Producers Dairy Delivery Co., Inc. v. Sentry Ins. Co.
| Decision Date | 19 September 1984 |
| Citation | 206 Cal.Rptr. 485,160 Cal.App.3d 141 |
| Court | California Court of Appeals Court of Appeals |
| Parties | PRODUCERS DAIRY DELIVERY CO., INC., et al., Plaintiffs and Appellants, v. SENTRY INSURANCE COMPANY, Defendant and Respondent. Civ. 7355. |
Producers Dairy Delivery Co., Inc. (Producers) and Federal Insurance Company (Federal), plaintiffs, appeal from a summary judgment in favor of Sentry Insurance Company (Sentry or defendant) in a declaratory relief action involving the question of coverage afforded Producers, a named insured, under a "Standard Workmen's Compensation and Employer's Liability Policy" issued by Sentry. L.A.S. Corporation (L.A.S.), a separate corporate entity closely associated with Producers with an interlocking management, is also a named insured under the Sentry policy.
This litigation followed the trial, appeal and settlement of a third party lawsuit for personal injuries and loss of consortium brought by Henry and Rose Noyes against Producers. Henry Noyes was injured while unloading a Producers delivery truck and a major issue in the lengthy jury trial was whether Noyes, who was hired by L.A.S., was a special employee of Producers so as to limit his right of recovery against Producers to benefits under the Worker's Compensation Law. Federal, Producers' general public liability insurer, conducted the defense of the personal injury action, and during trial, made demand upon Sentry for defense of the public liability issue. 1
The jury in the personal injury action returned a special verdict finding Producers was not the special employer of Noyes at the time of the accident. This court affirmed the judgment against Producers in the amounts of $400,000 for Henry Noyes and $22,000 for Rose Noyes. (5 Civ. 3506.) Prior to expiration of the time for petitioning the Supreme Court for hearing, Producers settled with Mr. and Mrs. Noyes for $548,000, an amount less than the judgment plus costs and accrued interest.
Producers and Federal filed suit against Sentry, seeking a declaration "that the policy of insurance issued by [Sentry] be held to cover [Producers] for the accident occurring to Henry Noyes and for all damages recovered by Henry Noyes and Rose Noyes from [Producers] as a result of said accident." The amended complaint further sought punitive damages for Sentry's alleged bad faith in refusing to participate in the defense and settlement of the Noyes action.
Sentry moved for summary judgment on grounds that (1) its policy issued to Producers afforded only worker's compensation coverage in this situation; (2) the finding that Producers was not a special employer in the prior action barred, under collateral estoppel principles, relitigation of whether Noyes was an employee of Producers; and (3) no basis for the claim of punitive damages existed where Sentry acted reasonably, Producers was not injured by Sentry's failure to undertake the defense, and, under the policy provisions, the notice to defend was not timely.
Plaintiffs opposed the motion for summary judgment, arguing that (1) the employer's liability portion of the policy provided coverage for damages for bodily injury to any employee of any insured, i.e., L.A.S. or Producers, by the language of the policy and by virtue of the insured's reasonable expectation of coverage; (2) the doctrine of collateral estoppel was inapplicable to the question of whether Noyes was an employee within the language of the policy; (3) "under the doctrine of equitable subrogation no tender of defense was required"; (4) the moving papers failed to establish breach of the notice provisions of the policy; (5) the policy did not preclude recovery under both worker's compensation and employer's liability coverages; and (6) Sentry failed to establish lack of liability for punitive damages for bad faith.
The trial judge heard the motion, took the matter under submission and recalled the parties for an oral ruling granting Sentry's motion for summary judgment. The judge ruled that whether Noyes was or was not an employee of Producers, no employer's liability coverage was provided and Sentry had no duty to defend.
Judgment was entered in favor of Sentry and plaintiffs filed this appeal.
The trial court granted the parties' request that the court take judicial notice of the entire file and proceedings in the Noyes case. We grant plaintiffs' request to take judicial notice of the file and transcripts in the prior litigation. (Evid.Code, §§ 452, subd. (d), 453.)
The Noyes unpublished opinion indicates the evidence concerning whether Noyes was a special employee of Producers at the time of the accident was highly conflicting and presented a close factual question. Larry Shehadey was president of Producers, a closely-held family corporation; his son Richard Shehadey was vice president, and Richard Olson, corporate attorney, was secretary. All three were directors of the corporation. The corporation was formed primarily "to buy, sell and otherwise deal in wholesale and retail dairy products."
L.A.S. was a separate corporation, although it was not considered "that way" by the Shehadeys. The corporation was owned solely by Larry and Elaine Shehadey, who, with Richard Olson, were also the officers and directors of the corporation. According to Larry "there really wasn't any difference" in the two companies as "they intermingled their operations." Both Producers and L.A.S. operated out of the same location at 144 East Belmont Avenue in Fresno. The initials "L.A.S." stood for "Larry A. Shehadey." L.A.S. Corporation was formed to operate a milk distributing business consisting of the hauling of milk from dairy farms by means of tank tractors.
L.A.S. did not have management or supervisory personnel; management employees of Producers supervised L.A.S. transport employees. All salaried employees of L.A.S. were truck drivers with the exception of Elaine Shehadey, who received a salary for doing landscape work, and Larry Shehadey, who received a salary of $100 per month for a time. Mr. Shehadey received a salary from Producers. Producers' employees who had the power to hire and fire L.A.S. employees were Larry Shehadey, Producers' operations manager, Richard Shehadey, and Producers' plant supervisor, Carl Kehret. There were no clerical personnel employed by L.A.S., and Producers' employees performed all L.A.S. clerical services. However, separate accounts were kept for the respective payrolls of Producers and L.A.S.
L.A.S. had a common carrier's permit from the Public Utilities Commission which Producers did not have. Such permit allowed L.A.S. to haul another company's merchandise for a fee. Producers paid a transportation fee to L.A.S.; however, this fee was paid only on certain paper products and yogurt transported by L.A.S. from the Los Angeles area. L.A.S. did not charge Producers for hauling other milk products. Producers was L.A.S.'s primary customer, although L.A.S. hauled products for other companies.
Producers supplied L.A.S. transport drivers with uniforms which bore a Producers logo. Producers also supplied some of the trucks and related equipment used by L.A.S. for deliveries. Producers' employees handled mechanical problems with the equipment. Although Larry Shehadey testified the Teamster's Union represented employees of both Producers and L.A.S., the union contract named only Producers as employer.
In addition to evidence from the Noyes action, the parties also offered deposition testimony of Richard Shehadey on the question of the insured's expectation of coverage. Shehadey stated he handled the transaction concerning insurance for both companies. In 1972 and 1973 he obtained a Sentry worker's compensation insurance policy from agent Larry Rocker, with whom he discussed the coverage. At the same time, he obtained a policy of liability insurance from Federal through Chubb Pacific. Shehadey said he understood Shehadey thought since both Producers and L.A.S. were covered under the Sentry policy, "any employees working for either would be covered." He explained that he understood it made no difference which corporation was the employer; "That was the reason we put the two onto one policy so there would be no question."
Shehadey considered third parties other than employees of either corporation were covered by the public liability policy issued by Federal. He did not expect the coverage of the Federal and Sentry policies to overlap.
Sentry did not present any affidavits or deposition testimony of its personnel concerning the determination of noncoverage or the decision not to participate in the defense of the Noyes suit.
The Sentry policy, which is entitled, "Standard Workmen's Compensation and Employers' Liability Policy," expressly lists both Producers and L.A.S. as insureds and provides two types of coverage,...
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