Industrial Indemnity Co. v. Golden State Co. (49 Cal. 2d 255, 1957)

McCOMB, J.

Industrial Indemnity Exchange (hereinafter referred to as Exchange) was a reciprocal insurance organization handling workmen’s compensation insurance. Industrial Indemnity Company (hereinafter referred to as Company) also handled workmen’s compensation insurance. There was considerable interrelation between Exchange and Company but no competition. Industrial Underwriters (hereinafter referred to as Attorney) was the managing entity of Exchange and Company.

In a reciprocal exchange the participants, called underwriters or subscribers, exchange insurance contracts for their mutual protection through the medium of an attorney-in-fact, who also sets rates, settles losses, compromises claims and cancels contracts. Attorney acted in this capacity for Exchange under an agreement known as Underwriters Agreement. In return for its services it received a percentage of the premiums deposited by the subscribers and was required to furnish offices and personnel for Exchange’s operations out of this percentage.

Attorney, a partnership with substantially the same stock ownership as Company, also furnished offices and personnel for the latter. The Insurance Commissioner objected to the interlacing by Attorney of its private corporation (Company) and Exchange. He made certain recommendations looking to the separation of the management of these entities or the elimination of possible conflicting loyalties through a combination of their activities.

An agreement was entered into between Company and Exchange whereby the insurance policies of Exchange would be transferred to and reinsured by Company as of December 31, 1948. The agreement provided that Company would service and run out all policies then in force and would pay the subscribers of Exchange an amount equal to the value of the entire net worth of Exchange as determined by such run-out. Consents were obtained from 98 per cent of the subscribers of Exchange to this agreement.

Subsequently Company brought an action for declaratory relief regarding the rights of the nonconsenting subscribers. Cross-complaints were filed by several sets of these subscribers. After trial, judgment was rendered in favor of Company, and the cross-complaints were ordered dismissed.

Two separate sets of defendants appealed, (1) G. W. Thomas Drayage and Rigging Company, Inc., W. R. Ballinger and Son, a corporation, and Minna M. Ballinger (hereinafter referred to as defendant Thomas Drayage and Rigging Company), and (2) Robert L. Johnson Corporation, for itself and as representative of all similarly situated co-owner subscribers of Exchange (hereinafter referred to as defendant Johnson Corporation).

On appeal it was held that the contract between Company and Exchange was illegal and void in violation of section 1101 of the Insurance Code. (Industrial Indem. Co. v. Golden State Co., 117 Cal.App.2d 519 [256 P.2d 677].) The appellate court (1) reversed the judgment in favor of Company and remanded the case to the trial court with directions to deny all declaratory relief to plaintiffs, and (2) stated that “in the cross-actions, relief will be granted [to appellants] only with respect to the consequences of the illegality of the transfer and assumption agreement.” (See p. 540.) It then directed the trial court to grant defendants “such relief as the court will deem fit to enable them to recover in their representative capacity for subscribers the business and assets obtained by Company in consequence of the agreement herein held to be invalid. ...” (See pp. 540-541.) (Italics added.)

After the reversal of the trial court’s judgment defendant Johnson Corporation filed a petition for judgment and decree pursuant to its interpretation of the effect of the appellate court’s remittitur. Defendant Thomas Drayage and Rigging Company moved to strike this petition upon the ground that Johnson Corporation was a mere “intervenor” and as such not entitled to act on terms of equality with the other defendants. This motion was granted by the trial judge. Thereafter judgment was entered in favor of the defendants in the sum of $323,300.39. From this judgment both defendant Thomas Drayage and Rigging Company and defendant Johnson Corporation appeal.

Appeal of DefeNdant Thomas Drayage and RiggiNG COMPANY

In view of the former decision on appeal the trial court was limited to a determination of this issue: What business and assets were obtained by Company in consequence of the “ Transfer and Assumption Agreement”?

There can be no question that the “agreement” held to be invalid referred to the Transfer and Assumption Agreement that was the basis of the litigation. An examination of the record discloses that the following findings of fact are sustained by substantial evidence:

“IV. Coincident with the issuance to Underwriters of the Certificate of Authority to act in liquidation of the Exchange, and on November 4, 1953, Company transferred to Underwriters and Underwriters accepted on behalf. of Exchange and its subscribers, and with the approval of the Advisory Committee of Exchange, all of the business, property and assets of Exchange remaining in its hands after satisfaction of liabilities of the Exchange and which had been received by Company in consequence of the Transfer and Assumption Agreement. Underwriters has thereafter at all times continued in possession of and presently holds such business, property and assets for distribution to the subscribers of the Exchange in liquidation of its business and affairs. As of March 31, 1954, the net worth, representing the excess of assets over liabilities, including reserves for losses incurred and to be incurred, of the business, property and assets so transferred, exclusive of the Special Surplus Account, was $323,-300.39. (Italics added.)

“V. The business, property and assets of Exchange received by Company in consequence of the Transfer and Assumption Agreement and thereafter transferred to Underwriters as found herein, included all assets and liabilities of Exchange as reflected on the balance sheet of December 31, 1948, and which thereafter arose or accrued and all policies of insurance in force on the books of the Exchange as of December 31, 1948, and the entire experience thereon including the development of claims and premiums. All of the business, property and assets of Exchange of every kind or character received by Company from Exchange at any time, and all value attributable thereto have been returned by Company to Underwriters and are included within the net worth as set forth in Paragraph IV of these Findings. The business, property and assets of Exchange do not include any policies written by the Company after December 31, 1948, for or on behalf of any former subscribers of Exchange and the net worth as set forth in Paragraph IV of the findings does not reflect any value with regard to such policies and no accounting of any profits made by Company on such policies is any part of these findings.

“VI. Under the provisions of the Transfer and Assumption Agreement, Company, with regard to policies of insurance in force in the Exchange as of December 31, 1948, took over for its own account that portion of the 1948 policy year occurring after December 31, 1948, and under the provisions of the Transfer and Assumption Agreement no adjustment was to be made to the net worth of the Exchange payable to the subscribers with regard to this portion of the experience on those policies. That portion of the 1948 policy year taken over by Company for its own account developed to be unprofitable. This loss amounted to $156,600.53. All policies of insurance in force with Exchange as of December 31, 1948 and the entire experience on those policies, including the experience on the entire 1948 policy year, and the entire experience on policies previously issued by Exchange and expired on December 31, 1948, are a part of the business and assets of the Exchange and because of the invalidity of the Transfer and Assumption Agreement are for the account of the Exchange. This entire experience on policies of insurance in force with Exchange as of December 31, 1948, as well as the entire experience on policies previously issued by Exchange and expired on December 31, 1948, is reflected in the amount of net worth as set forth in Paragraph IV of these Findings.

“VII. All policies of insurance at any time issued by the Exchange, including those in force as of December 31, 1948, were issued subject and pursuant to the terms and provisions of an Underwriters’ Agreement executed by each of the subscribers. Under the terms of such Underwriters’ Agreement, a true copy of which has been received in evidence as Defendants’ Exhibit No. 6, Underwriters was appointed as Attorney-in-Fact and was entitled to receive as its fee 25 per cent of all compensation premium deposits received and 5 per cent of all savings credited to each subscriber. The subscribers or any of them did not at any time have any right to any portion of these fees to be paid to Underwriters and such fees were at all times the property of Underwriters or its assignee. The Underwriters’ Agreements have at all times been in full force and effect with regard to all policies of insurance issued by or on behalf of Exchange.

“VIII. By written agreement dated January 2, 1949, a true copy of which has been received in evidence as Plaintiffs ’ Exhibit No. 3, following the execution of the Transfer and Assumption Agreement, Company agreed to perform for Underwriters after January 1, 1949, all of Underwriters’ obligations relating to policies of insurance at any time issued by Exchange and Underwriters transferred to Company its rights to receive fees under the Underwriters’ Agreement and as yet unpaid. Company performed all services required by it to be performed under such agreement. Following the decision of the District Court of Appeal, Company and Underwriters without notice to the defendants and cross-complainants G. W. Thomas Drayage & Rigging Company, Inc., W. R. Ballinger & Son, a corporation, and Minna M. Ballinger, terminated and cancelled the agreement of January 2, 1949, and without notice to the defendants and cross-complainants G. W. Thomas Drayage & Rigging Company, Inc., W. R. Ballinger & Son, a corporation, and Minna M. Ballinger, executed a written agreement dated November 15, 1953, a true copy of which has been received in evidence as Plaintiffs’ Exhibit No. 4, acknowledging payment to Company of fees payable to Underwriters under said Underwriters Agreements and releasing Company of all claims by Underwriters to any fees theretofore collected by Company. All of such Attorney-in-Fact’s fees have been properly taken into account in computing the net worth referred to in Paragraph IV of these findings and the subscribers have no right to any portion of such fees paid to or received, directly or indirectly, by Company or Underwriters and they do not constitute any part of the business, property or assets of Exchange to which the subscribers are entitled.

“XIII. All policies of insurance in force on the books of Exchange as of December 31,1948, were placed with Exchange by insurance agents or brokers who were free to place this business with such insurance carriers as they chose. The decision as to the placement of any policy of workmen’s compensation insurance by an insurance agent or broker was made each year as a new and distinct item of business taking into consideration all elements of coverage, cost, management and other relevant matters. The placement of a policy of insurance by an insurance agent or broker with Exchange in any one year did not mean that it would be placed with Exchange in a succeeding year.

“XIV. All policies of insurance placed with Company after December 31, 1948, on behalf of persons, firms or corporations who had formerly been policyholders of Exchange were voluntarily placed with Company as new items of business by insurance agents or brokers who were free to place such policies with such insurance carrier as they chose. The decision as to the placement of such policies of workmen ⅛ compensation insurance is made each year by the insurance agent or broker as a new item of business, taking into consideration all elements of coverage, cost, management and other relevant matters. The placement of a policy of insurance with Company in any one year does not mean that it will be placed with Company in any succeeding year. In view of these circumstances surrounding the placement of business, it cannot be determined and there is no evidence that any of these policies will be placed with the Company in the future. None of these policies was placed with Company by reason of or as a consequence of activities of Company being performed under, or arising as a consequence of, the Transfer and Assumption Agreement or because Company was regarded in any sense as being the successor of Exchange. All policies placed with Company were so placed because the coverage, cost and service afforded by management of Company was attractive to the policyholder and insurance agent or broker. (Italics added.)

“XVIII. Company did not use, succeed to or receive for its own account new or different information concerning past or prospective policyholders or succeed to or receive any new or different management, name, insignia, goodwill or agency plant from Exchange as a consequence of the Transfer and Assumption Agreement, nor did it at any time or in any manner receive any management, name, insignia, goodwill or agency plant which was a part of the business, property or assets of or belonged to the subscribers of Exchange.

“XXI. In connection with its business of insurance management, Underwriters out of its own funds employed and paid all personnel, bought and owned all equipment and developed and paid its own agency plant. None of this personnel, equipment, or agency plant was or at any time has been the property of the Exchange or the subscribers of the Exchange or any part of the business, property or assets of the Exchange.

“XXII. No policies of insurance are any part of the business, property or assets of Exchange except those policies of insurance which had been placed with and were in force on the books of Exchange and no value is to be given to nor allowance made for any prospective business not in force on the books of Exchange on December 31, 1948, in determining the business, property or assets of Exchange.

“XXVI. It is not true that the compensation paid or to be paid to or for the account of Attorney-in-Fact under the provisions of the Underwriters’ Agreements is in any amount or for any period any part of the business, property or assets of the Exchange or the subscribers to the Exchange.

“XXX. It is not true that any policies of insurance written or to be written by Industrial Indemnity Company on or after January 1, 1949, or at any time for, with, or on behalf of persons, firms or corporations who were former subscribers of the Exchange or any other persons, firms or corporations, or the profits therefrom or net earnings or any earnings thereon are or were any part of the business, property or assets of the Exchange or the subscribers of the Exchange or are any part of the business, property or assets of Exchange obtained by Company in consequence of the Transfer and Assumption Agreement.

“XXXI. It is not true that there are any other assets not yet discovered or identified which constitute business, property or assets of the Exchange or which were the business, property or assets of Exchange on December 31, 1948, or at any other time and which are not reflected in the net worth as referred to in Paragraph IV of these findings, and it is true that all of the business, property and assets of the Exchange and all of the business, property and assets of Exchange received by Company in consequence of the Transfer and Assumption Agreement are now in the possession of the Exchange, subject to the control of the Advisory Committee of the Exchange, Underwriters and the Insurance Commissioner of the State of California and are reflected in the net worth as set forth in Paragraph IV of these findings.”

It logically follows that since the trial court’s findings are supported by evidence and covered the issues the appellate court had ordered retried, the judgment in the principal amount should be affirmed.

Defendant Thomas Drayage and Rigging Company urges the following contentions, which are without merit:

First: That the profits arising from the placement of policies by former Exchange subscribers with Company were part of the business or assets of Exchange.

The trial court found that none of the profits arising from the placement of policies by former Exchange subscribers with Company was part of the business or assets of Exchange. (See Findings IV, V, XIII, XIV, XXII and XXX, supra.)

Defendant does not attack these findings on the ground of insufficiency of the evidence, but on the ground that it is unfair and inequitable to allow Company to keep the claimed profits. This contention is unsound. The testimony of two expert witnesses showed that in evaluating the business and assets of an established insurance business, future profits or prospective earnings are never taken into account. In other words, there is no value placed upon the possibility of future earnings.

The reason is succinctly stated by one witness, Mr. Best, as follows: “Now, in the writing of that type of business [workmen’s compensation] there is never any right of a policyholder to demand that his policy be renewed, there is never any right on the part of the company to demand that that policyholder renew his policy with that company. The business, in fact, is controlled first of all by the policyholder himself. He decides where he wants to put it. Then he hires a broker or agent to look after it, and he has a considerable say as to just where that business is to go, that is to what carrier company or reciprocal or what have you. Then finally the company gets the business. It happens that in that particular field there is a tremendous shifting from company to company as these annual policies expire. I had occasion to observe that particular matter, which is very striking. There is great competition for those big policies, and company A may have it this year and company B gets it next year and company C gets it the third year and so forth, so it is a transitory sort of business, and not only that, but actually in such a business every year’s operation—for that matter every renewal of a policy or acceptance of a new policy—is a new venture, so to speak. It has nothing to do with what went on before. That being so, and it being well understood that whoever carries the risk is entitled to the premium and to any profit that results because he carries the risk and must bear the loss, if there is a loss, it has always been considered that only the business that is on the books at a particular moment when the valuation is to be made can be given any weight whatever; future business itself is too uncertain.”

Likewise, the testimony of witnesses Rainey, Wright, Hullin, Lynch, Williams and Miller, all of whom are brokers of workmen’s compensation insurance, support the questioned findings. They testified that policies are reviewed annually, about two months before the expiration date, loss experience is checked, the current market is also checked for risk-loss ratio, premium brackets, dividends, etc.; that they try to “make the best deal they can” for their clients; that the practice and custom of the “American Agency system” is that the brokers “own” the business, i.e., their customer list; and that only the broker and carrier know the expiration dates. Being the “owner,” the broker is free to place the business where he wishes on expiration. Each witness testified that he had placed business with Company, had placed it previously with Exchange, and had also placed business with other companies. They also stated that the Transfer and Assumption Agreement whereby Company took over Exchange had no influence whatever on their decisions to place with Company.

Several witnesses testified that they knew Company and Exchange had had the same management and when Exchange went out of business they placed their business with Company for that reason, but they also stated that they would not have done so if they could have obtained a better “deal” elsewhere. There was also testimony that some business was placed with Company at the client’s request because of ownership interest in Company. Defendant stipulated that seven other named brokers would testify similarly.

Defendant made no attempt to rebut the foregoing testimony and produced no witnesses who testified to the contrary. Defendant’s argument appears to be that even though future profits are not and were not an asset of Exchange, Company should not be allowed to keep them, not'because there is any evidence of bad faith, breach of fiduciary duty, mishandling of funds, or fraud, but because the District Court of Appeal originally found the Transfer Agreement to be void. It is obvious that there is no merit in this argument.

Second: That Company is not entitled to the “Attorney-in-Fact fees.”

The questioned fees were derived from the unearned premiums of the 1948 policies, which were all written prior to the Transfer and Assumption Agreement. The trial court found that Attorney was entitled to receive a percentage of premiums for its services as attorney-in-fact; that the subscribers at no time had any right to these fees; that Company agreed to perform the obligations for Attorney and was assigned the right to receive the Attorney Fees as yet unpaid; and that these fees constituted no part of the business or assets of Exchange. (See Finding VIII, supra.) The trial court also found that it was not true that the compensation paid for the account of Attorney was any part of the business or assets of Exchange. (See Finding XXVI, supra.)

The evidence supporting the foregoing findings is: (a) the Underwriters Agreement; (b) the Transfer and Assumption Agreement; and (e) the agreement whereby Company assumed the obligations of Attorney and Attorney assigned its rights to the management fees.

The trial court was correct in finding that the Underwriters Agreement remained in effect and covered all policies written in 1948. The Transfer and Assumption Agreement did not expressly or impliedly supersede the Underwriters Agreement. Under the Underwriters Agreement the'Attorney-in-Fact had full power to reinsure; it also had full power to enforce rights and discharge liabilities in the same way as an individual subscriber could do.

The Transfer and Assumption Agreement provided that Company would reinsure all outstanding policies and would perform all the obligations of Exchange under the terms of the policies. The Underwriters Agreement was a part of each policy written.

The application for insurance with Exchange provided: “This application if granted is subject to the foregoing statements and declarations and is further subject to the conditions of the following agreement which are made a part hereof and which are agreed to by the applicant as follows: . . .” Thereafter follows the Underwriters Agreement. The last clause of the agreement provides: “This agreement is strictly limited to the use and purposes herein expressed and no other purpose; it may be terminated at any time by the subscriber or the Attorney by either giving to the other 10 days’ written notice, but, until such termination shall remain in full force and effect as to all policies of insurance hereafter issued and accepted by the subscriber; within a feasonable time after such termination the subscriber’s account shall be liquidated and any funds standing to his credit returned.”

The Transfer and Assumption Agreement did not purport to terminate the Underwriters Agreement or to terminate the outstanding policies. It provided for (1) reinsurance of outstanding policies, (2) the transfer of assets of Exchange, (3) assumption of liabilities of Exchange in payment to the subscribers of the “adjusted net worth” of Exchange, (4) time and amount of payments to subscribers, (5) payment directly to subscribers (1948 policyholders), (6) the keeping by Company of all accounts, and (7) a waiver by Attorney of all rights to the Special Surplus Fund of Exchange, reading as follows: “In consideration of the covenants and agreements of the other parties hereto as herein contained, the Attorney-in-Fact hereby waives any and all rights it may have in and to the special surplus of the Exchange, and will not at any time hereafter assert any rights whatever in or to said special surplus. ’ ’

That the parties to the Transfer Agreement did not intend it to supplant the Underwriters Agreement is evidenced by the document executed between .Attorney and Company on January 2, 1949, whereby Company agreed to perform and discharge all the obligations of Attorney with respect to the insurance issued by Exchange, and Attorney assigned to Company its rights thereunder and agreed that it would not “at any time make any claim whatever that it is entitled to the whole or any portion of the account designated as ‘Special Surplus’ as shown on the books of the Exchange as of the close of business on December 31, 1948.”

There is no contention that the services were not performed in accordance with the agreement or that Attorney did not have a right to assign these fees. It thus appears from the Underwriters Agreement that the Attorney Fees were never a part of the assets of Exchange, even though they may have been obtained by Company as a consequence of the Transfer and Assumption Agreement.

Third: That the trial court erred in holding that the Special Surplus Fund was not a part of the business or assets of Exchange.

The Underwriters Agreement provided: “A Special Surplus Fund shall be created to which shall be set aside all investment income; it shall be a joint fund and no part thereof shall be credited to the account of any individual subscriber; it shall bp used for the benefit of the Exchange as the Advisory Committee and Attorney may agree; if the Exchange discontinues business, any balance, after full provision for liabilities to the satisfaction of the Insurance Commissioner, shall be paid to the attorney to defray the expense of, and as compensation for, liquidation.”

In accordance with the foregoing provision, the trial court found that the Special Surplus Fund was, under the Underwriters Agreement, to be reserved for expenses incurred in connection with liquidation and payable to Attorney; that on November 15, 1953, this was assigned to Company as compensation for work heretofore performed in connection with the liquidation of Exchange, less such portion as required to reimburse Attorney for future costs of liquidation; and that the subscribers have no right or claim to this surplus since it was not a part of Exchange’s business or assets. (Finding IX.)

After the District Court of Appeal’s first decision, Attorney and Company entered into an agreement restoring the business and assets of Exchange to Attorney as Attorney-in-Fact of Exchange, subject to Attorney’s obtaining a certificate of authority from the Insurance Commissioner. Thereafter such a certificate was issued for the limited purpose of discharging the obligations under the policies and Underwriters Agreement, winding up the affairs of Exchange, and carrying out the liquidation of the assets, business and affairs of Exchange.

The Transfer and Assumption Agreement provided, in paragraph VII: “ In consideration of the covenants and agreements of the other parties hereto as herein contained, the Attorney-in-Fact hereby waives any and all rights which it may have in and to the special surplus of the Exchange, and will not at any time hereafter assert any rights whatever in or to said special surplus.”

The agreement of January 2, 1949, between Attorney and Company, paragraph (3), provided: “The Attorney-in-Fact further agrees that it will not at any time make any claim whatever that it is entitled to the whole or any portion of the account designated as ‘Special Surplus’ as shown on the books of the Exchange as of the close of business on December 31, 1948.”

Defendant argues that Company waived its rights to this fund. The trial court found otherwise. After the first decision of the District Court of Appeal, Company reasserted its right to the fund in its answer to defendant’s petition for retrial.

Under the Underwriters Agreement, Attorney-in-Fact was entitled to this fund “if Exchange discontinues business,” as compensation for winding up the affairs and liquidation. The question then arises whether Exchange has been “discontinued.” The trial court found that it had, and the evidence supports the finding.

It is to be noted that the Insurance Commissioner issued the certificate of authority only to the extent necessary to wind up the affairs of Exchange. Exchange has no authority to issue new policies. Since the sum is not a part of the assets of Exchange, it is clear that the trial court’s disposition of it was correct.

It is also to be noted that defendant does not claim the policy contract, which included the Underwriters Agreement, was unfair or that the policyholders (subscribers of Exchange) had been taken advantage of by Company. The 1948 policyholders were in no sense injured nor was Company unfairly enriched at their expense.

Defendant’s arguments to the contrary are unsupported by the record. The court found, and the evidence amply supports the finding, that future profits, Attorney Fees and the Special Surplus Fund were not items obtained by Company as a consequence of the illegal Transfer and Assumption Agreement. The trial court also made the following findings:

“XI. All policies of insurance at any time issued to subscribers of Exchange were for a term period of one year, and the relationship of the subscriber to the Exchange terminated upon the expiration of any such policy, except for incompleted matters as to such policy, unless continued by the issuance of a new and further policy. Underwriters had no obligation to issue any new or further policy for any subscriber of the Exchange upon the expiration of an existing policy, and a subscriber had no right to demand that any such policy be issued. Underwriters, under the terms of the Underwriters’ Agreements and the policies of insurance issued to subscribers, had the power to cancel any such policies of insurance and to terminate the Underwriters’ Agreements at any time upon ten days’ notice and in the event of such termination, Underwriters had the duty to liquidate the subscribers’ account and return any funds standing to the subscribers’ credit. The Underwriters ’ Agreements contained no provision whereby the Attorney-in-Fact could be replaced by the subscribers.

“XII. Prior to December 31, 1948, Underwriters with the knowledge and approval of the Advisory Committee of the Exchange determined that it would not thereafter issue any new policies of insurance in the Exchange and no such policies have been issued. All policies of insurance issued to subscribers of Exchange expired by their terms on or before December 31, 1949. Since December 31, 1948, Exchange has been engaged in no business except for the liquidation of Exchange. ’ ’

The foregoing findings, which are not disputed, show that defendant and the other 1948 policyholders have not been injured by the execution of the Transfer and Assumption Agreement, and that they have received all to which they were entitled. Therefore, they have not suffered either injury or damage.

However, defendant claims that Company should be deprived of the benefits it received as a result of the discontinuance of business by Exchange. This claim is based upon the contention that Company has'been unjustly or unfairly enriched. The evidence does not support this conclusion. During 1948 and several years prior thereto Exchange wrote the largest volume of premiums of all reciprocal workmen’s compensation insurance carriers in California. When Attorney determined to discontinue business, as it had a right to do, other insurance carriers, including Company, would, of course, obtain a share of this business. This additional business would accrue to Company regardless of the Transfer and Assumption Agreement so long as it was competitive with other carriers.

The record discloses that no policy, except where there was ownership interest involved, would have been placed with Company unless its rates or service were as good or better than other carriers. In short, the profits derived from this additional business did not arise as a consequence of the Transfer and Assumption Agreement, but as a result of Attorney’s determination not to issue any new policies.

The prior decision of the District Court of Appeal held that none of the workmen’s compensation business acquired by Company prior to 1948 was a consequence of the interlocking relationship between Attorney and Company, as “the Company did not at any time in the operation of its business use any funds, facilities or information belonging to, or secured through, the Exchange.” (See 117 Cal.App.2d 519, 537 [256 P.2d 677].)

On retrial, the court found that “Company did not use, succeed to or receive for its own account new or different information concerning past or prospective policyholders or succeed to or receive any new or different management, name, insignia, goodwill or agency plant from Exchange as a consequence of the Transfer and Assumption Agreement, nor did it at any time or in any manner receive any management, name, insignia, goodwill or agency plant which was a part of the business, property or assets of or belonged to the subscribers of Exchange.” (Finding XVIII, supra.)

Company received nothing, either prior to or as a consequence of the illegal Transfer and Assumption Agreement, that would give it an advantage over any other carrier in the field. It likewise appears from the record that under the “American Agency system,” as practiced and in use in the workmen’s compensation field, the renewals or expirations (customer lists) are owned by the agent or broker, and not by the insurance carrier. It is thus evident that Company has not been unjustly or unfairly enriched.

Finally, defendant claims the trial court erred in not allowing interest on the award. The trial court’s position was correct. This was an equitable proceeding, and the rule is settled that in such a proceeding the matter of awarding or withholding interest is within the sound discretion of the trial court. Interest is awarded only when such an award is fair and equitable in consideration of the facts of the particular case. (See Leonard v. Huston, 122 Cal.App.2d 541, 548 [3] [265 P.2d 566]; Board of County Commrs. v. United States, 308 U.S. 343, 352 [60 S.Ct. 285, 84 L.Ed. 313]; Stockton Theatres, Inc. v. Palermo, 121 Cal.App.2d 616, 632 [264 P.2d 74]; see also 90 C.J.S. (1955), Trusts, § 338, p. 584, and cases cited in nn. 60 and 61.)

In the present case the trial court found that Company had not acted in bad faith, and therefore we cannot say it abused its discretion in refusing to allow interest on the award.

Appeal of Defendant Johnson Corporation

Defendant Johnson Corporation contends that its cross-complaint was improperly dismissed from the action. This contention is not sound. In a stockholders’ derivative action interveners are but volunteers in the main original cause, and their counsel may not participate in the presentation of the main case save as counsel for the main stockholders may consent or the court may permit. (Mann v. Superior Court, 53 Cal.App.2d 272, 280 [2] [127 P.2d 970] [hearing denied by the Supreme Court].)

In the present case the trial court was not bound to permit the intervention of others of the same class if their interests were properly protected. So far as the record discloses here, defendant Johnson Corporation’s interests were fully and properly protected, and therefore the trial court did not err in dismissing its cross-complaint.

In view of our conclusions it is unnecessary to discuss other questions argued by counsel.

The judgment and orders are each affirmed.

Shenk, J., Schauer, J., and Spence, J., concurred.

Finding IX reads: “Under the terms of the Underwriters’ Agreements, Exchange at all times maintained a Special Surplus Fund consisting of all investment income received on Exchange funds; this fund, in the event Exchange discontinues business and after full provision for liabilities to the satisfaction of the Insurance Commissioner, is to be paid to Underwriters to defray the expenses of and as compensation for liquidation. The amount of this fund as of March 31, 1954, was $592,322.31. Underwriters by written agreement dated November 15, 1953, a true copy of which has been received in evidence as Plaintiffs’ Exhibit No. 38, has agreed without notice to the defendants and cross-complainants G. W. Thomas Drayage & Eigging Company, Inc., W. E. Ballinger & Son, a corporation, and Minna M. Ballinger, to pay to Company as compensation for work heretofore performed by Company on behalf of Underwriters in connection with the liquidation of the .Exchange, a sum equal to the special surplus which Underwriters may receive, less such portion of the special surplus as may be required to reimburse Underwriters for incurred and future costs of liquidation. The subscribers of Exchange have no right or claim to any portion of this special surplus and it does not constitute any part of the business, property or assets of the Exchange to which the subscribers are entitled. ’ ’

SCHAUER, J.

I concur. It is my view that the issues of law have been, as such, adequately discussed and correctly disposed of in the opinion prepared by Mr. Justice McComb. Nevertheless, because opinion diverges sharply among some of the justices, it appears proper to briefly supplement our discussion.

In the arguments for the dissenting theory, respondents have been termed “wrongdoers.” That term is ordinarily connotive of evil intent as well as illegal act. Under any permissible view of the record the term seems to me to be an unduly harsh epithet to be applied. As appears from the opinion of the District Court of Appeal on the first appeal in this case (Industrial Indem. Co. v. Golden State Co. (1953), 117 Cal.App.2d 519, 527 [256 P.2d 677]), the issue of illegality of the Transfer and Assumption Agreement by reason of the then provisions of section 1101 of the Insurance Code was injected into the case by that court. Until then respondents were willing and fully intended to carry out their obligations under that agreement, which would have meant that the subscribers would have received $1,018,589.07, rather than only the $323,300.39 awarded them by the judgment which is now being affirmed. Despite this situation, the president of Company, who is also one of the partners of Attorney, testified that, regardless of the outcome of the case, it was the intention of respondents to pay the subscribers an amount equivalent to that which the subscribers would have received under the Transfer and Assumption Agreement, less costs of litigation. I believe that this further demonstrates the good faith of respondents, already conclusively shown, and evidences their continuing intention to live up to their own obligations as set forth in the agreement, if that will result in payment of a greater sum to the subscribers than would result under the judgment of the court. Respondents’ unwillingness to accept the benefits of a windfall judgment—a judgment correct within the law but seemingly unjust in an equitable sense—is conduct which impresses me as more deserving of commendation than censure.

We ordinarily expect law and justice to go hand in hand; the state enacts and enforces law to achieve justice. Nevertheless, that the enforcement of law does not always result justly was recognized many generations ago, when the concept of equity was born. As declared in Owens v. McNally (1896), 113 Cal. 444, 450 [45 P. 710, 33 L.R.A. 369], “the law failing by reason of its universality, equity, to promote justice, makes good its imperfections. [Citations.] ” But, regrettably, imperfections sometimes appear which not even the reach of equity can make good.

The principle articulated in section 1101 of the Insurance Code and relied upon by the District Court of Appeal in holding the Transfer and Assumption Agreement to be illegal and void was manifestly intended to promote justice. Its application in this case seems to me, however, to have resulted in a judgment which, understandably, some may feel on its face achieves the contrary, not so much, perhaps, because of the substance of the judgment now under consideration as because of the inability of the court to enforce an agreement which had been found to be fair and just to all parties but which was held to be technically invalid. The upholding and performing of a fair and just contract would certainly appear to be promotive of justice. But the decision, on the first appeal in this case, that such contract could not be sustained has long since become final and cannot now be disturbed. That decision, in the light of the findings of fact at the first trial, which were held to be supported by the evidence, coupled with the findings in this second trial, which are also supported by the evidence, clearly precludes, under existing law, any relief beyond that granted. Similar applications of the principle (nonenforceability of a fair contract because of statutory illegality) resulting in unjust enrichment of a party have repeatedly divided this court. (See Loving & Evans v. Blick (1949), 33 Cal.2d 603, 615, 617 [204 P.2d 23]; Franklin v. Nat C. Goldstone Agency (1949), 33 Cal.2d 628, 633 [204 P.2d 37]; Fraenkel v. Trescony (1957), 48 Cal.2d 378, 383, 388 [309 P.2d 819].) In this connection it may be noted that under a 1955 amendment to the Insurance Code it appears that such an agreement as that which gave rise to the current controversy may now be legally made and performed, thus indicating that no basic principle of public policy, fairness, or justice was violated when it was executed in 1948. Neither that fact, however, nor even the overruling of the cited cases, could now affect the finality of the decision on the first appeal. I believe that the judgment of the trial court now being affirmed recognizes and correctly applies the law to the facts, which is all that the court under the limitations of the earlier holding could do, and that the carrying out by respondents of their legally unenforceable but nevertheless voluntarily self-recognized and now self-declared obligations under the Transfer and Assumption Agreement, brings this unfortunate litigation to the most desirable conclusion which under existing circumstances can be attained.

Shenk, J., concurred.

It is to be remembered that it is established that the Transfer and Assumption Agreement was entered into in good faith and had the approval of the insurance commissioner. Obviously, in the conduct of respondents, there was no union of act and evil intent. The opinion of the District Court of Appeal on the first appeal (Industrial Indem. Co. v. Golden State Co. (1953), supra, 117 Cal.App.2d 519) carefully notes many significant facts. Pertinent to the discussion, the opinion reads:

“ [P. 526] The court found in nearly all respects for the plaintiffs and against the cross-complainants . . . The judgment declared in substance that past subscribers had no interest in the Exchange and were not entitled to participate in any distribution; that the transfer and assumption agreement was fair and equitable, validly executed and binding on all past and present subscribers of Exchange, and that they had no right to any net worth or assets of Exchange except as provided in said agreement, that said agreement distributed to the subscribers all they were entitled to in the most equitable, reasonable and practical manner and that subscribers had no interest in the business or assets of Company. . . .

“ [P. 527] We have concluded that the original action for declaratory relief should have been denied because the agreement to which it relates is void as violating section 1101 of the Insurance Code, expressly made applicable to reciprocal exchanges by section 1282 of said code. Section 1101 reads insofar as applicable to this ease: ‘An admitted insurer’s officers, directors, trustees and any persons who have authority in the management of the insurer’s funds, shall not, unless otherwise provided in this code: . . . (c) Directly or indirectly purchase, or be interested in the purchase of, any of the assets of the insurer. ’ Section 1106, Insurance Code, reads in part: ‘Any person violating . . . Sections 1101, ... is guilty of a misdemeanor.’

‘ ‘ This exact point was not raised by any of the parties, but was briefed specially at the request of this court. . . .

“ [P. 534] In this case the court below made most elaborate findings as to all circumstances on which it based its holding that the cross-defendants have not breached their fiduciary duty. . . .

“ [P. 537] As we have held that the establishing of the circumstances under which the Attorney engaged in workmen’s compensation insurance business of its own and the weighing of these circumstances in relation to the duty of fairness and good faith incumbent on the Attorney as a fiduciary were matters of fact, the decision of which by the trier of facts is as a rule binding on appeal, it seems evident that the findings stated are fatal to the appeal with respect to the claims of subscribers of Exchange to the business of Company unless appellants have shown that they are not supported by the evidence. This they have failed to do. . . .

“ [P. 539] Under these circumstances it is not for us to say that the ultimate findings of the court below are necessarily improper inferences nor can we hold as. a matter of law, contrary to said findings, that the Attorney breached its fiduciary duty to subscribers when it engaged in the writing of workmen’s compensation insurance through the medium of Company or that the buáiness of Company was in equity the property of Exchange. We are the more satisfied that this result is not unjust because the gain by Exchange of all profits of the business of Company without participation in them by any of Company’s insureds would have given the subscribers of the Exchange a windfall wholly out of line with the setup of such Exchange.”

GIBSON, C. J.

I dissent. In my opinion, the majority of the court fails to apply the law correctly to undisputed facts concerning a transaction in violation of statute and, as a consequence, upholds an unjust result.

The law of the case, as decided on the prior appeal (Industrial Indem. Co. v. Golden State Co., 117 Cal.App.2d 519 [256 P.2d 677]), is that the Transfer and Assumption Agreement by which Company took over the whole business of Exchange was void because it violated section 1101 of the Insurance Code and that the subscribers are entitled to recover the business and assets obtained by Company as a consequence of that agreement. The code section was designed to protect persons such as the subscribers against the detrimental action of those in a position like that of Attorney. The subscribers, therefore, are not to be considered in pari delicto with Attorney and Company (Carter v. Seaboard Finance Co., 33 Cal.2d 564, 574 [203 P.2d 758]; see Lewis & Queen v. N. M. Ball Sons, 48 Cal.2d 141, 152 [308 P.2d 713]), and the latter are the parties legally responsible for the violation, even if they acted in good faith.

It is undisputed, and the trial court found, that the Transfer and Assumption Agreement was considered fair and equitable by Attorney and Company, that it was concluded openly with the consent of the Insurance Commissioner and of 98 per cent of the subscribers, and that the net worth of Exchange which would have been distributed to subscribers in accordance with the agreement, had it not been invalid, would have amounted to $1,018,589.07. Nevertheless, the judgment of the trial court affirmed by the majority awards the subscribers no more than $323,300.39 as the value of the business and assets of Exchange taken over by Company. Thus, as the decision of the majority stands, those for whose protection the violated statute was enacted will receive less than one-third of what would have been theirs under the agreement, whereas those who are responsible for the violation will not only retain all of the benefits of the agreement but also obtain a large financial windfall. It is true that the president of Company, who is also one of the partners of Attorney, testified that, regardless of the outcome of the case, it was the intention of Company to pay the subscribers an amount equivalent to that which the subscribers would have received under the void agreement, minus costs of litigation, but a court cannot be justified in rendering a decision which compels a litigant to rely on the magnanimity of his opponent to obtain equity, unless such a result is unavoidable. I am satisfied that a proper application of the law to the facts before us not only permits but requires a more equitable result.

There are three matters in controversy, namely, the profits realized by Company from the issuance of new insurance policies to former subscribers of Exchange, the sum referred to as attorney-in-fact fees, and the amount constituting the special surplus fund. Although I share the view of the majority that there is sufficient evidence to support the trial court ’s finding that the business profits were not obtained as a consequence of the void Transfer and Assumption Agreement, I cannot agree as to the disposition of the other two items. The facts relating to them are undisputed, and only questions of law are presented. The conclusion of the majority, in my opinion, results from an erroneous application of the Underwriters Agreement to the illegal transaction under consideration.

There can be no doubt that, under the Underwriters Agreement, any right of Attorney to attorney-in-fact fees must arise from performance of the managerial functions connected with the business of Exchange. Undeniably, Attorney did not perform such functions between January 1, 1949, when the Transfer and Assumption Agreement was to take effect, and November 6, 1953, when assets of Exchange were restored by Company. It is obvious, therefore, that Attorney would not be entitled to fees allocable to that period.

Nor can Company have any right to attorney-in-fact fees. Under the Underwriters Agreement, the fees were, of course, intended as compensation for management services rendered to Exchange, and, admittedly, Company did not at any time perform such services for Exchange but, instead, performed them solely for its own account, mistakenly believing that it was the owner of Exchange’s business. Any claim by Company to the contractual amount of fees would necessarily depend upon an effective assignment of Attorney’s rights, and there was no such assignment. The purported assignment in January of 1949 was, by its terms, made because of the Transfer and Assumption Agreement. It was merely one step in the overall transaction by which Company illegally took over the business of Exchange, and, therefore, it was as invalid as the main agreement. (Stockton Morris etc. Co. v. California etc. Corp., 112 Cal.App.2d 684, 689-690 [247 P.2d 90].) The agreement of November 15, 1953, in which Attorney released its claim to fees in favor of Company, could not, of course, constitute an effective transfer to Company with respect to the period in question, since, as we have seen, Attorney had no right to fees allocable to that period.

In concluding that, by operation of the Underwriters Agreement, the sum treated as attorney-in-fact fees is not an asset of the subscribers, the majority opinion reasons, “There is no contention that the services were not performed in accordance with the agreement or that Attorney did not have a right to assign these fees.” As shown above, however, insofar as the period between January 1, 1949, and November 6, 1953, is concerned, Attorney did not perform any services, Company did not perform any services “in accordance with the agreement,” and no effective assignment was made. In my view, it is apparent that, even if, as assumed by the majority opinion, the Underwriters Agreement continued in force, it does not support the position taken but, to the contrary, compels the conclusion that the amount under consideration is an asset of the subscribers.

The erroneous use of the Underwriters Agreement by the majority in holding that the subscribers are not entitled to the special surplus fund is equally apparent. The agreement provided, “A Special Surplus Fund shall be created to which shall be set aside all investment income; ... it shall be used for the benefit of the Exchange as the Advisory Committee and Attorney may agree; if the Exchange discontinues business, any balance, after full provision for liabilities to the satisfaction of the Insurance Commissioner, shall be paid to the attorney to defray the expense of, and as compensation for, liquidation.” Obviously, the fund was to be an asset of Exchange with respect to which Attorney could have no right unless there was a discontinuation and liquidation of the business in keeping with the agreement.

The majority opinion concludes, in effect, that there has been a discontinuation of business of the type contemplated in the agreement. That conclusion is manifestly unsound. It requires holding that the provision for the benefit of Attorney was intended to refer not only to an ordinary discontinuation of business but also to a situation where, as here, through Attorney’s participation, the business was discontinued solely because of a sale of assets in violation of a statute which was designed to protect persons such as the subscribers against the detrimental action of those in a position like that of Attorney. Clearly, nothing done by Company during its illegal possession of the business may be regarded as constituting liquidation, since the law of the case, as decided on the prior appeal, is that the void transfer agreement under which Company acted was not an agreement for the liquidation of Exchange but one for Company’s purchase of assets and assumption of liabilities. (Industrial Indem Co. v. Golden State Co., 117 Cal.App.2d 519, 528 [256 P.2d 677].) While it appears to be true that, because of the unlawful transaction, the business cannot now be revived and must be liquidated, this cannot reasonably be treated as giving rise to any right in Attorney. The special surplus fund, which, on March 31, 1954, amounted to $592,322.31, was, of course, intended to relate to full and regular liquidation. To hold that Attorney is entitled to the fund for liquidating the remnants of a business in whose illegal destruction it participated represents an absurd application of the Underwriters Agreement. In addition, such a holding would ignore the rule that one may not take advantage of his own wrong, since the statutory violation for which Attorney and Company are responsible constitutes a wrong, regardless of good faith.

In view of the position taken by the majority, it is not necessary in this dissent to consider whether, notwithstanding the illegality of the action of Company and Attorney, some allowance should be made in their favor for the actual cost of services performed. It is clear, however, that a proper determination with respect to attorney-in-fact fees and the special surplus fund would substantially increase the recovery of the subscribers. For example, it appears to be undisputed that, even if an allowance for actual costs were made, a refusal to grant Company attorney-in-fact fees would alone entitle the subscribers to approximately $324,000 more than the amount awarded in the erroneous judgment affirmed by the majority.

I would reverse the judgment.

Traynor, J., concurred.

Section 1101 of the Insurance Code provides: “An admitted insurer’s officers, directors, trustees and any persons who have authority in the management of the insurer’s funds, shall not, unless otherwise provided in this code: . . . (c) Directly or indirectly purchase, or be interested in the purchase of, any of the assets of the insurer.”

The agreement for restoration of assets was executed on November 3, 1953, but it was conditioned upon the Insurance Commissioner’s issuance to Attorney of a Certificate of Authority, and such a certificate was issued on November 6, 1953.

The purported assignment in 1949, after rgciting that Attorney was the Attorney-in-Fact for Exchange and was entitled to fees for the performance of certain services, provided:

"Whereas, effective 12:01 A. m., January. 1, 1949, all of the assets of the Exchange were transferred to Company and Company assumed all of the obligations of the Exchange including the obligation to perform certain services, for which performance the Attorney-in-Eact was, in turn, obligated to the Exchange; and

“Whereas, under its agreement with the Exchange, the Attorney-in-Fact would be entitled to receive certain moneys in addition to those earned or received by it on or prior to the close of business on December 31, 1948,

“Now, Therefore, It Is Agreed By and Between the Parties Hereto as Follows:"

In ensuing provisions, Company agreed to perform the services required of Attorney, and Attorney transferred and assigned its rights under agreements with Exchange.

CARTER, J.

I dissent.

The reasoning and the conclusion reached by the majority and concurring opinions are shocking to both my sense of justice and my legal concepts. If I am not mistaken this case will be appropriately classified in the annals of jurisprudence with other “crimes in ink.” It is obvious to my mind and I think it should be to any unbiased person that if this court should apply the law of the case to the undisputed factual background as disclosed by the record the inevitable result would be a reversal of the judgment of the trial court with directions to retry the case in accordance with the law of the case as declared in the first decision of this case by the District Court of Appeal rendered on April 30th, 1953 (see Industrial Indem. Co. v. Golden State Co., 117 Cal.App.2d 519 [256 P.2d 677]). Simply stated, the undisputed factual situation appears to be: Plaintiff Industrial Indemnity Company, through its officers, and by means of their financial interests, controlled both Industrial Indemnity Exchange (hereinafter referred to as Exchange) and the Industrial Underwriters (hereinafter referred to as Attorney-in-Fact). Prior to January 1st, 1949, Exchange was the largest writer of workmen’s compensation insurance in California. It was a reciprocal insurance organization of which defendants Golden State Company, Ltd., G. W. Thomas Draying & Rigging Company, Inc., W. R. Ballinger & Son, Minna M. Ballinger, Johnson Corporation, et al. were subscribers. Exchange was then in competition with plaintiff Industrial Indemnity Company in writing policies of workmen’s compensation insurance.

On December 21st, 1948, Industrial Indemnity Company, Industrial Indemnity Exchange, acting through its Attorney-in-Fact and Advisory Committee, and Industrial Underwriters entered into a Transfer and Assumption Agreement which provided in part:

‘‘That in consideration of the mutual covenants herein contained the parties hereto do hereby agree as follows:

“I. REINSURANCE

“A. Effective as of 12:01 A.M., January 1, 1949, Exchange does hereby cede and Company does here