Farmers' Mutual Fire Insurance v. First Re-Insurance Co.

BARNARD, P. J. This is an action to recover so-called unearned premiums on cancelled reinsurance policies which had been issued by the defendant to the plaintiff.

The plaintiff was organized under the County Mutual Insurance Act of April 1, 1897, as amended, which is now chapter 5 of division 2, part 1, of the Insurance Code. The defendant was organized under the Re-insurance Company Act of 1925, as amended, which is now chapter 6 of the same division and part of the Insurance Code. The plaintiff was one of the organizers and incorporators of the defendant, and thereafter carried certain policies of reinsurance in the defendant company. On May 22, 1937, the plaintiff started to liquidate its insurance business, giving notice to the Department of Insurance. With the consent of the insurance commissioner the date of liquidation of the plaintiff was fixed as May 22, 1937, and the plaintiff ceased to transact business as a county mutual insurance company and permitted its members to transfer their insurance to other companies. The plaintiff returned all of its policies of reinsurance to the defendant, with cancellation notices, and the policies were can-celled. The plaintiff then demanded a return of a proportionate part of the premiums it had paid on these policies. [337]This demand was refused and this action followed. It was stipulated at the trial that the plaintiff owed the defendant nothing as its share of claims then existing against the defendant reinsurer. From a judgment in favor of the defendant the plaintiff has appealed.

As a general rule, the insured is not entitled to cancel a policy and demand the return of a proportionate part of the premium unless that right is conferred by statute or by the contract of the parties. (Joshua Hendy M. Works v. American Steam B. Ins. Co., 86 Cal. 248 [24 Pac. 1018, 21 Am. St. Rep. 33].) The appellant contends that its contracts with the respondent were silent on that subject, and that it was, therefore, entitled to a return of premiums covering the remainder of the terms of the cancelled policies, under section 481 of the Insurance Code, which provides that unless the insurance contract otherwise provides a person insured is entitled, if the policy is cancelled, to a return of a proportion of the premium corresponding with the unexpired time. The sole question presented on this appeal is whether section 481 of the Insurance Code is here applicable.

Section 37 of the Insurance Code reads: “Provisions of this code relating to a particular class of insurance or a particular type of insurer prevail over provisions relating to insurance in general or insurers in general.” Under section 2, provisions of the Insurance Code are to be construed as continuations of then existing statutory provisions on the same subject matter and not as new enactments. The provisions for a return of premium upon cancellation of a policy contained in section 481 of the Insurance Code have been in effect in substantially the same form since 1872. When enacted, and at least for many years thereafter, they were intended to apply to the ordinary contract between an insured and an insurer where the insured had nothing to do with the insurer except as arising from his contract of insurance. Many years later, a special act was enacted permitting the organization of county mutual fire insurance for the purpose of furnishing mutual fire insurance to their insured members. Still later, in 1925, another special act permitted the organization of county mutual fire reinsurer, companies for the purpose of furnishing reinsurance to its members, who must be county mutual fire insurance companies organized under the other act. Both of these special acts are now a part of the In