Zenti v. Home Ins. Co., 59746

• Decision Date: 22 February 1978
• Docket Number: No. 59746,59746
• Parties: Mario ZENTI and Samuel Zenti, Appellees, v. The HOME INSURANCE COMPANY, Appellant.
• Court: Iowa Supreme Court

Page 588

262 N.W.2d 588

Mario ZENTI and Samuel Zenti, Appellees, v. The HOME INSURANCE COMPANY, Appellant.

No. 59746.

Supreme Court of Iowa.

Feb. 22, 1978.

John A. McClintock and Curtis L. Ritland, of Hansen, Wheatcraft & McClintock, Des Moines, for appellant.

Kenneth L. Butters, Jr., of Stewart, Heartney, Brodsky, Thornton & Harvey, Des Moines, for appellees.

Considered by MOORE, C. J., and RAWLINGS, LeGRAND, UHLENHOPP and HARRIS, JJ.

MOORE, Chief Justice.

Defendant-insurer appeals declaratory judgment holding "employee exclusion" in liability policy issued to corporation is inapplicable and thus it is obligated to defend two "executive officers" of the corporation in suit filed against them by a company employee injured during the course of his employment.

The relevant circumstances giving rise to the litigation were incorporated in a stipulation of facts filed with the trial court. In summary, these facts are that on October 22, 1973, William Mark Buttrey, an employee of Venetian Iron Works, Inc., sustained an accidental injury arising out of and during the course of his employment. On the date of the accident, Venetian had in force and effect a workmen's compensation policy issued by the Home Insurance Company. As a result of the accident, Buttrey received workmen's compensation benefits from Venetian through its workmen's compensation policy issued by the Home Insurance Company.

Subsequently Buttrey filed a lawsuit in Polk County District Court against Mario Zenti, Samuel Zenti and LeRoy Brown for damages in the amount of $250,000 alleging their negligence was the proximate cause of the injuries incurred in the October 22 accident. This action is still pending.

On October 22, 1973 Venetian also had in force and effect a liability insurance policy issued by the Home Insurance Company. Both Mario and Samuel Zenti are "executive officers" of the named insured Venetian Iron Works and qualify as insureds under the policy.

Zentis then called upon Home Insurance Company to defend them under the comprehensive liability policy it had issued to Venetian. Home Insurance denied coverage and contended that Buttrey was an employee of the insureds, the Zentis, and thus the "employee exclusion" applied under the policy. Subsequently the Zentis filed the present declaratory judgment action on March 22, 1976 seeking a ruling that Home Insurance was obligated to defend and the exclusion they relied upon to deny coverage was inapplicable.

At trial the stipulated facts were read into the record and some testimony was taken for purposes of establishing LeRoy Brown was an "executive officer" and that the reasonable expectation of the Zentis was their comprehensive liability policy covered all possible liability arising out of the business.

Trial court ruled Brown was not an "executive officer" and thus Home Insurance had no duty to defend him in the Buttrey lawsuit. Brown has not appealed from that determination.

Trial court in its memorandum opinion also ruled that the liability insurance policy issued by Home Insurance Company afforded coverage to the Zentis and that the insurer had a duty to defend and pay any possible judgment recovered within the limits of said policy with respect to Buttrey's suit for damages. This appeal followed. We affirm.

The provisions of the Home Insurance liability policy which are the subject of plaintiffs' declaratory judgment action are the following:

" 'PROVISIONS APPLICABLE TO SECTION II--

GENERAL LIABILITY

. . . Insuring Agreements

" 'I. Coverage E--Bodily Injury Liability:

Coverage F--Property Damage Liability:

" 'This Company will pay on behalf of the

insured all sums which the insured shall

become legally obligated to pay as damages

because of

Coverage E--bodily injury, or

Coverage F--property damage

due to an occurrence, and this Company shall

have the right and duty to defend any suit

against the Insured seeking damages on

account of such bodily injury or property

damage, even if any of the allegations of the suit

are groundless, false or fraudulent, and may

make such investigation and settlement of

any claim or suit as it deems expedient; but

this Company shall not be obligated to defend

any suit after the applicable limit of the

Company's liability has been exhausted by

payment of judgments or settlements.

" 'III. Definition of "insured": With respect to the

insurance under Coverages E and F the unqualified

word "insured" includes the Named

Insured; provided that (1) if the Named

Insured is designated as an individual, the

insurance applies only to the conduct of a

business of which he is the sole proprietor

and (2) the unqualified word "Insured" also

includes the following: . . .

" '(b) any executive officer, director or stock-

holder of the Named Insured while

acting within the scope of his duties as

such; . . .

" 'The insurance afforded under Coverages E

and F applies separately to each Insured

against whom claim is made or suit is brought

but the inclusion herein of more than one

Insured shall not operate to increase the limit

of this Company's liability . . .

"EXCLUSIONS--

This policy does not apply: . . .

" '(i) under Coverage E, except with respect

to liability assumed by the Insured under an

insured contract, to bodily injury to any

employee of the Insured arising out of and in

the course of his employment by the Insured;

" '(j) under Coverage E, to any obligation for

which the Insured or any carrier as his

insurer may be held liable under any workmen's

compensation, unemployment compensation or

disability benefits law, or under any similar

law.' " (Emphasis supplied.)

Home Insurance contends, as it did in the trial court, that the injured employee Buttrey was an "employee of the Insured" within the meaning of exclusion section (i) so that the additional "Insureds" Mario and Samuel Zenti are not entitled to coverage. The Zentis contend the "severability-of-interests" clause requires a finding that the exclusion is to be applied only against the insured for whom workmen's compensation coverage is sought. Because Buttrey was an employee of Venetian Iron Works, Inc., rather than the Zentis at the time of the accident, Zentis argue Home Insurance is obligated to defend them.

As the narrow issue is drawn, this is a case of first impression in Iowa. Thus we must look for guidance in the decisions of other jurisdictions and leading authorities on the law of insurance. Stuart v. State ex rel. Jannings, Iowa, 253 N.W.2d 910, 913; State v. Jaeger, Iowa, 249 N.W.2d 688, 690. Of course, whether Home Insurance is obligated to defend in this case ultimately turns on whether the "employee exclusion" effectively limits the coverage provisions of the policy. The insurer, having affirmatively expressed coverage through broad promises, assumes a duty to define any limitation or exclusionary clause in clear and explicit terms. Additionally, the company has the burden to prove the applicability of the policy provision. State Farm Auto Ins. Co. v. Malcolm, Iowa, 259 N.W.2d 833, 835 and citations.

In construing "employee exclusion" clauses the issue herein presented has caused great difficulty for the courts. 12 Couch on Insurance 2d, sections 45:579-45:582 (Anderson ed.); Annot., 48 A.L.R.3d 13, "Automobile Insurance-Insured's Employee", sections 28 and 29; Keeton, Basic Text on Insurance Law, section 4.9(c); 7 Am.Jur.2d Automobile Insurance, section 133. This has been true even after the advent of "severability-of-interests" clauses in 1955. As might be expected two positions have developed as to the effect of these clauses on the employee exclusion.

Appellees strongly rely on one group of cases which have held that where a policy of insurance contains a "severability-of-interests" clause such as the one at bar, the "employee exclusion" is limited in application to a situation where the claim for bodily injury is made by an employee of the particular insured against whom the claim is asserted. United States Fire Insurance Co. v. McCormick, 286 Ala. 531, 534-536, 243 So.2d 367, 373-375; Marwell Const., Inc. v. Underwriters at Lloyd's, Lon., Alaska, 465 P.2d 298, 304-305; Emp. Mut. Liab. Ins. v. Farm Bur. Mut. Ins., Ark., 549 S.W.2d 267; Shelby Mutual Ins. Co. v. Schuitema, Fla.App., 183 So.2d 571, Aff'd, 193 So.2d 435; Ratner v. Canadian Universal Insurance Company, 359 Mass. 375, 380-381, 269 N.E.2d 227, 229-230; Liberty Mutual Ins. Co. v. Iowa National Mut. Ins. Co., 186 Neb. 115, 181 N.W.2d 247; Liberty Mut. Ins. Co. v. Home Ins. Indemnity Co., N.H., 351 A.2d 891, 894; Bankers & Shippers Ins. Co. of N. Y. v. Watson, 216 Va. 807, 224 S.E.2d 312.

The rationale for this position was first expressed in General Aviation Sup. Co. v. Insurance Co. of No. America, E.D.Mo., 181 F.Supp. 380, 384 (Aff'd, 8 Cir. 283 F.2d 590) where the court stated:

"The logical theory for the employee exclusion is to prevent employees of the tort feasor from suing his employer for injuries received thru his employer's negligence. A reason for this is that employees are usually covered by workmen's compensation and can recover from the employer, with or without negligence. When negligence is committed by other than his employer, the logic for the exclusion disappears. If the insurer wishes to further exclude its liability, it could clearly so state in its contract and its failure to do so should be strictly construed. Especially is this true when the policy contains a severability clause, for there it can be implied that the insurer is actually recognizing a separate obligation to others, distinct and apart from the obligation it owes to the named insured. For a similar view and discussion see Vol. 24, University of Kansas City Law Review. 'Who is "The Insured" '. pp. 65, 66, 72 (1956)."

Recently the Maryland Court of Appeals in Pennsylvania National Mut. Cas. Ins. Co. v. Bierman, 266 Md. 420, 292 A.2d 674, a case nearly identical to the one at...