This is an appeal from the judgment of dismissal following an order sustaining the defendant's oral demurrer to the introduction of any evidence on behalf of the plaintiff.
The plaintiff seeks to recover dividends to which its claims to be entitled upon an agreement made in conjunction with the purchase of a policy of workmen's compensation insurance.
As finally amended the complaint alleges that the defendant in 1950 circulated a form letter representing that it would pay dividends according to a stated schedule to group insureds carrying workmen's compensation insurance issued by the defendant where the insured's loss-premium ratio was 65 per cent or less and a surplus was available for payment of such dividends. In August, 1950, the defendant insurance company wrote the plaintiff to the effect that its board of directors had authorized an additional 5 per cent dividend to those insureds whose loss-premium ratio was 60 per cent or less provided a surplus was available to pay the dividend. In reply the plaintiff informed the defendant that it accepted the offer to insure the plaintiff according to the terms of the information thus received. On October 11, 1950, the defendant issued to the plaintiff its standard workmen's compensation policy. The plaintiff alleges that it relied upon those representations and that its loss experience was within a range which would entitle it to dividends in the sum of $77,400.74; that the defendant has sufficient surplus to meet the payment of the dividend, that it arbitrarily reduced plaintiff's dividend to $13,959 and that it has paid that amount. The complaint prays that the balance be paid to the plaintiff upon the determination of the existence of reserves sufficient to make the additional payment. The plaintiff contends that before the representations were made the defendant's board of directors by resolution unknown to the plaintiff provided that no dividend would be paid except by resolution of the board and that the board has arbitrarily reduced the amount of plaintiff's dividend because the plaintiff ceased to do business with the defendant in August, 1951. This, the plaintiff contends, was malicious and oppressive conduct on the part of the defendant through its board of directors. Accordingly, the plaintiff seeks an additional $50,000 as punitive damages.
The above facts are alleged in three counts. The first is an action upon the collateral agreement which the plaintiff
The Insurance Commissioner as amicus curiae contends that the enforcement of the dividend agreement would violate the minimum rating provisions of the Insurance Code and administrative rulings promulgated under the code. The defendant joins in this contention and asserts that the enforcement of the agreement would violate the antirebate provisions of the Insurance Code.
Insurance Code, section 751, provides: "An insurer ... shall not offer or pay, directly or indirectly, as an inducement to enter into an insurance contract, any valuable consideration which is not clearly specified, promised or provided for in the policy, or application for the insurance, and any such consideration not appearing in the policy is an unlawful rebate."
The receipt of a rebate is made a misdemeanor by Insurance Code, section 752. The code does not, however proscribe all rebates.
At the time of the transaction here involved Insurance Code, section 11736, provided: "An insurer shall not issue, renew or carry beyond next anniversary date any workmen's compensation insurance under a law of this State at premium rates which are less than the rates approved or issued by the commissioner." The minimum rating law, like the antirebate provisions, contains a provision under which refunds may be made. Section 11738 provides: "Nothing in this article shall affect the right of any insurer to issue compensation participating policies. A refund by reason of a participating provision in a compensation policy shall not be made to policyholders by any insurer except from surplus accumulated from premiums on workmen's compensation policies issued pursuant to laws of this State governing workmen's compensation insurance."
The Insurance Commissioner, on March 1, 1950, promulgated the "Manual of Rules, Classifications and Basic Rates for Workmen's Compensation Insurance." This manual, which became effective April 1, 1950, contains the following: "III. Policy Forms and Coverage.... (2) Each policy issued must contain the following provision: `This policy, including all endorsements or riders hereon, constitutes the entire contract of insurance. No condition, provision, agreement, or understanding not set forth in the policy or in such endorsement or rider shall affect such contract or any rights, duties, or privileges arising therefrom.'"
Acceptance or receipt of an unlawful rebate is a misdemeanor. (Ins. Code, § 752.) Violation of the minimum rating law is also a misdemeanor. (Ins. Code, § 11742.) This court said in Severance v. Knight-Counihan Co., 29 Cal.2d 561 (supra), at page 568: "It is settled that a contract must have a lawful object (Civ. Code, §§ 1596, 1598, 1599) and that a contract for an object prohibited by a penal law is void.... `The general rule controlling in cases of this character is that where a statute prohibits or attaches a penalty to the doing of an act, the act is void, and this, notwithstanding that the statute does not expressly pronounce it so, and it is immaterial whether the thing forbidden is malum in se or merely malum prohibitum. ... The imposition by statute of a penalty implies a prohibition of the act to which the penalty is attached, and a contract founded upon such act is void.'"
The relief sought in the second count is the same as that sought in the first count and is subject to the same defense of illegality.
Other contentions made by the plaintiff have been considered and are deemed without merit. From what has been said it follows that the plaintiff suffered no compensable damages because of the action of the defendant. The oral demurrer was properly sustained.
The judgment is affirmed.
Gibson, C.J., Carter, J., Traynor, J., Schauer, J., Spence, J., and McComb, J., concurred.
Appellant's petition for a rehearing was denied March 27, 1957.