Lazarus v. Manufacturers Casualty Insurance Co.

• Decision Date: 09 April 1959
• Docket Number: No. 14513.,14513.
• Citation: 105 US App. DC 357,267 F.2d 634
• Parties: David LAZARUS, Appellant, v. MANUFACTURERS CASUALTY INSURANCE COMPANY, a Body Corporate, Appellee.
• Court: U.S. Court of Appeals — District of Columbia Circuit

105 US App. DC 357, 267 F.2d 634 (1959)

David LAZARUS, Appellant, v. MANUFACTURERS CASUALTY INSURANCE COMPANY, a Body Corporate, Appellee.

No. 14513.

United States Court of Appeals District of Columbia Circuit.

Argued November 18, 1958.

Decided April 9, 1959.

Petition for Rehearing Denied May 13, 1959.

COPYRIGHT MATERIAL OMITTED

Mr. David F. Smith, Washington, D. C., for appellant. Mr. Dorsey K. Offutt, Washington, D. C., also entered an appearance for appellant.

Mr. Denver H. Graham, Washington, D. C., with whom Mr. Albert E. Brault, Washington, D. C., was on the brief, for appellee.

Before EDGERTON, WASHINGTON and DANAHER, Circuit Judges.

WASHINGTON, Circuit Judge.

This case concerns the scope of coverage of a garage liability insurance policy issued to a person who was in fact a partner of another — a fact unknown to the insurance company at the time of issuance.

On August 23, 1948, David Lazarus and Arthur Rubinstein formed a partnership to operate the Transport Amoco Service, a gasoline service station leased to them by the American Oil Company. On September 1, 1948, Rubinstein took out a garage liability policy for one year in the name of "Arthur Rubinstein, T/A Transport Amoco Service," as the "named insured." The policy contained the following clause: "Insured: The unqualified word `Insured' wherever used includes not only the named Insured but also any partner thereof, if the named Insured is a partnership * * *." Rubinstein used partnership funds to pay such part of the premium as was then paid.

On May 3, 1949, Garland Hudson was run down and seriously injured by an automobile operated by an employee of the service station. Subsequently Hudson brought suit against Lazarus, and his estate was awarded judgment and damages.¹ At the trial, the insurance company (the present appellee) refused to defend Lazarus, on the ground that he was not covered by the policy. This present suit is an action by Lazarus under the garage liability policy to compel the insurance company to pay the judgments, plus Lazarus' attorney fees in the previous suit.²

The District Court ruled as a matter of law that because of the special partnership clause Lazarus was covered by the policy on the date of issue. The only dispute was whether Lazarus continued to be covered by the policy on May 3, 1949. There was conflicting evidence as to whether the partnership was still in effect on that date. There was some documentary evidence indicating that the Lazarus-Rubinstein partnership had been dissolved at the end of April 1949, and that on May 1, Lazarus had formed a new partnership with one Sorrentino to operate the Transport Amoco Service. Lazarus insisted on the witness stand that the original partnership was still in existence on May 3, and introduced into evidence a dissolution agreement dated May 17, 1949, signed by him and Rubinstein's agent.

The District Court instructed the jury that the sole issue was whether the partnership was in existence on May 3, 1949. The jury returned a verdict in favor of Lazarus, but the court entered judgment n. o. v. for the defendant insurance company, on the ground that there was no substantial evidence to show that the partnership was in existence on May 3, 1949. This appeal followed.

The risk incurred by the insurance company was of the sort contemplated in the policy: the injury to Hudson was caused by the negligence of an employee of the service station in the course of his duties.³ Moreover, the nature of the business was clear, and the tradename of the business was plainly and correctly stated in the policy "declaration": "Name of Insured is Arthur Rubinstein T/A Transport Amoco Service." The primary intent, we think, was to insure a particular business, and not a particular person. The specific naming of Arthur Rubinstein in the policy declaration does not require the opposite inference, because within broad limits, a partnership may choose any name it wishes, even that of an individual partner.⁴

Furthermore, it is established law that coverage of a liability policy will extend not only to the named insured, but to all persons or classes of persons specifically listed in the policy's omnibus clause.⁵ Thus in Lloyds Casualty Insurer v. McCrary, 1950, 149 Tex. 172, 229 S.W.2d 605, 607, a casualty policy issued to "Ed Grimes dba Crockett Butane Gas Service," which contained the clause "the unqualified word `insured' whereever used includes not only the named insured but also any partner," was held to cover both the named insured and the individual partners. The policy in the present case contains virtually the same clause, extending the coverage of the policy not only to the named insured but also to the insured as defined, including any partner if the named insured is in fact a partnership. Such ambiguity as there may be in the clause must be resolved against the insurer.⁶ But the language of the clause seems to us nearly unequivocal. Knowledge of the partnership or of the identity of the partners on the part of the insurer is not made a prerequisite to coverage. Nor should it be when the risk contemplated by the insurance company has little or nothing to do with the personal qualities of the insured, as might be the case — for example — with medical malpractice insurance. Here, the ultimate benefit of the insurance accrues to an injured member of the public, rather than to the insured as such,⁷ and the courts should bear that fact in mind.⁸ If the insurance company had desired to restrict the insurance policy to only those partnerships of which it had knowledge, it could have easily so provided. Under the circumstances, therefore, we think the District Court was correct in holding as a matter of law that Lazarus was covered by the policy on the date of issue, whether or not the insurance company then knew that the business was a partnership, or that Lazarus was a partner.

The other question — whether the partnership of Lazarus and Rubinstein was dissolved prior to May 3, 1949 — is not decisive. Such a dissolution would not necessarily terminate Lazarus' coverage, the policy's term not having expired. "The mere dropping out of an insured partner does not vitiate the policy." Fredenburgh v. Benjamin, 1956, 2 A.D.2d 912, 156 N.Y.S.2d 428, 430.⁹ As long as the remaining partner — alone or with others — continues the business under the same name, at the same place, without substantial change, the policy must be held to remain in full force.¹⁰ Here, the business still continued under the name "Transport Amoco Service." If it be assumed that the original partnership had been dissolved, Lazarus, the original partner, was still running the station, either as a sole proprietor or as a partner of Sorrentino. Since Lazarus was insured under the terms of the original policy, he remained insured during the time he continued in the business.¹¹ Furthermore, we cannot ignore the fact that the policy premium was paid for out of partnership funds and that presumably the policy remained an asset of the firm.

We conclude, therefore, that the judgment n. o. v. for the defendant-appellee must be reversed. The question then presents itself whether the jury's verdict for plaintiff-appellant should be reinstated. In considering this, we have reviewed the claims of error which defendant-appellee urged upon the District Court in its alternative motion for a new trial (presented with its motion for judgment n. o. v.), and urged again in its brief in this court. These claims of error, however, are largely directed to matters which are irrelevant, under our view of the applicable law. For example, appellee urges that because the jury in the suit by Hudson against Lazarus and Rubinstein found the latter not liable, or the ground that on May 3, 1949, he was not a member of the partnership, this makes the issue res judicata. But, as we have pointed out, we consider that the issue of Rubinstein's membership on that date is not controlling here.

There is one claim of error by appellee which stands on a different basis, however. That relates to the item of $1,250 which the jury allowed as attorney fees.

While we think plaintiff-appellant is entitled to attorney fees incurred in the prior litigation, the present verdict with regard thereto cannot stand. Plaintiff asked in his complaint for $2,500 on this score, and the jury was so informed in the court's charge. It appears that after the jury had rendered its verdict on the merits of the case, it was discharged. The members separated. Notice was then taken of the fact that no verdict had been rendered on the question of attorney fees. The court ordered that the jury be recalled for the purpose of passing on the omitted question. When the jury assembled the next day, the foreman was interrogated, and stated that the jury had considered the matter of attorney fees, but had reached no conclusion about it. Over the objection of counsel for the insurance company, the court directed the jury to retire to consider the matter. It was not re-sworn. Later, the foreman returned and stated that some of the jury said that they had not heard the claim for fees mentioned in the judge's charge. The judge then recharged them. Under these circumstances, we think the jury's ultimate verdict on the subject of attorney fees should not stand, in the face of the challenge (renewed in this court) of the defendant-appellee. If the parties cannot agree on a suitable amount, the District Court on remand should take appropriate steps to settle the matter, empanelling another jury if necessary. With the exception of this item, the jury's original verdict should be reinstated.

The court should also take appropriate steps to assure that the judgment inures to the benefit of the estate of Garland Hudson, or the beneficiaries thereof, as its or their interests may appear.¹² Under the view we take of the case, it is unnecessary to review the remaining contentions of the parties.

So...