Cassaundra Ellena appeals from a judgment of dismissal of her mandamus claim against the Department of Insurance and the Commissioner of the Department of Insurance (the commissioner; collectively, the DOI). Ellena contends, among other things, that the trial court erred when it found that she did not sufficiently allege in her pleading that the DOI violated a specific mandatory duty. We conclude that Ellena stated a viable mandamus claim because, as alleged, the commissioner violated the mandatory duty under Insurance Code sections 12921.5, 12926, and 10291.5, subdivision (b),
On November 18, 2011, Ellena filed a complaint against Standard Insurance Company (Standard), Stancorp Financial Group (Stancorp), and the DOI. She alleged that Standard is a wholly owned subsidiary of Stancorp, and that Standard failed to provide disability benefits to her under a group disability policy issued to her employer, the County of Sonoma (the policy), after she stopped working because of her lupus disease in April 2010.
Standard, according to Ellena's pleading, denied her claim for disability on August 27, 2010, based on the language of a policy form entitled "Definition of Disability." Her pleading stated that this policy form was deceptive and violated settled law in California. In her sixth cause of action, she asserted that the DOI approved the policy without complying with its mandatory duty to review the policy form in accordance with established criteria. She sought a writ of mandamus against the DOI under Code of Civil Procedure section 1085 for violating mandatory duties.
The DOI demurred, and Ellena filed a first amended complaint, alleging the same mandamus cause of action against the DOI. The DOI demurred, and the trial court sustained the demurrer with leave to amend.
On June 6, 2012, Ellena filed a second amended complaint with six causes of action. The second amended complaint set forth five causes of action against Standard and Stancorp, and included a sixth cause of action for mandamus against the DOI.
Ellena asserted that the DOI had a mandatory duty under sections 10290, 10291.5, 12921, and 12926 and under California Code of Regulations, title 10,
Two years after approving the policy for distribution in California, the DOI, according to Ellena's pleading, defined "`total disability'" in an agreement negotiated with another insurance company, known as the "`California Settlement Agreement,'" as "a disability that renders one unable to perform with reasonable continuity the substantial and material acts necessary to pursue
Ellena alleged that the DOI "never actually exercised" its "discretion or performed" its "mandatory duties under" the Insurance Code to determine whether the policy complied with California law or qualified for approval under the Insurance Code. Additionally, she asserted, "Assuming that the DOI Defendants actually reviewed the `Definition of Disability' form under the California Insurance Code ..., the DOI Defendants abused their discretion in approving the [p]olicy ...; the DOI Defendants' aforesaid abuses of discretion were palpably unreasonable, arbitrary and capricious."
Ellena sought a writ of mandate to force the DOI to revoke and/or withdraw approval of the "Definition of Disability" form in the policy or to compel the DOI to exercise its discretion to approve or revoke the "Definition of Disability" form in the policy.
On June 28, 2012, the DOI again demurred to the second amended complaint. The trial court sustained the DOI's demurrer without leave to amend. The court ruled that Ellena had not sufficiently alleged a violation of a specific mandatory duty and that a writ of mandate could not be based on general enforcement provisions or statutes involving the DOI's exercise of discretion. On October 11, 2012, the court dismissed with prejudice the DOI from the lawsuit.
Ellena filed a timely notice of appeal. On September 16, 2013, the DOI filed in this court a motion to augment the record to include exhibits attached to the second amended complaint and a request for judicial notice of, among other things, two superior court orders in other cases. We granted the unopposed motion to augment and we took the request for judicial notice under submission, stating that we would rule on this request when deciding the merits of the appeal. We hereby grant the DOI's request for judicial notice. On October 16, 2013, Ellena filed an unopposed request for judicial notice of superior court orders in other cases. We granted this unopposed request on November 6, 2013.
Standard of Review
"`A demurrer tests the legal sufficiency of the complaint, and the granting of leave to amend involves the trial court's discretion. Therefore, an appellate court employs two separate standards of review on appeal. [Citations.] First,
Requirements for Writ of Mandate
Ellena contends that the Insurance Code imposes a mandatory duty on the DOI to review group disability policy forms prior to approving the policy. Ellena acknowledges that the DOI has the discretion to decide whether to approve a policy, but maintains that the DOI must exercise that discretion by reviewing the policy to determine whether it does or does not comply with California law. Alternatively, Ellena asserts that if the DOI did review the policy and exercised its discretion, the approval of the disability policy in the present case constituted an abuse of discretion as a matter of law because the decision was unreasonable and arbitrary.
The question before us is whether Ellena has stated a viable claim for mandamus under either of her two theories. A demurrer must be overruled if the complaint states a claim on any theory. (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38-39 [77 Cal.Rptr.2d 709, 960 P.2d 513].)
The DOI maintains that a mandamus action based on Ellena's theory and allegations that the DOI never reviewed the policy prior to approving it will have no effect on her. The DOI points out that the commissioner has the authority under section 12957 to withdraw approval of an insurance policy on a prospective basis. Thus, even if the commissioner now reviewed the policy and decided to revoke approval, such an action would have no retroactive effect and would not impact Ellena. (See § 10390.)
Accordingly, we exercise our discretion to consider Ellena's mandamus claim that the commissioner should be compelled to review the policy to determine whether it complies with California law.
Ellena Has a Viable Claim for Mandamus
A. Compelling the Exercise of Discretion
Ellena maintains that the trial court erred in sustaining DOI's demurrer without leave to amend against her mandamus claim because the Insurance Code requires the DOI to review any new group disability policy form under established criteria prior to approving or disapproving it for use in California and she alleged in her second amended complaint that the DOI did not review the policy.
We are not aware of any state court that has directly considered the issue before us. However, Division Four of this court in dicta (Van Ness v. Blue Cross of California (2001) 87 Cal.App.4th 364, 371-372 [104 Cal.Rptr.2d 511]) and numerous federal courts (see, e.g., Peterson v. American Life & Health Ins. Co. (9th Cir. 1995) 48 F.3d 404, 410 (Peterson); Rader v. Sun Life Assurance Co. of Canada (N.D.Cal. 2013) 941 F.Supp.2d 1191, 1195; Palma v. Prudential Ins. Co. (N.D.Cal. 2011) 791 F.Supp.2d 790, 795-797 (Palma); Graybill-Bundgard v. Standard Ins. Co. (N.D.Cal. 2011) 793 F.Supp.2d 1117, 1120 (Graybill-Bundgard); Firestone v. Acuson Corp. Long Term Disability Plan (N.D.Cal. 2004) 326 F.Supp.2d 1040, 1050; Brazina, supra, 271 F.Supp.2d at p. 1167; Hansen v. Ohio National Life Assurance (N.D.Cal., Aug. 1, 2011, No. C 11-01382 MEJ) 2011 WL 3294289; Blake v. Unumprovident Corp. (N.D.Cal., Nov. 20, 2007, No. C 07-04366 MHP) 2007 WL 4168235; Sullivan v. Unum Life Ins. Co. of America (N.D.Cal., Apr. 15, 2004, No. C 04-00326 MJJ) 2004 WL 828561) have stated that section 10291.5, subdivision (b) imposes a mandatory duty on the commissioner not to approve a new group disability policy form that is found to be ambiguous or misleading. The federal courts in Brazina, Palma, and Graybill-Bundgard rejected the insurance companies' argument that the insureds' mandamus claims against the commissioner constituted fraudulent joinder and concluded that the insured had a potential mandamus claim against the commissioner.
The DOI emphasizes that the federal court decisions, which are not binding on this court, were wrongly decided. The DOI discusses Peterson, Brazina, Palma, and Graybill-Bundgard and asserts that these courts relied on inaccurate dicta in state court decisions and/or inapplicable statutes or regulations. The DOI points out that the commissioner was not a party to these federal actions and after the federal courts remanded these cases to the state court,
We need not address the DOI's extensive criticisms of the federal court decisions because, as we explain below, we independently interpret the relevant statutes in the Insurance Code. In particular, we examine the plain language of sections 12926, 12921, subdivision (a), and 10291.5.
In the present case, however, unlike the situation in Schwartz, Ellena is not seeking to require the commissioner to exercise his or her discretion in a particular manner, but is seeking to compel the commissioner to review the policy to determine whether it complies with the requirements of the Insurance Code. As already discussed, "[m]andamus will not lie to control an exercise of discretion, i.e., to compel an official to exercise discretion in a particular manner. Mandamus may issue, however, to compel an official both to exercise his discretion (if he is required by law to do so) and to exercise it under a proper interpretation of the applicable law." (Common Cause v. Board of Supervisors, supra, 49 Cal.3d at p. 442.) As federal courts have pointed out, the court in Schwartz did not address this distinction. (See, e.g., Palma, supra, 791 F.Supp.2d at p. 796.)
The Schwartz court did not analyze the language of section 10291.5. This provision reads, as relevant here: "(a) The purpose of this section is to achieve both of the following: [¶] (1) Prevent, in respect to disability insurance, fraud, unfair trade practices, and insurance economically unsound to the insured. [¶] (2) Assure that the language of all insurance policies can be readily understood and interpreted. [¶] (b) The commissioner shall not approve any disability policy for insurance or delivery in this state in any of the following circumstances: [¶] (1) If the commissioner finds that it contains any provision, or has any label, description of its contents, title, heading, backing, or other indication of its provisions which is unintelligible, uncertain, ambiguous, or abstruse, or likely to mislead a person to whom the policy is offered, delivered or issued...." (§ 10291.5.)
The clear language of this statute is that "[t]he commissioner shall not approve any disability policy for insurance or delivery ..." unless it meets a number of requirements. (§ 10291.5, subd. (b), italics added.) "The commissioner shall require from every insurer a full compliance with all the provisions of this code" (§ 12926, italics added) and the commissioner has an obligation to fulfill the duties imposed by the Insurance Code under section 12921.5.
The above interpretation of the Insurance Code advances the expressed objective of section 10291.5, which is to "[p]revent, in respect to disability insurance, fraud, unfair trade practices, and insurance economically unsound to the insured" and to "[a]ssure that the language of all insurance policies can be readily understood and interpreted." (§ 10291.5, subd. (a).) If the commissioner had no obligation to review a policy prior to approving it, as the DOI argues, the purpose of this statute would be thwarted.
The need for the commissioner to review disability policies prior to approving them was apparently appreciated by the Legislature as many if not most consumers do not read or understand the meaning of disability insurance policies. As Williston observes, and is commonly known, it is a "reality of the insurance business ... that few people take time to read their policies." (28 Williston on Contracts (4th ed.) § 70:246; accord, Boardman, Insuring Understanding (2010) 95 Iowa L.Rev. 1075, 1077 ["Consumers do not read their insurance policies."]; Loewenstein et al., Consumers' Misunderstanding of Health Insurance (2013) 32 Journal of Health Econ. 850, 852 ["consumers limited understanding of health insurance ... is likely to lead to suboptimal decisions"]; Cude, Insurance Disclosures: An Effective Mechanism to Increase Consumers' Insurance Market Power? (2006) 24 J. Ins. Reg. 57 ["many consumers do not read and understand insurance disclosures and misinterpretations are likely among at least some consumers who do read disclosures].")
Unless the commissioner reviews the policy, how can he or she "prevent, in respect to disability insurance, fraud, unfair trade practices, and insurance economically unsound to the insured," or adequately "[a]ssure that the language of all insurance policies can be readily understood and interpreted" by those who take the trouble to read them, as required by subdivision (a) of section 10291.5? Without reviewing the policy, how could the commissioner responsibly disapprove any disability policy containing provisions that are "unintelligible, uncertain, ambiguous, or abstruse, or likely to mislead a person to whom the policy is offered, delivered or issued," as required by subdivision (b) of that statute?
The DOI claims that section 10291.5 contains a statement of legislative intent and goals and does not force the commissioner to take a particular action. The DOI quotes the following from the County of Los Angeles v. Superior Court, supra, 102 Cal.App.4th 627, "An enactment does not create a mandatory duty if it merely recites legislative goals and policies that must be implemented through a public agency's exercise of discretion." (Id. at p. 639; see Shamsian v. Department of Conservation (2006) 136 Cal.App.4th 621, 633 [39 Cal.Rptr.3d 62].) The DOI claims that section 10291.5, subdivision (a) sets forth the legislative goals and subdivision (b)(1) grants the commissioner discretion because it states that the commissioner shall not approve any disability policy form "[i]f the commissioner finds that it contains any provision ... which is unintelligible, uncertain, ambiguous, or abstruse, or likely to mislead...." (§ 10291.5, subd. (b)(1), italics added.)
Ellena's mandamus action is not directed towards forcing the commissioner to comply with section 10291.5, subdivision (a). This subdivision sets forth the goals and intent of the Legislature, which can be achieved only if the commissioner reviews a disability policy form to make sure it meets the criteria set forth in subdivision (b) of section 10291.5 prior to approving the policy.
The 1949 amendment to section 10291.5 did not eliminate the insurance commissioner's duty to safeguard the public from illegal disability insurance policies. The legislative history to this amendment supports the conclusion that the statute requires the commissioner to review the disability policy form prior to approving it. The amendment, among other things, "set up an elaborate set of minimum standards for disability insurance for the stated purpose of preventing `in respect to disability insurance, fraud, unfair trade practices and insurance economically unsound to the insured.'" (Beach Vasey, Leg. Memorandum to Governor Warren, July 30, 1949.) The analysis section in the report on Senate Bill No. 711, dated July 12, 1949, stated that section 10291.5 "prohibits the Insurance Commissioner from approving any disability policy if it contains certain provisions or does not contain others. Bill adds a declaration of intention for the section, stating that it is to prevent fraud and unfair trade practices and economically unsound insurance." (Italics added.) The use of the word "prohibits" leaves no doubt that the insurance commissioner continues to have a duty to determine if the policy contains the barred provisions.
The Legislature's review of section 10291.5 in 1951 provides further support for the conclusion that the commissioner has a mandatory duty to review all new policy forms that it approves for distribution. That year, the Legislature not only amended section 10291.5 (Stats. 1951, ch. 1, p. 121) but stated the following in the Historical and Statutory Notes: "`Sec. 2. As is more fully set forth in Section 3 hereof, this act is intended to be declaratory of existing law. [¶] Sec. 3. This act is hereby declared to be an urgency measure .... The following is a statement of the facts constituting such necessity. [¶] Insurance Code Section 10291.5, which is amended by this act, was amended by Chapter 1486 of the Statutes of 1949 to establish new and additional standards for disability insurance policies, which are required by law to be approved by the Insurance Commissioner before they can be issued or delivered in this State.'" (Historical and Statutory Notes, 42C West's Ann. Ins. Code (2005 ed.) foll. § 10291.5, p. 646.) Section 3 further explains that
Sections 10290 and 10291 do not relieve the commissioner from the obligation to approve a disability policy form before insurers are allowed to use it. Rather, these statutes provide the commissioner with the power to approve a policy explicitly with a writing or to approve it implicitly by failing to act within a specified time. Thus, the commissioner has the discretion to choose the manner in which he or she will approve of a policy. In those situations where the commissioner decides not to approve the policy — after fulfilling his or her obligation of reviewing the policy — the commissioner's opinion and reasons for rejection must be in writing and sent to the insurer.
The DOI also relies on section 12957 in support of its argument that it has no mandatory duty to review the policy under section 10291.5, subdivision (b). Section 12957 reads: "The commissioner shall not withdraw approval of a policy previously approved by him or her except upon those grounds as, in his or her opinion, would authorize disapproval upon original submission thereof. Any withdrawal of approval shall be in writing and shall specify the ground thereof. If the insurer demands a hearing on a withdrawal, the hearing shall be granted and commenced within 30 days of the filing of a written demand with the commissioner. Unless the hearing is commenced, the notice of withdrawal shall become ineffective upon the 31st day from and after the date of filing of the demand." (§ 12957.) The fact that the commissioner's authority to revoke approval of a policy pursuant to section 12957 is
The DOI contends that section 10191, subdivision (a), supports its contention that it has discretion to decide whether to review a policy. Subdivision (a) of this statute provides that "[t]he commissioner may, from time to time as conditions warrant, after notice and hearing, promulgate such reasonable rules and regulations, and amendments and additions thereto, as are necessary or advisable, to establish and maintain a procedure for the filing and approval of documents, as defined in this section, prior to their issuance, delivery, or use in this state, in lieu of the requirements of submission, filing, or approval for the documents presently provided" in various sections of the Insurance Code, including sections 10270.9 and 10290. (§ 10191, subd. (a).) The DOI argues that this statute delegates to the commissioner the discretion to decide which documents to review in this alternative procedure.
Furthermore, subdivision (d) in section 10191 states: "In promulgating any such rules and regulations, the commissioner shall, so far as practical, describe or define certain provisions: (1) which the commissioner will authorize without review when accompanied by a certification prescribed by him or her by rule, and (2) which the commissioner will under no circumstances approve." The fact that this provision allows the commissioner to prescribe circumstances in which specified policy provisions may be authorized without review, indicates that all other policy provisions must be reviewed.
B. Abuse of Discretion
Ellena also claims that she pled in her sixth cause of action the essential elements of an alternative cause of action for a writ of mandate based on the allegation that, if the commissioner did review the policy and approve it, such an approval was an abuse of discretion.
We have concluded that Ellena's sixth cause of action states a viable claim for writ of mandate based on her allegation that the commissioner failed to review the group disability policy prior to approving it as required by the Insurance Code. Since the trial court's order sustaining the demurrer as to the sixth cause of action against the DOI must be reversed, we need not determine whether that cause of action is also viable on Ellena's alternative theory that approval of the policy was an abuse of discretion.
The order entering a judgment of dismissal in favor of the DOI is reversed and the matter is remanded to the superior court. The superior court is directed to vacate its order sustaining the DOI's demurrer without leave to amend and to enter a new and different order overruling the demurrer. Ellena is awarded the costs of appeal.
Richman, J., and Brick, J.,
The DOI requested that we take judicial notice of orders in the San Francisco Superior Court sustaining without leave to amend the demurrers of the commissioner in Palma, No. CGC-10-503043, order filed on December 15, 2011, and Graybill-Bundgard, No. CGC-10-504747, order filed on February 10, 2011. The DOI also requested that we take judicial notice of the memoranda of points and authorities in support of these demurrers.
Although we hereby grant the DOI's request for judicial notice, we note that these orders are not binding on us; nor are they especially helpful. Although the DOI included the commissioner's memorandum of points and authorities in support of the demurrers, it did not include the pleadings or the memorandum of points and authorities in opposition to the demurrers. The order sustaining the demurrer without leave to amend in Palma, was issued by Judge Harold Kahn, the same judge sustaining the demurrer without leave to amend in the present case. Judge Peter J. Busch signed the order sustaining the demurrer without leave to amend in Graybill-Bundgard and this order provides no explanation or reasons for sustaining the demurrer.
On November 6, 2013, we granted Ellena's request for judicial notice of three orders from the San Francisco Superior Court that overruled the commissioner's demurrers to the plaintiffs' cause of action for mandamus. (Guyton v. Unum Life Ins. Co., No. CGC-02-415586, order filed on July 17, 2003, and signed by Judge Ronald E. Quidachay; Glick v. Unumprovident Corp., No. CGC-03-422858, order filed on May 7, 2004, and signed by Judge Quidachay; and Contreras v. Metropolitan Life Ins. Co., No. CGC-07-462224, order filed on Feb. 22, 2008, and signed by Judge Patrick Mahoney.) The order in Contreras cites to section 10291.5, subdivision (b)(1) and states that nothing in this statute suggests that the commissioner may choose not to review a policy. Ellena also did not include the pleadings or any other documents related to these cases.
The orders submitted are not helpful to our construction of section 10291.5, subdivision (b), but they do underscore the importance of settling the question of the commissioner's duties under the Insurance Code.
Some authorities believe the audience of those who draft insurance policies is not present or potential customers, but courts. As has been noted, "the sheer act of having interpreted a clause in a way that allows for predictable application in the future adds value to that clause. With insurance, the value is great enough that this generally makes it more likely, not less, that drafters will retain poor language. With ordinary commercial contracts, the value of certainty will sometimes outweigh a less than ideal clause content, and sometimes not. But where drafters — such as insurers — care more that a clause have a fixed meaning than a particular meaning, path dependence can preclude otherwise desirable improvements in the language." (Boardman, Contra Proferentem (2006) 104 Mich. L.Rev. 1105, 1107, italics omitted.)
"[N]o group disability policy shall be issued or delivered to any person in this state nor shall any endorsement for any such policy be issued which contains any provision contradictory, in whole or in part, of any of the provisions promulgated by the commissioner as being required or optional or alternative provisions to be incorporated into such policy in accordance with the rules promulgated by him for their use." (§ 10270.9.)
Regulation 2218.10 states in relevant part: "(a) This regulation shall control the filing of all group and blanket life and group disability insurance documents required by law to be filed by the Sections cited in [Insurance Code section 10191] except the following which must [be] submitted for prior substantive review in accord with contemporary Department standards: [¶] (1) Document filings involving concepts of insurance or types of coverage which may be considered as uncommon or unusual and which are not encompassed in any form of the insurer authorized by this Department at the time of the said filing, nor in any form filed in this State from which the submitted form has been copied." Ellena argues that this regulation required the DOI to conduct a "substantive review in accord with contemporary Department standards" prior to approving certain group disability policies because her policy contained a concept of insurance and recovery that might be considered as uncommon or unusual.
The DOI objects to Ellena's reliance on section 10270.9, since she did not cite this statute in her second amended complaint or refer to it in the trial court. The DOI also contends, among other things, that this statute and regulation 2218.10 do not require any action of the commissioner but describe actions the insurer must take. We agree that this statute and regulation do not impose, by themselves, any mandatory duty on the commissioner but we also note that our construction of other provisions in the Insurance Code, which oblige the commissioner to make certain the policy conforms to the law prior to approving the policy, is not inconsistent with the language of section 10270.9 or regulation 2218.10.