David Lazarus v. Manufacturers Casualty Insurance Company, a Body Corporate

DANAHER, Circuit Judge

(dissenting).

I think the trial judge should have directed a verdict for the defendant Company in accordance with well known principles summarized by Judge Soper, dissenting in Snead v. New York Central Railroad Company, 4 Cir., 1954, 216 F.2d 169, 173. Here, the district judge granted the Company’s motion for judgment n. o. v. and also denied a new trial. The Snead majority, reversing, ordered a new trial, and at the very least, the majority here should do likewise.

My colleagues have reasoned that even though a garage policy was issued to an individual as a named insured, since he was then one of two partners engaged in operating a service station, the partnership must legally be regarded as the named insured. They next conclude that even if the first partner, the actual named insured, terminated the partnership and withdrew from the business before the date the accident occurred, the remaining partner was still protected as an additional insured under the contract. As I see it, my colleagues write a new contract for the parties. Surely they make new law. I dissent.

I

The parties to this contract were Arthur Rubinstein and the Company. The policy “Declarations” recited “Name of Insured [is] Arthur Rubinstein T/A Transport Amoco Service.” Rubinstein’s insurance broker, Max Wool, asked that the policy be so written.1 Thus the Company’s agent issued the policy to Rubinstein’s broker who paid the Company the premium required. Max Wool was never an agent of the Company.

To be covered at any time, Lazarus surely must have derived his protection as an additional insured because he was a partner of Rubinstein. In my view, if the partnership were terminated, Lazarus took nothing under the contract.

The Company undertook no liability unless it came within its contract which provided that “Assignment of interest under this policy shall not bind the Company until its consent is endorsed hereon * * There was no such assignment by Rubinstein, and no consent was endorsed by the Company to an acceptance of liability in behalf of Lazarus. As I read the law, the policy here evidences a highly personalized contract, 7 Appleman, Insurance Law and Practice § 4269, and just who is the named insured as a contracting party is pertinently material. Annotation, 122 A.L.R. 144. An unauthorized assignment therefore will void the policy, Baker v. Highway Ins. Underwriters, Tex.Civ.App., 1947, 209 S.W.2d 979; Jayson v. American Cas. Co., 1931, 9 N.J.Misc. 231, 153 A. 104, even if the assignee is a successor to the originally insured business and even if he continues the business in the same place and under the same name, *640Annotation, 122 A.L.R. supra at 151,152; Appleman, op. cit. supra § 4269.

But the majority here introduce a different concept by their interpretation of the “Definitions” clause, stated under “Conditions” with respect to “Insured.” The language relied upon reads: “The unqualified word ‘Insured’ wherever used includes not only the named Insured but also any partner thereof, if the named Insured is a partnership, or any executive officer thereof, if the named Insured is a corporation, provided such partner or officer is active in the declared operations.” (Emphasis added.) My colleagues disregard the fact that the contracting party, even if he acted for a partnership, was Rubinstein. They say the Company insured a business, a name so to speak. But the named insured clearly was Rubinstein only, doing business under a trade name, purely descriptive.

In any view open to us, whether it be Rubinstein or the partnership which was the “named insured,” coverage of Lazarus at most could only be derivative.2 3 He was not a party to the contract in either event.3 The partnership of Rubinstein and Lazarus, terminable at will, had in fact been terminated before May 3, 1949, the date of the injury, and the Company had not consented to an assignment of the “partnership” policy to Lazarus. Thus on either or both of two stated premises, there was no coverage here. In effect, my colleagues say as a matter of law that Lazarus was covered notwithstanding the facts. Actually there is no ambiguity here, nothing to construe against the Company. But if there were doubt as to construction, the rule that “doubtful meanings contained in an insurance policy are to be construed in favor of the insured * * * operates only after the identity of the insured has been determined * * Wylie v. Mountain Motors, 1943, 126 W.Va. 205, 27 S.E.2d 494, 496. See also Appleman, op. cit. supra §§ 4351-54, 7405.

Surely there is a legal difference between a named insured and an additional insured just as the policy here recognizes. Thus, there always subsisted on this record the question of fact as to who was the named insured. And if there were no partnership as “named insured,” Lazarus derived no rights.4 Here the partnership had been terminated before May 3, 1949, as the facts clearly show. Lazarus wanted his son-in-law in the business and brought him in early in April. As hard feelings developed, Rubinstein quit. He terminated the partnership on April 24, 1949.

Lazarus then on April 28, 1949, signed and delivered to the Riggs National Bank a notice that, effective April 26, 1949, Rubinstein was no longer a partner. Lazarus in addition on May 2, 1949, signed and gave notice on the bank’s form, that he already had a new partner, his son-in-law, Sorrentino, who also signed the form. Again, Lazarus signed and, under penalty of perjury, filed with the Internal Revenue Bureau a partnership return form 1065 reciting as of May 1,1949, the formation of a partnership, “Jerry Sorrentino and David Lazarus, T/A Transport Amoco Service.”

My colleagues refer to the formal dissolution agreement, signed by Lazarus on *641May 17,1949. But the record shows that the formal agreement was prepared by Rubinstein’s attorney and tendered to Lazarus for signature before May 3, 1949, and he simply failed to execute the agreement until May 17. Moreover the evidence discloses that when Rubinstein terminated the partnership, releases were drawn up by the American Oil Company and executed by Rubinstein before May 1, 1949.

The record as a whole is indisputable, and the Riggs National Bank’s evidence in particular is totally unrefuted, I submit, that Rubinstein had terminated the partnership before the date of the accident.5

My colleagues say “we cannot ignore the fact that the policy premium was paid for out of partnership funds” and accordingly “that presumably the policy remained an asset of the firm.” (My emphasis.) The records of the same Riggs National Bank to which I have just referred, established that in September 1948, Rubinstein drew a check charged to the partnership account with which he made payment to his broker, Max Wool. How this fact becomes material to establish a presumption that the policy was a firm asset is not clear. Of course it may be cited to establish that reliance upon the Riggs Bank records in 1948 justifies at least equal reliance on the records of the same bank as of April 28 and May 2, 1949, which show that the partnership had been terminated. And since there had been no assignment of the policy as required by its terms, I suggest that it not only was not an asset of the firm, but it afforded no coverage to the successor partnership of Lazarus and Sorr entino.

Perhaps the best clue to an understanding of the majority’s philosophy is the suggestion that the court should bear in mind that “the ultimate benefit of the insurance accrues to an injured member of the public, rather than to the insured as such.” I venture to suggest that every member of this court carries liability insurance on his automobile to protect himself against possible claims which might arise from the negligent operation of the judge’s car. We pay for a contract for fear of a possibly substantial judgment against us. It may be understood that substantial progress is being made in many jurisdictions either to provide common funds or to require proof of financial responsibility that members of the injured public may be afforded redress in the event of injury due to the operation of automobiles. Such salutary steps afford no predicate for this court’s undertaking to rewrite the terms of the contract before us.

II

The Company protested in the District Court against the ruling that as a matter of law the policy insured a partnership. It protested against the rulings which rejected its proffers of the verdicts in favor of Rubinstein reached by the jury in Hudson v. Lazarus,6 and upon which it had relied for its defense of res judicata. It protested against the order dismissing with prejudice the complaint of Hudson’s legal representative who had been a party plaintiff. It protested against allowing Hudson’s erstwhile counsel, next to represent Lazarus. It protested against allowing Lazarus whom it had never insured and who had never satisfied the Hudson judgment to recover in his own name damages of some $23,-000. It protested against the action of the trial judge in recalling an already dismissed jury and then, without its being resworn, permitting it to return a verdict for Lazarus’ counsel fees upon which it earlier had failed to agree. Yet other claims of error were pressed in the trial court and now are here urged by the Company.

*642The Company moved for a directed verdict which was denied. Thereafter the Company filed its motion for judgment n. o. v. or in the alternative for a new trial. As the trial judge considered all of the Company’s claims of error and looked back over the record of the whole case, he simply concluded that he was bound to grant the motion for judgment n. o. v., leaving the motion for a new trial for later disposition. He was right, I submit, and he correctly ordered judgment for the Company on February 19, 1958. But, thereafter plaintiff’s counsel, ex parte we are assured, submitted and the judge signed an order denying a new trial. Obviously he concluded that appellant was not entitled to prevail in any event. My colleagues disregarding the Company’s cross-assignments of errors touching a new trial, not only now reverse, but order judgment for the appellant. I think the Company’s asserted cross errors would nullify the judgment on the verdict in any event.7

Ill

Consider, to illustrate, the Company’s defense of res judicata. In Hudson v. Lazarus, supra note 5, the Company appeared for Rubinstein as it was bound to do. A verdict was rendered in favor of Rubinstein, and specially answering, the jury found the partnership had terminated before May 3,1949.

The pleadings of record show that, relying upon Fed.R.Civ.P. 13(g), 28 U.S.C.A. and pursuant to order of court, Rubinstein filed a cross claim against Lazarus. Thereupon Lazarus filed his answer admitting that he agreed to release Rubinstein from claims arising from the operation of Transport Amoco Service but denying that he had agreed to release Rubinstein from tort liability. By way of “second defense” he pleaded that he and Rubinstein were partners on May 3, 1949, that Rubinstein had purchased for himself and Lazarus the garage policy here in suit, that Rubinstein had assigned his interest in the partnership to Lazarus on May 17, 1949,8 and that the policy was in full force and effect, for the protection of both Lazarus and Rubinstein.

At pre-trial, Hudson objected to the trial of the cross claim with the trial of the main question of liability. Rubinstein objected to a trial of the issue of insurance and moved to strike the reference. The District Court, however, entered its order that the cross claim of Rubinstein against Lazarus was not to be tried with the case in chief but was to be suspended until after verdict. Lazarus filed requests for instructions concerning Rubinstein’s claimed termination of the partnership and his abandonment of the business and further with respect to the effect of the ultimate dissolution of the partnership, evidenced by the agreement of May 17, 1949. The record shows that the jury requested various exhibits bearing upon the claims of Lazarus and Rubinstein with respect to the partnership and its termination, including records of the Riggs National Bank, a copy of the agreement with Amoco, and the dissolution agreement.

The jury returned a verdict in favor of Hudson against Lazarus but not against Rubinstein. Thereafter the following occurred :

“The Court: Members of the jury, you have returned a verdict in favor of the plaintiff [Hudson] against the defendant Lazarus, trading as a co-partner, and you also returned a verdict in favor of the defendant Rubinstein, trading as a co-partner. Now I will ask you to go back and consider this question, and this is as a special verdict: Did you find that a partnership existed between the two defendants at the date *643®f this accident or had it terminated before the accident?
“The Foreman: We have reached that verdict, Your Honor.
“The Court: And what is your verdict?
“The Foreman: We find that no partnership existed on May 3rd.
“The Court: Is that the verdict of each and every one of you?
“The Jury: Yes.
“[Counsel for Mr. Lazarus] May I request the jury be polled, Your Honor.
“The Court: Very well.”

The jurors individually stated their findings in favor of Rubinstein.

When Hudson’s representative next sought an order for allowance of an appeal in forma pauperis, one of the assignments of claimed error attacked the jury’s findings as to the termination of the partnership. Rubinstein, with the jury’s verdict in his favor, opposed allowance of the appeal in forma pauperis as to the partnership findings as “not in good faith.” The trial judge allowed the appeal, noting in a written memorandum special findings that certain of Hudson’s questions were meritorious, but specifically not included was the ground concerning the jury’s findings in favor of Rubinstein. The judge refused to allow the appeal on that ground.

When Hudson filed his appeal in this court, there was no assignment of error as to the ruling, nor was there any designation for the record concerning the jury’s findings as to the termination of the partnership. The matter was not before us nor was it considered. Thus Rubinstein was out of the case, and judgment in his favor followed.

It seems to me that Rubinstein in the Hudson case was entitled to take the very steps disclosed by the pleadings, as above noted, under Rule 13(g), and see Collier v. Harvey, 10 Cir., 1949, 179 F.2d 664, 668; cf. National Bondholders Corporation v. Seaboard Citizens Nat. Bank, 4 Cir., 1940, 110 F.2d 138, 144; Ohio Casualty Ins. Co. v. Gordon, 10 Cir., 1938, 95 F.2d 605, 609. Now, when the Company in this case pleads res judicata and asserts other errors, my colleagues find them “irrelevant.” Of course they are, if it be the law that despite the terms of the contract, the Company is an insurer of Lazarus in any event.

. Wool had no knowledge that there was a partnership in the background or that Lazarus was an undisclosed partner. Neither did the Company.

. Lloyds Casualty Insurer v. McCrary, 1950, 149 Tex. 172, 229 S.W.2d 605.

. His entire status thus turned on his relationship with the “named insured.” General Accident Fire & Life Assur. Corp. v. Woeffel, 1957, 7 Misc.2d 952, 161 N.Y.S.2d 794; Holthe v. Iskowitz, Wash.1948, 197 P.2d 999; Rent-A-Car Co. v. Globe & Rutgers Fire Ins. Co., 1930, 158 Md. 169, 148 A. 252.

. Typical cases cited by the majority do not sustain their position as I read them. For example, in tbeir footnote 10, the First National Trust & Savings Bank case states: “[I]n naming the employer, this policy insured two individuals, Charles Hascall and S. W. Powell, while they are doing business as Hascall & Powell. In other words, they are each insured while doing business under that firm name.” [213 Cal. 322, 2 P.2d. 351.] Again, in the majority’s footnote 11, the Zimmerman case stated that it was not tL business, but the individuals who were covered.

. Reference back to Hudson v. Lazarus, 1954, 95 U.S.App.D.C. 16, 217 F.2d 344, 345, will show that we there considered the operation of a customer’s car by Harris, “an employee of appellee Lazarus’s service station” where Sorrentino “was in charge,” on May 3, 1949.

. Supra note 5.

. Montgomery Ward & Co. v. Duncan, 1940, 311 U.S. 243, 254, 61 S.Ct. 189, 85 L.Ed. 147; and see Snead v. New York Central Railroad Company, 4 Cir., 1954, 216 F.2d 169, 173.

. Despite the clause in the policy requiring the Company’s consent, never forthcoming, and two weeks after the accident in any event.