Plaintiff insured sought to recover dividends from defendant insurance company based on a dividend agreement allegedly made in conjunction with the purchase of a workmen’s compensation insurance policy. The Superior Court of Los Angeles County (California) sustained the insurance company’s oral demurrer to the introduction of any evidence on behalf of the insured and dismissed the complaint. The insured appealed.
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The insured claimed that it bought the policy in reliance on the insurance company’s representations that it would pay an additional dividend to insureds whose loss-premium ratio was 60 percent or less, provided a surplus was available; that the insured was within that loss range; that the insurance company had sufficient surplus to pay the dividend; and that the insurance company arbitrarily reduced the insured’s dividend. Amicus curiae insurance commissioner argued that enforcement of the dividend agreement would violate the minimum rating law, Cal. Ins. Code §§ 11730-11742. The insurance company claimed enforcement would also violate the anti-rebate provisions, including Cal. Ins. Code § 751. The court held that the agreement was illegal under § 751 because it was not a participating dividend, Cal. Ins. Code § 763(a), and was not in the policy, Cal. Ins. Code § 11738. The court held that the insured was barred from recovery even though it was not in pari delicto with the insurance company because receipt of an unlawful rebate and violation of the minimum rating law were misdemeanors, Cal. Ins. Code §§ 752, 11742, and a contract for an act prohibited by a penal law was void.
The court affirmed the judgment in favor of the insurance company.