named beneficiary the proceeds of the bond totaling $9,065.30 which sum the inheritance tax appraiser included among the property subject to an inheritance tax.

The insurance exemption allowed under the inheritance law is set forth in sections 13721, 13723 and 13724 of the Revenue and Taxation Code. [fn. *][508]

[1] Words in a statute should be given their ordinary meaning unless otherwise clearly intended or indicated. (County of Los Angeles v. Frisbie, 19 Cal.2d 634, 642 [122 P.2d 526].) Insurance has been defined by the Legislature as "a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event." (Ins. Code, 22.) [2] Basically, an annuity contract is not a life insurance policy. The risk is fundamentally different in the two contracts. [3] In a life insurance policy the risk assumed is to pay upon the assured's death; in a pure annuity contract the risk assumed is to pay as long as the assured may live. (Equitable Life etc. Soc. v. Johnson, 53 Cal.App.2d 49, 57 [127 P.2d 95].) [4] For a contract to be one of insurance it is essential that there be hazard and a shifting of the incidence. If there is no risk, or if there be one and it is not shifted to another or others, there can be no insurance. According to the better view insurance also involves distribution of risk. (California Physicians' Service v. Garrison, 28 Cal.2d 790, 803-4 [172 P.2d 4, 167 A.L.R. 306].) "Basically, insurance is a device which furnishes protection against a risk of loss by distributing the losses of the few among the many who are subject to the same risk ... an annuity is not insurance. Both insurance and annuity contracts are, it is true, gambles against the contingency of death. They are dissimilar, however, in that under an annuity the company's obligation is not to indemnify on the happening of a contingent event causing loss. From the viewpoint of risk, a life insurance policy and an annuity contract are, in fact, diametrically different. Under the former the company will lose in the event of the insured's premature death; under the latter the company will gain. The only risk of the company issuing an annuity, except for the possibility that the annuitant may outlive his expectancy, is the investment risk that the capital may shrink in value or that the