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Martha Lind, As Authorized Representative, Etc v. David Maxwell-Jolly


July 28, 2011


(Super. Ct. No. 39-2008-00185514-CU-WM-STK)

The opinion of the court was delivered by: Butz , J.

Lind v. Maxwell-Jolly



California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

Appellant Martha Lind, the legal representative of Mary G. Lind,*fn1 appeals from a judgment denying Martha's petition for writ of administrative mandate. (Code Civ. Proc., § 1094.5.) Mary sought a judgment overturning an order of the director of the State Department of Health Care Services that denied her application for Medi-Cal benefits. At issue is whether a single-premium endowment life insurance policy, for which Mary paid $92,000, should be counted as an available asset, thereby disqualifying her from California Medical Assistance Program (Medi-Cal) eligibility.

We shall uphold the determination of the director and the trial court that Mary did not meet Medi-Cal's eligibility requirements.


The Parties

Martha is the daughter and authorized representative of Mary, who, at all times pertinent, was a 91-year-old resident of a long-term care facility.

Defendant and respondent David Maxwell-Jolly is the Director (the Director) of the State Department of Health Care Services (the Department). (Sandra Shrewry was named as defendant in the trial court because she occupied the director's position at that time.)

On March 22, 2007,*fn2 Mary applied for Medi-Cal benefits. Effective May 1, she purchased a policy entitled "Single Premium Pure Endowment Life Insurance Contract" (hereafter the policy or Endowment Contract) from Employees Life Company (Mutual) (hereafter ELCO) for $92,000. The policy application listed Mary's two daughters as equal, primary beneficiaries and her granddaughter as the contingent beneficiary.

The policy states that a "maturity benefit" will be paid on the maturity date, provided the insured is then living. "No benefit is payable at death prior to the maturity date other than accrued dividends." (Boldface in original.) The "MATURITY DATE" is May 1, 2012, or five years after the date of issue. Mary is listed as the "INSURED," and the "MATURITY BENEFIT" is shown as $92,463. If Mary were to die before the maturity date, "a post-mortem dividend is anticipated to be payable" to the beneficiaries. The contract does not identify a specific post-mortem dividend amount.

On June 20, the San Joaquin County Human Services Agency denied Mary's Medi-Cal application, finding that her assets exceeded the $2,000 Medi-Cal resource limit. In making this determination, the county considered the Endowment Contract to be "countable property" for purposes of determining Medi-Cal eligibility. On June 22, Martha requested an administrative hearing on the county's findings.

The matter was assigned to an administrative law judge (ALJ) and an administrative hearing was held on September 6.

Following the hearing, the ALJ filed a proposed decision upholding the denial of Mary's application for Medi-Cal benefits. The Director of the Department subsequently filed his own "alternate decision" on November 1, denying Mary's claim for Medi-Cal benefits.*fn3

In his order, the Director determined the Endowment Contract did not qualify as life insurance because it promised to repay Mary her premium plus dividends if she survived, whereas life insurance requires that "benefits [be] paid to the beneficiary upon the death of the insured." The Director viewed the Endowment Contract as a "legal instrument or device similar to a trust, and therefore [it] must be treated as a trust for Medi-Cal eligibility purposes." Since the $92,000 would be returned to Mary at maturity, that money was "available" to her under Medi-Cal regulations, thus placing her over the $2,000 property limit for eligibility.

On June 2, 2008, Martha filed a petition for writ of administrative mandamus on Mary's behalf, requesting that the trial court vacate the Director's decision. The court denied the petition. It found that the Endowment Contract (single-premium pure endowment life insurance contract) fails to meet the requirements of life insurance. Moreover, since Mary "retained a beneficial interest in the funds," the policy premium "was available property, which must be counted as a resource for purposes of determining Medi-Cal eligibility."


I. Principles of Review

Appellant argues the trial court erred in finding the Endowment Contract was not life insurance. She argues that it was a life insurance policy with no cash surrender value, and was thereby exempt from consideration as an available asset in determining Mary's Medi-Cal eligibility.

"'In reviewing the trial court's ruling on a writ of mandate, the appellate court is ordinarily confined to an inquiry as to whether the findings and judgment of the trial court are supported by substantial, credible and competent evidence. This limitation, however, does not apply to resolution of questions of law where the facts are undisputed. In such cases, as in other instances involving matters of law, the appellate court is not bound by the trial court's decision, but may make its own determination.'" (Lomeli v. Department of Corrections (2003) 108 Cal.App.4th 788, 794.)

The Endowment Contract is a contract between Mary and ELCO. "'Under statutory rules of contract interpretation, the mutual intention of the parties at the time the contract is formed governs interpretation. (Civ. Code, § 1636.) Such intent is to be inferred, if possible, solely from the written provisions of the contract. (Id., § 1639.)'" (Santisas v. Goodin (1998) 17 Cal.4th 599, 608.)

The interpretation of a contract is subject to de novo review where it does not turn on the credibility of extrinsic evidence. (Morgan v. City of Los Angeles Bd. of Pension Comrs. (2000) 85 Cal.App.4th 836, 843.) Since no conflicting extrinsic evidence was admitted regarding the meaning of the Endowment Contract, the question of its interpretation is therefore subject to independent review.

II. The Endowment Contract Is Not Life Insurance

Eligibility for Medi-Cal benefits is governed by title 22 of the California Code of Regulations.*fn4 (See also Welf. & Inst. Code, § 14000 et seq.; 42 U.S.C. § 1396a et seq.) The Regulations impose a property limit of no more than $2,000 per person. (Regs., § 50420.) Property that is not available to the claimant shall not be considered in determining eligibility. (Regs., § 50402.) Section 50475 of the Regulations provides that "[l]ife insurance" is considered exempt "[i]f the combined face value of all of the policies on the insured individual is $1,500 or less," except to the extent of its "net cash surrender value."

The central issue here is whether the Endowment Contract purchased by Mary for a lump-sum premium of $92,000 qualifies as "life insurance" for Medi-Cal purposes. Section 50054.5 of the Regulations states, "Life insurance means a contract for which premiums are paid during the lifetime of the insured, and on which the insuring company pays the face amount of the policy to the beneficiary upon the death of the insured. Life insurance may also be purchased by a single premium or by letting dividends accumulate." (Italics added.) The "face amount" is the amount the insurer obligates itself to pay upon the death of the insured. (Black's Law Dict. (9th ed. 2009) p. 668, col. 2; see also 3 Cal. Insurance Law and Practice (Lexis Nexis 2011) § 21-05, p. 21-11 ["any life insurance policy will have a declarations page setting forth . . . the name of the insured[] and the 'face' amount of benefits to be paid upon death"].) Section 50475 of the Regulations implicitly requires that the policy have a face amount, since it provides an exemption for policies whose combined "face value" total $1,500 or less.

The Endowment Contract does not specify a "face amount" payable to the beneficiaries if Mary dies. On the contrary, it states very clearly in boldface type, "No benefit is payable at death prior to the maturity date other than accrued dividends." Although a "maturity benefit" of $92,463 will be paid on May 1, 2012--"provided the insured is then living"--if Mary dies before the maturity date, the beneficiaries are entitled only to an anticipated "post-mortem dividend," the amount of which is not specified.

An essential element of insurance is an undertaking by the company to indemnify a third party against a contingent or uncertain event. (Ins. Code, § 22; Automotive Funding Group, Inc. v. Garamendi (2003) 114 Cal.App.4th 846, 851.) A contract that does not contain this feature does not qualify as life insurance, as illustrated by the case of Estate of Barr (1951) 104 Cal.App.2d 506 (Barr).

In Barr, the decedent purchased a retirement income bond from Pacific Mutual Life Insurance Company of California. She paid an annual premium of $590.40 until the "maturity date" when she was thereafter paid a $100 monthly benefit. When the decedent died, the proceeds of the bond were paid to her named beneficiaries. (Barr, supra, 104 Cal.App.2d at p. 507.) The issue was whether the bond was "insurance" for inheritance tax purposes, since the relevant tax statute exempted the proceeds of a policy of "life or accident insurance" that was payable "by reason of the death of the insured." (Ibid., quoting fn.* at p. 507.)

The Barr court first noted that the statutory definition of insurance is "'a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event.' (Ins. Code, § 22.)" (Barr, supra, 104 Cal.App.2d at p. 508.) Hence, the bond contract, which the court characterized as an "annuity,"*fn5 was not a life insurance policy. "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. [Citation.] 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." (Barr, at p. 508, italics added.) Noting that the insurance company "did not assume any risk of loss on [the decedent's] death," the court concluded that the policy was not a contract of insurance. (Id. at p. 509.)

The Endowment Contract bears even less resemblance to a life insurance policy than did the bond purchased in Barr. In Barr, the beneficiaries at least received the proceeds of the bond purchased by the insured. The contract here provides no fixed-sum payout to the beneficiaries upon Mary's death. If Mary lives to the maturity date, she receives the premium she paid in, plus a dividend. If she dies before the maturity date, her beneficiaries are entitled only to an "anticipated" dividend, the amount of which is not stated or even guaranteed. Far from assuming the risk of indemnifying a third party upon Mary's death, the insurance company receives a windfall if she dies before the maturity date. This is not insurance; it is the antithesis of insurance. (See Barr, supra, 104 Cal.App.2d at p. 508 ["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."].)

In her reply brief, appellant claims the "face value" of the policy payable to the beneficiaries upon Mary's death consists of the "accrued dividends." She is wrong.

The "[f]ace [a]mount of [i]nsurance" consists of the "[p]rincipal sum of money payable under a life insurance policy upon the death of the insured. . . ." (Modern Dict. for the Legal Profession (3d ed. 2001) p. 371, col. 1.) "A life policy is a contract to pay a certain sum of money to a payee on death of the life insured." (1 Holmes's Appleman on Insurance (1996) § 1.25, p. 123, italics added.) By contrast, "[a] dividend represents a share of the surplus earnings apportioned by the insurance carrier's directors for distribution to its policyholders." (5 Couch on Insurance (3d ed. 2010) § 80:50 (Couch).) Furthermore, "[a]ccumulated dividends are the property of the insured. . . . [¶] Upon the insured's death, accumulated dividends will pass to the estate of the insured. Thus, pursuant to the express provisions of the policy, the accumulated dividends are payable to the estate of the deceased insured upon the insured's death and not to the beneficiary unless the insured has specifically assigned the accumulated dividends to the beneficiary." (Id., § 80:59, fn. omitted.)

As noted, the Endowment Contract does not provide for a "certain sum of money" payable upon the death of the insured. The only benefit payable on death is an accumulated dividend, and even that payment is contingent and subject to ELCO's discretion. Manifestly, the mere fact that Mary's beneficiaries might receive a small, accrued dividend if she dies before the maturity date does not convert the Endowment Contract into a policy of life insurance.

Appellant also enlists Briggs v. McCullough (1869) 36 Cal. 542 (Briggs) to support her argument that Mary's Endowment Contract qualifies as life insurance. This 150-year-old case does not assist her.

In Briggs, a judgment debtor took out an endowment policy whereby the insurance company agreed to pay the fixed sum of $3,500 plus dividends on a specified future date, or to his beneficiaries if he died before that date. He claimed the policy was exempt from execution. (Briggs, supra, 36 Cal. at p. 549.) In dictum, the California Supreme Court agreed that the policy constituted "insurance" on the life of the debtor, but it ultimately rejected his contention that it was exempt. (Id. at pp. 550-552.)

The key distinction between Briggs and the present case is that the policy in Briggs had a "face amount," i.e., a fixed, specified amount payable to the beneficiary in the event of the insured's death. As Briggs points out, "an undertaking [by the insurer] to pay the stipulated sum if he shall die within a specified term . . . is of the very essence of life insurance." (Briggs, supra, 36 Cal. at p. 551.) Mary's Endowment Contract fails to satisfy this key element. ELCO did not undertake to pay Mary's beneficiaries a "stipulated sum" upon her death, but only a possible "post-mortem dividend." Indisputably, the lack of a guaranteed death benefit is fatal to appellant's claim that the Endowment Contract constituted life insurance. (See 1 Couch, supra, § 1:9 ["The primary requisite essential to a contract of insurance is the assumption of a risk of loss and the undertaking to indemnify the insured against such loss." (Fn. omitted.)].)*fn6

III. Trust or Similar Legal Device

Since the Endowment Contract did not qualify as life insurance, it did not fall within the exemption provided by the Regulations. But if the contract was not insurance, then what was it? The Director concluded that the contract must be characterized as a trust or similar legal device, which is counted as available property for Medi-Cal purposes. For the reasons that follow, we agree.

Regulations section 50489, subdivision (b)(10) provides, in relevant part, that "[t]he term 'trust' also includes any legal instrument or device similar to a trust as described in subsection (b)(9) of this section." (Italics added.) "'Similar legal device' (SLD) means any legal instrument, device or arrangement that involves the transfer of assets from an individual or entity (transferor) to another individual or entity (transferee) with the intent that the assets be held, managed, or administered by an individual or entity for the benefit of the transferor or certain other individuals. . . ." (Regs., § 50489, subd. (b)(9).)

The Endowment Contract fits the definition of an SLD. First, it is a "legal instrument" because it is a contract. Second, the contract "transfer[s] . . . assets from an individual," Mary, "to another individual or entity," ELCO. (Regs., § 50489, subd. (b)(9).) Third, Mary made the transfer "with the intent that the assets be held . . . by an . . . entity," i.e., ELCO. (Ibid.) Fourth, ELCO holds the assets "for the benefit of the transferor" (Regs., § 50489, subd. (b)(10)), i.e., Mary, because, provided she survives, on the maturity date she will receive a payment of $92,463.

Because the Endowment Contract was executed after August 11, 1993, it must be considered to be an "OBRA 93" trust.*fn7 An OBRA 93 trust is "irrevocable" if it cannot be revoked or is deemed irrevocable under state law. (See Regs., § 50489, subd. (b)(7).) Assuming the instrument was irrevocable because Mary could not reach the funds until the maturity date, the $92,000 held by ELCO is nevertheless considered property available to her under Regulations section 50489.5.

The provisions of section 50489.5 of the Regulations apply to OBRA 93 trusts, regardless of "(1) the purposes for which the trust is established, [¶] (2) whether the trustee(s) has, or exercises, any discretion under the terms of the trust, [¶] (3) restrictions on when, or whether, distributions may be made from the trust, or [¶] (4) restrictions on the use of trust assets or distributions." (Regs., § 50489.5, subd. (b)(1)-(4), italics added.) Under section 50489.5, subdivision (f)(1) of the Regulations, "if payment(s) can be made from the trust to, or for the benefit of, the individual . . . at any time or under any circumstances," that portion of income or principal from which payment could be made "shall be considered" property available to the individual. (Italics added.)

Since Mary is entitled to the return of her $92,000 premium after five years, that sum held by ELCO must be counted as "available" to her and places her over the $2,000 limit of eligibility for Medi-Cal.


The judgment is affirmed. The parties shall bear their own costs on appeal. (Cal. Rules of Court, rule 8.278(a)(5).)

We concur: RAYE , P. J. MAURO , J.

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