Transport Indem. Co. v. Liberty Mut. Ins. Co.

• Decision Date: 13 May 1980
• Docket Number: No. 77-2886,77-2886
• Citation: 620 F.2d 1368
• Parties: TRANSPORT INDEMNITY COMPANY, a California Corporation, Plaintiff-Appellant, v. LIBERTY MUTUAL INSURANCE COMPANY, a Massachusetts Corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1368

620 F.2d 1368

TRANSPORT INDEMNITY COMPANY, a California Corporation Plaintiff-Appellant, v. LIBERTY MUTUAL INSURANCE COMPANY, a Massachusetts Corporation, Defendant-Appellee.

No. 77-2886.

United States Court of Appeals Ninth Circuit.

May 13, 1980.

William L. Hallmark, Jones, Lang, Klein, Wolf & Smith, Portland, Or., for plaintiff-appellant.

Ridgway K. Foley, Jr., Souther, Spaulding, Kinsey, Williamson & Schwabe, Portland, Or., argued, for defendant-appellee; Wayne A. Williamson, Souther, Spaulding, Kinsey, Williamson & Schwabe, Portland, Or., on brief.

Appeal from the United States District Court for the District of Oregon.

Before KILKENNY and WALLACE, Circuit Judges, and JAMESON, ^* District Judge.

WALLACE, Circuit Judge:

Transport Indemnity Company (Transport) appeals from a declaratory judgment holding it liable to defend and indemnify certain parties against claims arising out of an automobile accident. Finding that the district court correctly interpreted the relevant insurance contracts in the light of controlling state law, we affirm.

I.

Transport brought this action for declaratory relief pursuant to 28 U.S.C. §§ 2201, 2202 to determine the duties of Transport and Liberty Mutual Insurance Company (Liberty) to defend and indemnify certain parties against claims arising out of a June 5, 1974 automobile accident. Jurisdiction is based on diversity of citizenship.

A vehicle operated by Simons or Rice was involved in a collision with a vehicle operated by Hill. Hill and Rice were killed. Simons was a high-level employee of both SWF Plywood (SWF) and Carolina Pacific Plywood, Inc. (Carolina Pacific), and Rice was the Executive Vice President and Chief Operations Officer of both companies. Carolina Pacific was the registered owner of the vehicle involved, and the vehicle was assigned to Rice. As part of an interim arrangement between SWF and Carolina Pacific, in anticipation of a planned merger, the cost of operation, maintenance and depreciation of the vehicle was paid by Carolina Pacific which in turn charged SWF for one half of the expenses. As of the date of the accident, SWF and Carolina Pacific had also consolidated the management of the two corporations and shared equally in paying the salaries of Rice and Simons.

Hill's estate claims damages in excess of $250,000 and claims that Simons, the estate of Rice, SWF and Carolina Pacific are each liable. Transport, as the issuer of a liability and damage policy which listed Southwest Forest Industries, Inc. and "all divisions and subsidiaries" as the named insured (which includes both SWF and Carolina Pacific), called on Liberty, the issuer of a similar policy which named SWF as the insured, to participate in settling Hill's claim. Liberty declined, contending the policy it had issued to SWF did not cover any of the named defendants for liability arising from this accident.

Transport contends that the district court erred in concluding that (1) Liberty had no potential liability in this case because the facts fell within the range of the joint venture exclusion clause of SWF's policy with Liberty and (2) Transport's policy extended coverage to Rice, Simons, and SWF. We will address each issue in turn.

II.

The district judge held that Rice, Simons, Carolina Pacific and SWF were not covered by Liberty's primary policy because of the following exclusion provision:

This insurance does not apply to bodily injury or property damage arising out of (1) a non-owned automobile used in the conduct of any partnership or joint venture of which the insured is a partner or member and which is not designated in this policy as a named insured.

(Emphasis added.) Transport claims that the district judge erred in finding that (1) Rice and Simons used a "non-owned" rather than a "hired" automobile, and (2) the automobile was being used in the conduct of a "joint venture." It is clear that this exclusion would not apply if Carolina Pacific and SWF were not engaged in a joint venture or if the automobile was a "hired" rather than a "non-owned" automobile.

Before we resolve the substantive issues, however, we must set forth our standard of review and the law we are to apply. First, the dispute between the parties concerns the correct interpretation of the exclusionary contract provision rather than the correct application of the facts of this case to an accepted definition. We are thus primarily faced with a question of law subject to our de novo review. See United States v. Haas and Haynie Corp., 577 F.2d 568, 572 (9th Cir. 1978); Fratis v. Fireman's American Ins. Co., 56 Cal.App.3d 339, 341-42, 128 Cal.Rptr. 391, 393 (1976).

Second, in this diversity case we apply the case law of Oregon. Owens v. White, 380 F.2d 310 (9th Cir. 1967). Because the law of Oregon is not crystal clear on some issues presented to us, however, we attach great weight to the district judge's determination as to the law of the particular state in which he sits and we will reverse that determination only if it is clearly wrong. American Timber & Trading Co. v. First Nat'l Bank, 511 F.2d 980, 983 (9th Cir. 1973), cert. denied, 421 U.S. 921, 95 S.Ct. 1588, 43 L.Ed.2d 789 (1975); Insurance Co. of North America v. Thompson, 381 F.2d 677, 681 (9th Cir. 1967).

A. Joint Venture

Transport, in support of its claim that no joint venture existed, contends that an essential element in the legal definition of a joint venture is a joint, shared, or mutual profit. E. g., Elliott v. Murphy Timber Co., 117 Or. 387, 394, 244 P. 91 (1926); Adams Mfg. & Engineering Co. v. Coast Centerless Grinding Co., 184 Cal.App.2d 649, 7 Cal.Rptr. 761 (1960). Transport argues that here, however, SWF and Carolina Pacific shared expenses and consolidated management to maximize efficiencies, but continued to sustain individual expenses and to calculate profits individually.

In response, Liberty relies on cases that speak of a "community of interest" or "mutual benefit or profit," as the requisite element. West v. Soto, 85 Ariz. 255, 336 P.2d 153, 157 (1959) (community of interest). Giddings Convalescent Home, Inc. v. Wilson, 473 S.W.2d 246, 248 (Tex.Civ.App.1971) (mutual benefit or profit). Liberty concludes that the mutual benefit flowing from an agreement to share expenses for the joint employment of men and machinery provides an alternative to the traditional element of shared profits. Transport's rejoinder is that, even if Liberty is correct that the term joint venture may be read more broadly than the traditional definition, the term as used in the policy is at least ambiguous and should thus be construed, consistent with traditional canons of construction, in favor of coverage.

Apart from standard legal definitions, the real question is what the parties intended when they contracted to exclude coverage of non-owned automobiles used in the conduct of a "joint venture." None of the cases cited by the parties deal with the meaning and scope of "joint venture" as it is used in this type of insurance clause. The district judge, applying the law of Oregon, found that a joint venture existed. We cannot say he was clearly wrong. We agree with Liberty that the purpose of the exclusion was to prevent the insured from engaging in a cooperative venture with another party, thereby incurring additional liability for injury caused by an automobile belonging to the uninsured party. We believe that such provisions contemplate the broader concept of joint venture. See Sprow v. Hartford Ins. Co., 594 F.2d 418 (5th Cir. 1979) (joint venture exclusion held to preclude coverage where the owners of two seafood businesses had agreed to share expenses in the joint operation of a refrigerated delivery truck). See also Levine v. Goldberg, 2 A.D.2d 409, 156 N.Y.S.2d 587 (1956) (per curiam) (finding joint venture in agreement to jointly lease office space and share certain office expenses).

SWF and Carolina Pacific were engaged in a joint operation, including the sharing of management personnel and certain expenses; it is such a joint enterprise that was contemplated by the exclusion. We thus hold that there is no ambiguity to be construed and that SWF and Carolina Pacific were engaged in a joint venture.

B. Non-Owned Automobile

Under the policy, a "non-owned" automobile is defined as "an automobile which is neither an owned nor a hired automobile." A "hired automobile" is

(1) an automobile not owned by the named insured (2) which is used under contract in behalf of, or loaned to, the named insured, (3) provided such automobile is not owned by or registered in the name of (a) a partner or executive officer of the named insured or (b) an employee or agent of the named insured who is granted an operating allowance of any sort for the use of such automobile.

While Transport argues that the contract between SWF and Carolina Pacific to share the cost of operating the automobile obviously fits the above definition, it is clear that not all contracts contemplating the use of an automobile imply that the automobile is used "under contract in behalf of" the insured.

Courts have, for example, attempted to draw a line between mere service contracts, involving independent contractors, and "truck and driver" situations in which the insured is viewed as having contracted for the use of the automobile. It has thus been stated that "for a vehicle to constitute a hired automobile, there must be a separate contract by which the vehicle is hired or leased to the named insured for his exclusive use or control." Sprow v. Hartford Ins. Co., supra, 594 F.2d at 422. Although Sprow stated the "separate contract" and "control" tests in the conjunctive, the tendency to resolve doubt in favor of coverage has led some courts to find that the automobile is hired where there is a separate lease of the vehicle, even if there is no actual exercise of control by the insured, Russom v. Insurance Co. of North America, 421 F.2d 985, 993 (6th Cir. 1970), or...