New Hampshire Ins. Co. v. Sauer

• Decision Date: 31 July 1978
• Citation: 83 Cal.App.3d 454,147 Cal.Rptr. 879
• Court: California Court of Appeals Court of Appeals
• Parties: NEW HAMPSHIRE INSURANCE COMPANY, a corporation, Plaintiff and Appellant, v. Fred SAUER and Fred Sauer Insurance Agency, Inc., Defendants and Appellants. Civ. 50298.

Page 879

147 Cal.Rptr. 879

83 Cal.App.3d 454

NEW HAMPSHIRE INSURANCE COMPANY, a corporation, Plaintiff and Appellant, v. Fred SAUER and Fred Sauer Insurance Agency, Inc., Defendants and Appellants.

Civ. 50298.

Court of Appeal, Second District, Division 5, California.

July 31, 1978.

As Modified Aug. 3, 1978.

Bogert, Ehrmann & Halpern and David C. Bogert, Los Angeles, for plaintiff and appellant.

Jones & Wilson and James T. Hudson, Los Angeles, for defendants and appellants.

ASHBY, Associate Justice.

Both parties appeal from a judgment entered on a jury special verdict. This portion of the judgment involves a dispute between an insurance company (New Hampshire Insurance Company, hereinafter New Hampshire) and its general agent (Fred Sauer and Fred Sauer Insurance Agency, Inc., hereinafter Sauer). In a related portion of the present action, on a cross-complaint brought by the insured, Pacific Semiconductor, Inc. (hereinafter PSI), it was held that New Hampshire, through its agent Sauer, had insured PSI for loss to property and for business interruption due to fire. New Hampshire was held liable on the policy to pay PSI $213,532 for property loss and $173,592 for business interruption arising from a fire which occurred at 260 West Beach Avenue in Inglewood on March 23, 1974. This appeal involves only New Hampshire's claim that Sauer should be required to reimburse New Hampshire for the amounts New Hampshire was required to pay PSI.

After the fire, New Hampshire took the position that PSI was not a named insured on the policy, and refused to pay the claim. However, in the present action the trial court reformed the policy to name PSI as an insured. The original named insureds were Gerald Friedman, Marvin Gussman, Marvin Engineering Company, and Lloyd F Purkey Company. These entities (generally referred to at trial as "Marvin Engineering, et al.," or "the Marvin Engineering risk") were engaged in the business of fabrication of metal and machine parts primarily for the aerospace industry, with several locations including 260 to 280 West Beach Avenue in Inglewood. Gussman and Friedman also owned and operated PSI, which was engaged in the business of distribution of electronic components (semiconductors, diodes, resistors, and transistors). It maintained a warehouse and sales office in a portion of 260 West Beach Avenue. Sauer had assured Gussman and Friedman that PSI was covered by the insurance on Marvin Engineering, et al.

It was the theory of New Hampshire's claim against Sauer that Sauer had breached his duty to New Hampshire by failing promptly to inform New Hampshire either of the existence of PSI as a corporate entity or of the exact nature of PSI's business. New Hampshire claimed that if it had known that PSI was engaged in the distribution of electronic components, New Hampshire would have declined to issue insurance to PSI. New Hampshire claimed that even if Sauer had actual or ostensible authority to bind New Hampshire, Sauer was obligated to indemnify New Hampshire because of the alleged breach of Sauer's duties as agent to New Hampshire. Sauer, on the other hand, claimed that it was unnecessary to name PSI on the policy since it was owned by Gussman and Friedman, and that he had informed New Hampshire of the nature of the business or at least that New Hampshire was aware of facts which should have put it on notice as to the nature of the business.

Under instructions from the trial court to decide the rights of Sauer and New Hampshire as against each other on the basis of comparative negligence, the jury found that there was negligence of both Sauer and New Hampshire which proximately caused New Hampshire to be liable under the business interruption coverage, and the jury attributed 30 percent of the negligence to Sauer and 70 percent to New Hampshire. With respect to the property loss coverage, the jury found no negligence of Sauer which proximately caused New Hampshire to be liable to PSI for such loss.

Accordingly, the court awarded judgment in favor of New Hampshire against Sauer in the amount of $52,077.60 (30 percent of New Hampshire's liability on the business interruption insurance).

On appeal one major legal issue is presented. Both parties claim that the dispute between Sauer and New Hampshire should have been governed by the doctrine of "implied indemnity" as that doctrine if formulated in such cases as Alisal Sanitary Dist. v. Kennedy, 180 Cal.App.2d 69, 75, 4 Cal.Rptr. 379. ¹ Under that doctrine the crucial issue is whether the party seeking indemnity was guilty of "active" negligence, in which case he can recover nothing from the other party, or whether he is guilty only of "passive" negligence, in which case he can be fully indemnified. (See Gardner v. Murphy, 54 Cal.App.3d 164, 169, 126 Cal.Rptr. 302.)

The trial court concluded that the doctrine of implied indemnity as stated in such authorities is not applicable to the facts of this case, and the court instructed the jury to decide the rights of Sauer and New Hampshire as against each other on the basis of comparative negligence.

On appeal both parties argue that the trial court erred in this determination and that the case should be governed by the all-or-nothing approach, each party attempting to shift the entire loss to the other. Sauer argues that the evidence shows as a matter of law that New Hampshire was actively negligent and can recover nothing. New Hampshire argues that the evidence shows as a matter of law that New Hampshire was not actively negligent and that therefore it should recover the full amount against Sauer. We hold the trial court was correct in rejecting this approach.

In deciding not to submit the issue of implied indemnity to the jury, the trial court stated: "I have been doubtful from the beginning of this case, as you know, whether there really is any issue of indemnity in it. (P) And I have done a lot of thinking about that. And I'm still not certain. (P) In fact I doubt whether there is a legitimate issue of indemnity in this case because this isn't the situation where you have two joint tort feasors liable to a third party for the same tort. (P) You have here a situation, really, as between New Hampshire and Sauer. (P) The question is whether Sauer was violated his duty as an agent to New Hampshire as a result of which New Hampshire is damaged and for which damage they would have a cause of action against Sauer on the basis of negligence. . . . (P) But you see, (New Hampshire is) hurdling the basic question of whether your cause of action against Sauer isn't really simply for either a breach of contract or for tortious negligence in failure to perform his duties to you as his principal. . . . (P) And that's what distinguishes this case from the usual case of indemnity, where you have two people who concurred in an injury to the third party, and he gets the judgment against both, then the question is who's going to have to pay it."

The trial court was correct in concluding that this case is unlike the usual implied indemnity action since it is not a case of an injured party (PSI) getting a judgment against each of two tortfeasors (Sauer and New Hampshire). The doctrine presupposes that "each of two persons is made responsible by law to an injured party . . . ." (Cahill Bros., Inc. v. Clementina Co., 208 Cal.App.2d 367, 376, 25 Cal.Rptr. 301, 305.) Here PSI was not injured by Sauer and did not obtain a judgment against Sauer. Indeed, PSI was not injured at all since the policy of insurance was reformed to provide coverage to PSI.

As the trial court correctly concluded, this case simply involves a cause of action...