National Mut. Ins. Co. v. McMahon & Sons, Inc.

Decision Date15 April 1987
Docket Number17246,Nos. 17245,s. 17245
Citation177 W.Va. 734,356 S.E.2d 488
CourtWest Virginia Supreme Court
PartiesNATIONAL MUTUAL INSURANCE COMPANY v. McMAHON & SONS, INC., a corp., Farmers & Mechanics Mutual Fire Ins. Co., etc. (Two Cases).
Syllabus by the Court

1. Rule 19(a) establishes guidelines for the joinder of parties but, by reducing the probability that a party will be found to be indispensable, provides a trial court with more flexibility in the matter of joinder, and allows the trial court to exercise discretion in determining which parties will be joined.

2. An insurer's knowledgeable, unconditional conduct of the defense of an action brought against its insured may constitute a waiver of the terms of the policy and an estoppel of the insurer to assert any such grounds.

3. Detrimental reliance is essential to the assertion of waiver or estoppel.

4. It is well settled law in West Virginia that ambiguous terms in insurance contracts are to be strictly construed against the insurance company and in favor of the insured.

5. Where the policy language involved is exclusionary, it will be strictly construed against the insurer in order that the purpose of providing indemnity not be defeated.

6. In determining whether a care, custody, and control exclusion applies, this Court begins its analysis by examining (1) whether the property is personalty or realty, (2) the location, size, and other characteristics of the property, and (3) the insured's relationship to the property, including the insured's duties with respect to the property, the nature and extent of the insured's control over the property, and any interest the insured may have in the property.

7. An insurance company seeking to avoid liability through the operation of an exclusion has the burden of proving the facts necessary to the operation of that exclusion.

8. With respect to insurance contracts, the doctrine of reasonable expectations is that the objectively reasonable expectations of applicants and intended beneficiaries regarding the terms of insurance contracts will be honored even though painstaking study of the policy provisions would have negated those expectations.

9. Where ambiguous policy provisions would largely nullify the purpose of indemnifying the insured, the application of those provisions will be severely restricted.

10. An insurer wishing to avoid liability on a policy purporting to give general or comprehensive coverage must make exclusionary clauses conspicuous, plain, and clear, placing them in such a fashion as to make obvious their relationship to other policy terms, and must bring such provisions to the attention of the insured.

Charles F. Printz, Jr., Martinsburg, for appellant.

Peter L. Chakmakian, Charles Town, for McMahon.

William Richard McCune, Jr., Martinsburg, for Farmers & Mechanics.

McGRAW, Chief Justice:

This is an appeal from a declaratory judgment order entered by the Circuit Court of Jefferson County. The circuit court ruled that the plaintiff-appellee, National Mutual Insurance Company, had no obligation to defend or pay any liability of the defendant-appellant, McMahon and Sons, Inc. Following the entry of this order, Farmers and Mechanics Mutual Fire Insurance Company was allowed to intervene and joins as an appellant in this action.

This appeal presents peculiarly convoluted relationships combined with sparse factual development below. The circuit court made its ruling based on eleven stipulations of fact, the wording of the insurance policy exclusion involved, and taking judicial notice of two related civil actions. 1 For the reasons detailed below, we find that the record in this case contains insufficient information to support the circuit court's rulings. We, therefore, reverse and remand this case for further development.

The stipulated facts reveal that appellee National Mutual issued a general business liability policy to appellant McMahon and Sons on May 7, 1981 to insure its general contracting and real estate development activities. One month later, appellant McMahon and Sons entered into a contract to build a house for Harry J. McMahon, Jr. and Linda Fike. Harry J. McMahon, Jr. signed the contract both as the president of appellant McMahon and Sons and as the home owner. The contract provided that the owner would "carry fire and other associated lines of insurance." Appellant Farmers and Mechanics wrote a fire policy for McMahon and Fike as the home owners.

Sometime after the appellant McMahon and Sons began work on the house, a fire broke out while the contractor's workers were present. The partially built house was destroyed. Appellant McMahon and Sons does not deny negligence in connection with the fire's origin.

In Civil Action No. 82-C-149, McMahon and Fike secured a judgment against appellant Farmers and Mechanics. They have since accepted payment in full satisfaction and compromise of that judgment. Farmers and Mechanics, as subrogee, has since filed a negligence suit, Civil Action No. 83-C-48, in the name of McMahon and Fike against appellant McMahon and Sons. An answer has been filed to the complaint in that action, but the record is not clear as to any further proceedings therein. The instant case is the third lawsuit rising from the ashes of the fire. Appellee National Mutual contends that an exclusionary clause in the general liability policy relieves it of any liability to appellant McMahon and Sons regarding Civil Action No. 83-C-48. Appellant McMahon and Sons argues that there was coverage under the policy and that, in any case, appellee National Mutual should be estopped from denying coverage because it undertook to defend Civil Action No. 83-C-48.

After reviewing the stipulations of fact, the general business liability policy, and the briefs of the parties, the circuit court issued its order, holding that appellant McMahon and Sons had not properly raised the defense of estoppel and that, because of the operation of the policy exclusion, the appellee had no obligation to defend or pay any liability of appellant McMahon and Sons in the pending Civil Action No. 83-C-48. Some six months later the circuit court granted, apparently without objection, appellant Farmers and Mechanics motion to intervene as a defendant, ruling that the company was "a necessary party and should have been named as a party to this action initially."

I.

As an initial matter, appellant Farmers and Mechanics contends that the circuit court erred in entering its declaratory judgment order without first requiring that McMahon, Fike, and Farmers and Mechanics be made parties to the action. Appellant Farmers and Mechanics asserts, in essence, that, as a practical matter, it is less likely to be able to enforce any judgment obtained in Civil Action No. 83-C-48 if the appellee is relieved of all liability under the policy issued to appellant McMahon and Sons. 2 Thus, appellant Farmers and Mechanics contends that its interests have been harmed by the entry of judgment in the declaratory action below.

In declaratory judgment actions, "all persons shall be made parties who have or claim any interest which would be affected by the declaration." W.Va.Code § 55-13-11 (1981 Replacement Vol.). In addition, the Rules of Civil Procedure provide for the joinder, if feasible, of a person claiming an interest in the action whose rights might be impaired or impeded if he is not included in the action. W.Va.R.Civ.P. 19(a). 3

Prior to 1978, Rule 19 classified "persons having a joint interest" as either "necessary" or "indispensable." See Capitol Fuels, Inc. v. Clark Equipment Co., 176 W.Va. 277, 342 S.E.2d 245 (1986). The current rule, however, simply describes persons who are "to be joined if feasible." W.Va.R.Civ.P. 19(a); see Dudley v. Smith, 504 F.2d 979, 983 n. 5 (5th Cir.1974). Rule 19(a) establishes guidelines for the joinder of parties but, by reducing the probability that a party will be found to be indispensable, provides a trial court with more flexibility in the matter of joinder, see Commentary, Amendments to West Virginia Rules of Civil Procedure (April, 1978); Olson, Modern Civil Practice in West Virginia § 5.09 (1984), and the trial court exercises discretion in determining which parties will be joined, see Syl. Pt. 1, Dixon v. American Industries Leasing Co., 157 W.Va. 735, 205 S.E.2d 4 (1974).

Given our disposition of this appeal, we need not determine whether appellant Farmers and Mechanics is a "necessary" or "indispensable" party. The question now becomes whether the circuit court properly allowed intervention. Because it increases the likelihood of a full and adequate resolution of the issues, a trial court's decision to join an available party in a declaratory judgment action will not be reversed lightly. We detect no error in the circuit court's decision to allow appellant Farmers and Mechanics to intervene and expect that it will fully participate in the case on remand.

II.

The appellants once again contend that the appellee should be estopped from denying coverage under the liability policy because the appellee undertook the defense of Civil Action No. 83-C-48. The trial court ruled that appellant McMahon and Sons had failed to properly raise the defense of estoppel and observed that, even if the issue had been properly raised, the stipulated facts were insufficient to support a conclusion that estoppel attached.

We adopt the general rule that an insurer's knowledgeable, unconditional conduct of the defense of an action brought against its insured may constitute a waiver of the terms of the policy and an estoppel of the insurer to assert any such grounds. See 44 Am.Jur.2d Insurance § 1423 (1982); Insurance Company of North America v. National Steel Service Center, 391 F.Supp. 512 (N.D.W.Va.1975), aff'd, 529 F.2d 515 (4th Cir.1976). While there are several exceptions to the general rule, see 44 Am.Jr.2d Insurance § 1424 (1982), the one relevant to this...

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