Ratner v. Canadian Universal Ins. Co.

• Decision Date: 22 April 1971
• Parties: George A. RATNER et al. 1 v. CANADIAN UNIVERSAL INSURANCE COMPANY, Ltd. (and a companion case 2 ).
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 227

269 N.E.2d 227

359 Mass. 375

George A. RATNER et al. ¹ v. CANADIAN UNIVERSAL INSURANCE COMPANY, Ltd. (and a companion case ²).

Supreme Judicial Court of Massachusetts, Middlesex.

Argued March 4, 1971.

Decided April 22, 1971.

Louis K. Nathanson, Boston, for Canadian Universal Ins. Co., ltd.

Joseph T. Fahy, Boston (Francis J. Lawler and Richard L. Morningstar, Boston, with him), for plaintiffs.

Lionel H. Perlo, Boston (Jacob J. Locke, Boston, with him), for Harold H. Sisson & Co., Inc.

Before TAURO, C.J., and SPALDING, CUTTER, REARDON, and BRAUCHER, JJ.

BRAUCHER, Justice.

The plaintiffs (Weg) brought an action on a comprehensive liability insurance policy issued by the defendant ³ (Canadian) for damages, including counsel fees and expenses, resulting from Canadian's failure to defend a tort action against Weg. In the companion case, an action of contract and tort, the defendant (Sisson) is an insurance agency, and the claim is for breach of contract and negligence in failing to forward to Canadian notice of the accident giving rise to the tort claim and in failing to advise Weg to send the notice directly to Canadian. The judge ruled as matter of law that Canadian had been given sufficient notice, and allowed Sisson's motions for directed verdicts. The jury returned a verdict against Canadian for $45,312.19. The cases are before us on Canadian's exceptions in the action against it and on Weg's exceptions in the action against Sisson.

By its exceptions, Canadian brings to us five contentions: (1) that the action was premature, (2) that the tort action was excluded from coverage because the bodily injury was not one 'arising out of the insured's business * * * pursuit,' (3) that the tort action was excluded from coverage because the bodily injury was to an 'employee of the insured,' (4) that the jury was erroneously instructed on burden of proof as to employee status, and (5) that the judge erred in his rulings on notice to the insurer. The plaintiffs' action against Sisson is alternative to their action against Canadian; the plaintiffs assert that if Canadian's exceptions are sustained their exceptions in the action against Sisson should also be sustained.

1. Canadian asserts that the action against it violates the following provision of the insurance policy: '13. Action Against Company: No action shall lie against the company unless, as a condition precedent thereto, the insured shall have fully complied with all the terms of this policy, nor until the amount of the insured's obligation to pay shall have been finally determined either by judgment against the insured after actual trial or by written agreement of the insured, the claimant and the company.'

The tort judgment was for the conscious suffering of one MacKay as a result of a bite by a dog licensed to Weg. The dog bite was received May 11, 1962, MacKay died July 31, 1962, the action was begun by writ dated April 15, 1963, and Canadian disclaimed coverage by letter dated June 25, 1963. The plaintiff in the MaKay action had a verdict in April, 1965, and the present action against Canadian was begun by writ dated June 21, 1965. Exceptions of both parties were overruled by this court in the MacKay action on February 1, 1968. MacKay v. Ratner, 353 Mass. 563, 233 N.E.2d 745. Judgment for the plaintiff for damages in the amount of $26,229.08 and costs in the amount of $433.11 was entered February 19, 1968. The verdict in the present action was rendered May 12, 1969.

The action against Canadian is brought for breach of the insurer's duty to defend, and the insured can only recover if there has been such a breach. 'In nearly all, if not in all, the decisions which have dealt with this question, the holding has been that an insurance company which without right has refused to defend an action against its insured no longer can insist upon the case being carried to judgment against the insured.' Berke Moore Co., Inc. v. Lumbermens Mut. Cas. Co., 345 Mass. 66, 70, 185 N.E.2d 637, 639 (settlement by insured). See Tighe v. Maryland Cas. Co., 218 Mass. 463, 468, 106 N.E. 135 (default judgment against insured); Annotation 49 A.L.R.2d 694, 751--754. We think that the insured after a refusal to defend can declare upon the policy and can assign as breach either the refusal to defend or the later refusal to pay. See St. Louis Dressed Beef & Provision Co. v. Maryland Cas. Co., 201 U.S. 173, 181, 26 S.Ct. 400, 50 L.Ed. 712. Compare Dryden v. Ocean Acc. & Guar. Corp. Ltd., 138 F.2d 291, 295 (7th Cir.) (impleader of insurer); Kinnan v. Charles B. Hurst Co., 317 Ill. 251, 257--258, 148 N.E. 12; Matter of Empire State Sur. Co., 214 N.Y. 553, 563--566, 108 N.E. 825.

2. By 'Endorsement No. 2' to the policy, it was agreed that 'such insurance as is afforded by the policy for bodily injury liability * * * applies only to bodily injury, sickness, disease of (sic) death * * * arising out of the insured's business, professional or occupational pursuit.' Canadian argues that Weg's business was the purchasing of junk cars, that the tort action arose because certain dogs were licensed to Weg, and that it was therefore error to deny Canadian's motion for a directed verdict. But one of the plaintiffs testified that the dogs were obtained as part of 'security measures' with respect to the premises where Weg did business. Weg shared the premises with The O. Hodgkins Corporation (Hodgkins took care of the dogs, but they were licensed to Weg. The bodily injury was to an employee of Hodgkins and took place on the shared premises. We think the evidence was ample that it arose out of Weg's 'business * * * pursuit.'

3. Under the heading 'Exclusions' the policy provides, 'This policy does not apply: * * * (h) under coverage B (Bodily Injury Liability--Except Automobile), * * * to bodily injury to or sickness, disease or death of any employee of the insured arising out of and in the course of his employment by the insured.'

By 'Endorsement No. 3' the 'Named Insured' was amended by inserting the underlined words: 'The O. Hodgkins Corp. and George A. Ratner, Eugene L. Ratner, William A. Ratner, Trustee of Israel & Dora Ratner Trust, d/b/a Weg Auto Company.'

There was testimony that MacKay, the injured person, was an employee of Hodgkins and not of Weg. Canadian claims that its motion for a directed verdict should have been granted because he was an 'employee of the insured.' It argues that Weg and Hodgkins were only one business organization and that the policy treats them as one organization and one unit; alternatively, it argues that MacKay was excluded from coverage as an employee of a joint venture.

These contentions entirely ignore the following provision of the policy: '8. Severability of Interests: The term 'the insured' is used severally and not collectively, but the inclusion herein of more than one insured shall not operate to increase the limits of the company's liability.'

The 'severability of interests' clause seems to have been adopted by the insurance companies in 1955 precisely in order to eliminate the confusion of interpretation which had arisen on the question now before us. See Shelby Mut. Ins. Co. v. Schuitema, 183 So.2d 571, 573, aff'd per cur. 193 So.2d 435 (Fla.); Anno. 50 A.L.R.2d 78, 99. Under that clause the exclusion of coverage for injury to an employee of 'the insured' deprives no one of coverage except with respect to his own employees. Marwell Constr., Inc. v. Underwriters at Lloyd's, London, 465 P.2d 298 (Alaska); Shelby Mut. Ins. Co. v. Schuitema, supra; Walker v. Fireman's Fund Ins. Co., 268 F.Supp. 899 (D.Mont.). Compare Kelly v. State Auto Ins. Ass'n, 288 F.2d 734, 735 (6th Cir.) ('any employee of an Assured'). Otherwise, the 'severability of interests' clause would be rendered useless. See Risjord & Austin, 'Who Is 'The Insured" Revisited, 28 Ins. Counsel J. 100.

4. Canadian excepted to the judge's refusal to charge the jury that the burden of proof was on the plaintiffs to establish that the injured person was not an employee of the named insured, and to the instructions he gave that the burden was on Canadian to prove that MacKay was an employee of Weg and that the jury might consider Weg as a separate entity from Hodgkins. The judge's theory was that stated in Murray v. Continental Ins. Co., 313 Mass. 557, 563, 48 N.E.2d 145, 147, 'that a plaintiff seeking to recover for breach of a duty or obligation created by a general clause of a contract, which also contains an exception descriptively limiting such duty or obligation, must allege and prove that his cause of action is within the contract and outside the exception; but that where the exception is in another separate and distinct clause of the * * * contract defining * * * the duty or obligation, then the burden is upon the party relying upon such an exception.' We think that that principle was properly applied here, where the applicable 'Coverage B' was under the bold type caption 'Insuring Agreements,' and the exclusion (h) was under a separate bold type caption 'Exclusions,' notwithstanding the introductory clause, preceding the 'Insuring Agreements,' that the company 'Agrees with the insured * * * subject to the * * * exclusions * * * fo this policy.' Id. at 563--566, 48 N.E.2d at 147--148.

5. On the first page of the policy, near the top, in red type, outlined in red, is the following legend: 'In the event of any occurrence likely to result in a claim under this document, immediate notice should be given to the company or its authorized representatives.'

Condition 10 of the policy, on its last page, is as follows: '10. Notice of Accident: When an accident occurs written notice shall be given by or on behalf of the insured to the company or any of its authorized agents as soon as practicable. Such notice shall contain particulars sufficient to identify the insured and also reasonably obtainable information respecting the time, place and circumstances of the...