Close-Smith v. Conley

Citation230 F. Supp. 411
Decision Date20 May 1964
Docket NumberCiv. No. 61-381.
PartiesC. N. CLOSE-SMITH, an Underwriter at Lloyd's, London, in behalf of himself and those other Underwriters at Lloyd's subscribing Certificate L 60585, and A. G. Wrightson, an Underwriter at Lloyd's, London, in behalf of himself and those other Underwriters at Lloyd's subscribing Certificate L 60586, and J. E. Green, an Underwriter at Lloyd's, London, in behalf of himself and those other Underwriters at Lloyd's subscribing Certificate LM 22192, Orion Assurance Company, Ltd., London and Overseas Assurance Company, Ltd., Excess Insurance Company, Ltd., and World Auxiliary Assurance Company, Ltd., each subscribing Certificate LM 22192, Plaintiffs, v. J. N. CONLEY, Defendant.
CourtU.S. District Court — District of Oregon

COPYRIGHT MATERIAL OMITTED

Robert T. Mautz, Mautz, Souther, Spaulding, Kinsey & Williamson, Portland, Or., for plaintiffs.

Leo Levenson, Portland, Or., for defendant.

KILKENNY, District Judge.

Plaintiffs, in this cause, and in a similar action against J. W. Briggs, seek a determination of their liability, if any, under certain insurance policies. Jurisdiction is grounded on diversity of citizenship and the Federal Declaratory Judgment Act, 28 U.S.C. § 2201.

On January 1, 1959, plaintiff I issued to defendant, a certificate of third-party property damage insurance, effective for the policy period to January 1, 1962. In said certificate, within a limit of liability of $50,000.00, the plaintiff I, among other things, made certain agreements.1

An attached endorsement carried other important provisions.2 Contemporaneously with the issuance of the above certificate, plaintiff II issued to defendant another certificate which provided excess third-party property damage insurance, over and above the insurance covered by plaintiff I, with a limit of liability to $50,000.00 for the same policy period. Said certificate used the same language as used in number I, with the exception that it contained no obligation to investigate or defend.

At the same time, plaintiff III, issued to defendant what is termed an "umbrella policy" with a limit of liability of $1,000,000.00, to insure third-party damage liability of defendant. This last mentioned certificate did not require the assured to investigate or defend, and had a special limit of liability clause.3

The liability assumed by plaintiff III is couched in different language than that used in the first two certificates.4

Prior to June 28, 1960, defendant and J. W. Briggs were licensed, as a joint venture, by the Contractors License Board of the State of California, for the purpose of submitting a bid to the Department of Public Works of that state to do certain work on its Highway 40. Said joint venture was the successful bidder on said project, and, on June 28th, of that year, entered into a contract with said department for the prosecution of such work.

On or about June 29, 1960, in compliance with an oral agreement previously existing, defendant, J. W. Briggs and G. D. Dennis & Sons, Inc., a corporation, created another joint venture, in writing, for the purpose of completing the aforesaid contract, which contract, with the consent of the State of California, was assigned to the said joint venture which included G. D. Dennis & Sons, Inc. The said association thereafter being known as Briggs-Conley-Dennis, a licensee of the Contractors License Board of California, the same being the joint venture subsequently herein mentioned.

Said venture thereafter procured third-party property damage insurance in the aggregate amount of $1,000,000.00, in the Industrial Indemnity Co., to insure and protect the joint venture and its members for legal liability arising from third-party property damage growing out of the operations of the joint venture in the performance of the contract aforesaid.

The premium on each of the certificates issued by plaintiffs I and II was partially paid in advance, with an additional premium to be based upon audits of the payrolls of defendant, as submitted by him to the insurance brokers, through whom said certificates were purchased.

During the course of the operations of the joint venture, a forest fire occurred in the work area. On the theory that the fire started through the negligent operations of the venture, and, the individual members thereof, a number of law suits were instituted in the Superior Court of the State of California, the demands in said actions aggregating approximately $6,000,000.00. The defendants in said actions have denied responsibility for said fire and the resulting damage.

PLAINTIFFS' CONTENTIONS

Plaintiffs contend that the parties never intended the certificates to cover a liability created by the operation of a joint venture, unless such venture was specifically included, by endorsement, on the certificates.

As evidence of the intentions of the respective parties, to exclude all risks which were not specifically endorsed on the policies, the plaintiffs point to the following endorsements attached to the respective policies.

(1) "It is understood and agreed that WEST RENTALS, INC. is added as an additional assured under this policy certificate." (L 60585 Endorsement 6, 12-18-58; L 60586 Endorsement 6, 12-18-58; LM 22192 Endorsement 3, 9-3-59)
(2) "It is understood and agreed that the PACIFIC POWER & LIGHT COMPANY are named as additional assureds hereunder but only as respects claims arising out of or in connection with work being performed by J. N. CONLEY for the PACIFIC POWER & LIGHT COMPANY in the diversion of Spieleye Creek at Yale Junction near Cougar, Washington." (L 60585 Endorsement 9, 12-31-58; L 60586 Endorsement 7, 12-31-58; LM 22192 Endorsement 1, 12-31-58)
(3) "It is understood and agreed that as respects claims arising out of or in connection with work being performed by J. N. Conley; The State of Oregon, The State Highway Commission and members thereof, its officers, agents, and employees are hereby included as named insureds in the herein numbered policy, except as to claims against the primary named insured for injury to their persons or damages to any of its or their property." (L 60585 Endorsement 10, 4-30-59)
(4) "It is understood and agreed that the following are added as additional assureds under this policy/certificate: (1) J. N. Conley and G. D. Dennis & Sons, dba J. N. Conley-G. D. Dennis & Sons, (2) J. N. Conley and G. D. Dennis & Sons dba Dennis & Conley." (L 60585 Endorsement 11, 5-14-59; L 60586 Endorsement 8, 5-14-59)
(5) "It is understood and agreed that EDWIN L. STEARNS is named as an additional assured under this policy/certificate but only as respects claims arising out of or in connection with or growing out of quarrying operation in property of EDWIN L. STEARNS." (L 60585 Endorsement 12, 5-14-59; L 60586 Endorsement 9, 5-14-59)
(6) "It is understood and agreed that C.&D RENTALS CORPORATION is named as an additional assured hereunder." (L 60585 Endorsement 13, 5-4-60; L 60586 Endorsement 10, 5-4-60; LM 22192 Endorsement 4, 1-27-60)
(7) "It is hereby understood and agreed that with respect to automobile property damage liability this policy/certificate is extended to cover the joint venture composed of J. W. BRIGGS CONSTRUCTION CO., J. N. CONLEY AND G. D. DENNIS & SONS, INC., DBA BRIGGS-CONLEY-DENNIS for any claims arising out of the use of automobiles owned by J. N. CONLEY." (L 60585 Endorsement 14, 9-5-60; L 60586 Endorsement 11, 9-7-60)
(8) "It is understood and agreed that J. N. CONLEY, ZELMA CONLEY, MICHAEL J. CONLEY and LINDA CONLEY, individually are named as additional assureds under this policy/certificate." (L 60586 Endorsement 13, 1-31-61)

Likewise, attention is called to the method, and manner, in which the premiums were to be paid on the respective policies:

(I) L 60585 (Endorsement 8): "It is understood and agreed that the premium hereon is a deposit only, subject to adjustment MONTHLY at a rate of (88 cents) per $100.00 of ALL PAYROLL, subject, however, to an annual minimum premium of $250.00".
(II) L 60586 (Endorsement 5): "It is understood and agreed that the premium hereon is a deposit only, subject to adjustment MONTHLY at 10 per cent of the premium as developed under primary policy L 60585 carried in Lloyd's, London, subject, however, to an annual minimum premium of $50.00".
(III) LM 22192 (Endorsement 2): "It is understood and agreed that the premium charged hereon is a FLAT PREMIUM not subject to adjustment".

Of great importance, argue the plaintiffs, are the actions of defendant and Briggs in connection with the California joint venture contract as follows:

(1) Their license as a joint venture by the State of California.
(2) The creation of another joint venture wherein a corporation, G. D. Dennis & Sons, Inc. appeared for the first time.
(3) The sole purpose of the joint venture agreement being to perform the California contract.
(4) The provisions of Paragraph 11 of the joint venture agreement which provided that the particular venture should have no relationship to other works or contracts performed or to be performed by the members and that each of the members should continue to operate as an individual business during the existence of the joint venture.
(5) The provision that separate books should be established for the venture, including separate and distinct bank accounts with a separate and distinct payroll account.
(6) The purchase by the joint venture of a third-party property damage liability insurance policy with a penal limit of $500,000.00 from the Industrial Indemnity Company, with excess from certain underwriters at Lloyd's, London, in the sum of $500,000.00.
(7) The certificates under scrutiny were secured by defendant through his agent, Dooly & Co., through Rathbone, King & Seeley. Dooly & Co. made an unsuccessful bid for the insurance on the California joint venture and subsequently asked to write the excess policy.
(8) During the effective period of the certificates (January 1,
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