California Comp. & Fire Co. v. Industrial Acc. Com'n

• Decision Date: 03 March 1965
• Citation: 62 Cal.2d 532,42 Cal.Rptr. 845,399 P.2d 381
• Court: California Supreme Court
• Parties: , 399 P.2d 381 CALIFORNIA COMPENSATION AND FIRE COMPANY, Petitioner, v. INDUSTRIAL ACCIDENT COMMISSION, Joy N. Mello et al., Respondents. L. A. 28090.

Page 845

42 Cal.Rptr. 845

62 Cal.2d 532, 399 P.2d 381

CALIFORNIA COMPENSATION AND FIRE COMPANY, Petitioner, v. INDUSTRIAL ACCIDENT COMMISSION, Joy N. Mello et al., Respondents.

L. A. 28090.

Supreme Court of California, In Bank.

March 3, 1965.

Rehearing Denied March 31, 1965.

Clopton & Penny, Mort L. Clopton, Los Angeles, and Patrick Kerrigan, Beverly Hills, for petitioner.

Everett A. Corten, San Francisco, Edward A. Sarkisian, Levy, DeRoy, Geffner, Koszdin & Glow and George DeRoy, Los Angeles, for respondents.

MOSK, Justice.

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 were 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 partnership 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 course of their employment. The insurer seeks an annulment of the decision awarding compensation to the dependant survivors of Jones and Mello, contending that the policy was by its terms limited to the liability of 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 been 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 contrary 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 specifically 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 conducted 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, since 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, 28 Cal.Rptr. 161, 378 P.2d 361; Freedman v. Queen Ins. Co. (1961) 56 Cal.2d 454, 456, 15 Cal.Rptr. 69, 364 P.2d 245; Jarrett v. Allstate Ins. Co. (1962) 209 Cal.App.2d 804, 809-810, 26 Cal.Rptr. 231.) 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 another 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 accepted, 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 insured's activities, namely, those arising out of operations conducted jointly with others.

The foregoing construction of the exclusion is indicated not only by the language of the provision 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, 154 P.2d 399), and under the terms 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 power 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. Section 304 of the Insurance Code provides that if one member of a partnership transfers his interest to another partner, insurance is not avoided even though the parties have contractually agreed otherwise. A clause in an insurance...