CALIFORNIA COMPENSATION AND FIRE COMPANY, Petitioner, v. INDUSTRIAL ACCIDENT COMMISSION, JOY N. MELLO et al., Respondents.
L. A. No. 28090
In Bank
Mar. 3, 1965.
532
Everett A. Corten, Edward A. Sarkisian, Levy, DeRoy, Geffner, Koszdin & Glow and George DeRoy for Respondents.
MOSK, J.—California Compensation and Fire Company (hereinafter referred to as the insurer) issued a workmen‘s compensation and employers’ liability policy to “Richard Jones, Edward Mello and Wesley Johnson, jointly and not severally d.b.a. South Bay Insulation Company.” Under a special endorsement the benefits of the policy wеre made applicable to Jones, Mello, and Johnson.
After the policy was issued, Joseph Ambriz, without the knowledge of the insurer, became a member of the partnership. A dispute regarding partnеrship affairs arose subsequently and Johnson shot and killed Jones and Mello in the partnership office. The Industrial Accident Commission found that Jones and Mello were working members of a partnership composed of Jones, Mello, Johnson, and Ambriz, doing business as South Bay Insulation Company, that Jones and Mello were receiving wages irrespective of a share of the profits, and that they were killed in the cоurse of their employment. The insurer seeks an annulment of the decision awarding compensation to the dependent survivors of Jones and Mello, contending that the policy was by its terms limited to the liability оf a partnership consisting of Jones, Mello, and Johnson “jointly and not severally” and that the commission improperly extended coverage to the liability of a different partnership, to which Ambriz had beеn added as a member.
Under the heading “Agreements Limiting and Restricting This Insurance,” paragraph 4 of the policy provides:
“The insurance under this Policy is limited as follows: Liability Not Insured: It is AGREED that, anything in this Policy to the contrаry notwithstanding, this Policy DOES NOT INSURE: Any liability which the named Employer may have arising out of operations conducted jointly by said named Employer with
any other person, firm or corporation, except as speсifically set forth in Item (1) of the Declarations [the item designating the insured]. . . .”1
It is argued that this provision bars recovery in the present case because liability arose out of operations assertedly сonducted by the partnership jointly with Ambriz.
Under familiar rules of construction, any uncertainties in an insurance policy will be resolved in favor of imposing liability. This is particularly so in the case of exclusions, sincе the burden rests on the insurer to phrase exceptions and exclusions in clear and unmistakable language. (See, e.g., Southwestern Funding Corp. v. Motors Ins. Corp. (1963) 59 Cal.2d 91, 94; Freedman v. Queen Ins. Co. (1961) 56 Cal.2d 454, 456; Jarrett v. Allstate Ins. Co. (1962) 209 Cal.App.2d 804, 809-810.) Applying these rules of construction to paragraph 4, the language barring recovery for “liability which the named employer may have arising out of operations conducted jointly . . . with any other person” is at best ambiguous insofar as it relates to the situation before us. Although it conceivably could be interpreted to deny coverage in the event another partner is added, it is more appropriately construed to apply only when the partnership undertakes a project jointly with an individual or business entity outside the partnership. The reference to conducting “operations” suggests that the purpose of the exclusion was to eliminate liability for the conduct of projects in cooperation with others. To hold that the partnership is conducting “operations” with another where, after the addition of a partner, one of the original partners injures аnother of the original partners would constitute a tenuous construction of the language used. Moreover, if the insurer‘s interpretation of the meaning of paragraph 4 were acceptеd, the partnership would not have been insured for any activity undertaken after the addition of Ambriz as a partner, whereas the provision in question appears to be directed toward excluding liability for only a portion of the
The foregoing construction of the exclusion is indicated not only by the language of the рrovision itself, but also by the economic relationship of the insurer and this business enterprise. Forfeitures on technical grounds which bear no substantial relationship to an insurer‘s risk are disfavored (Bollinger v. National Fire Ins. Co. (1944) 25 Cal.2d 399, 405), and under the tеrms of the instant policy the addition of a partner involves a technical change in the employer‘s status unrelated to the risk of the insurer. The employer is required to report periodically to the insurer the total remuneration paid to all employees, including insured partners, and the amount of the premium is measured by the remuneration paid. Thus the risk of the insurer under the policy is commensurate with the premiums paid, and even if the addition of a partner results in increased activity by the partnership, the payment of additional salaries to new employees would be reflected in increased premiums. Supervisory employees may be changed by the partners without the knowledge or consent of the insurer, and there is no reason to assume that addition of a partner who has powеr to direct the work would result in more negligence in the conduct of the partnership‘s activities than, for example, the hiring of a new foreman.
It should also be noted that in a closely analogous situation involving a change in the personnel of a partnership, the Legislature has declared an insurer may not be absolved of liability.
The policy limitation involved here has been approved by the Insurance Commissioner, as required by law (
The insurer relies on a number of cases in support of its position. However, none of the cases involved eithеr a policy limitation similar to the one discussed herein or the question of an insurer‘s liability after the admission of an additional member to an existing partnership.
In National Auto. Ins. Co. v. Industrial Acc. Com. (Packer) (1938) 11 Cal.2d 689,3 the policy, issued to an individual, contained a provision that it did not cover the liability of the insured as a member of a partnership, and it was held there was no coverage for an injury sustained by an employee after the insured had formed a pаrtnership. The court there held the terms of that policy were clear, that coverage was limited to individual as distinguished from partnership capacity, and that under such circumstances it was irrelevаnt that the liability of the insurer was not increased by the change in the status of the employer from an individual to a partner. However, where as here there is an ambiguity in the language of the exclusionary provision, it is clearly relevant that the interpretation suggested by the insurer bears no substantial relation to its liability risk under the policy.
Other cases relied upon by the insurer hold that if an employer is insured as a member of a partnership, an insurer is
In short, we find no persuasive authority justifying a conclusion contrary to that reached by the Industrial Accident Commission.
The award is affirmed.
Traynor, C. J., Peters, J., Tobriner, J., Peek, J., and Burke, J., concurred.
McCOMB, J.—I dissent. I would annul the award of the Industrial Accident Commission for the reasons expressed by Mr. Justice Files in the opinion prepared by him for the District Court of Appeal in California Compensation & Fire Co. v. Industrial Acc. Com. (Cal.App.) 39 Cal.Rptr. 661.
Petitioner‘s application for a rehearing was denied March 31, 1965. McComb, J., was of the opinion that the petition should be granted.