Artukovich v. St. Paul-Mercury Indemnity Co.

The question to be decided is whether either or both of two casualty insurance policies cover a loss sustained by the insured, Artukovich Bros.

St. Paul-Mercury Indemnity Company, to be called St. Paul, issued its liability policy in which it agreed to pay on behalf of the insured all sums which insured “shall become obligated to pay by reason of the liability imposed upon the insured by law or contract for damages arising out of occurrences. . . . Bodily injury . . . sustained by any person or persons”; except liability for bodily injury to “any employee of the Insured . . . while engaged in the employment of the Insured, or to any obligation for which the Insured may be held liable under any workmen’s compensation law.”

Industrial Indemnity Company, to be called Industrial, issued its standard “Workmen’s Compensation and Employers’ Liability Policy” in which it agreed “ [t]o pay promptly benefits as required by the Workmen’s Compensation Laws of the State of California to any person entitled thereto ’ ’ and “ [t]o pay all sums which the Employer, as an Employer, shall become obligated to pay for damages . . . because of bodily injury, . . . sustained within California. ...”

Judge Herndon concluded: 1. The finding of the Industrial Accident Commission that Clark did not sustain any injury arising out of and occurring in the course of his employment is binding on Artukovich Bros, and on its privies, who include St. Paul and Industrial. 2. The findings and judgment in action 586886 that Clark did not sustain any injury arising out of and occurring in the course of his employment are binding on Artukovich Bros, and on St. Paul as its privy and indemnitor. 3. The acts and conduct of St. Paul in controlling the defense of action 586886 and procuring a finding that Clark sustained no injury arising out of and occurring in the course of his employment estop it from attacking said finding and from urging a different finding or set of facts in the case at bar. 4. By restricting its notice of reservation of rights under its policy to the ground of a contested exclusion applicable by reason of Clark’s employment, and by failing to allege any other policy defenses, St. Paul waived and is estopped now from claiming any other different or additional defenses to this action. 5. St. Paul’s policy is a general liability policy and includes coverage for all liabilities of the insured except those specifically excepted. The language of the exclusion of coverage for employees “while engaged in the employment of the insured” excludes coverage in a case wher'e a claimed injury arises

Judgment was that Artukovich Bros, is entitled to indemnity from St. Paul for the liability imposed in action 586886; it has no right to indemnity from Industrial; Artukovich Bros, recover the amount of the judgment in action 586886 from St. Paul. St. Paul appeals from the judgment against it in favor of Artukovich Bros. Artukovich Bros, appeals from that part of the judgment which denies it relief against Industrial.

The Appeal of St. Paul-Mercury Indemnity Company

St. Paul contends the finding of the Industrial Accident Commission that Clark did not sustain any injury “arising out of and occurring in the course of said employment” was not an adjudication he did not sustain injuries “while engaged in the employment of the Insured. ’ ’ St. Paul further contends the findings and judgment in action 586886 are not binding on it and it is not estopped from contending for the nonbinding character thereof; it is not estopped to claim the benefits of the exclusionary provisions of its policy by reason of the fact it assumed the defense of action 586886.

It is unnecessary to determine whether the order of the Industrial Accident Commission is binding on St. Paul. The finding in action 586886 that the findings and award of the Industrial Accident Commission “constitute a full and com

“Where an action against the insured is ostensibly within the terms of the policy, the insurer, whether it assumes the defense or refuses to assume it, is bound by the result of that action as to all matters therein decided which are material to recovery by the insured in an action on the policy.”

Jones v. Zurich, General Acc. & Liab. Ins. Co., (2 Cir.) 121 F.2d 761 , was an action against an insurer after the plaintiff had recovered a judgment against the insured which was unsatisfied. The insurer had defended the action against the insured. As a defense to the action against it the insurer pleaded “that plaintiff was when injured an employee of the insured at work as such on premises described in the policy; and also that she was an employee injured in the course of her employment by the assured and to whom it was liable under the New York Workmen’s Compensation Law.” A summary judgment was granted the plaintiff. On review, after stating that “ [e]very material fact determined by the state court in that action was conclusively settled by the final judgment ‘so that it cannot be further litigated in a subsequent suit between the same parties or their privies whether the second suit be for the same or a different cause of action’ ” and that the insurer and insured were in privity, the court on rehearing said (p. 764) :

“ [T]here was an alternative reason, originally pleaded, argued on appeal, and mentioned in our opinion, which we could have chosen for affirming the district court’s judgment.

“This reason was that the judgment recovered by plaintiff against the insured in the state court foreclosed against defendant the question of plaintiff’s and insured’s relationship. That question was necessarily involved in the original suit. N.Y. Workmen’s Compensation Law, §§ 10, 11, Consol. Laws, c. 67. It is true that this defendant, acting for the insured, did not originally plead it; but it did seek to raise it by motion to amend, and argued it on appeal. Recovery in such circumstances conclusively settles against the defendant all defenses which might have been pleaded and proved, as well as those which actually were. Chicot County Drainage District v. Baxter State Bank, 308 U.S. 371 [ 60 S.Ct. 317 , 84 L.Ed. 329 ]; Grubb v. Public Utilities Commission, 281 U.S. 470 [ 50 S.Ct. 374 , 74 L.Ed. 972 ]. Defendant here, although not a nominal party in the original action, is likewise bound as the person ultimately liable. Washington Gaslight Co. v. District of Columbia, 161 U.S. 316 [ 16 S.Ct. 564 , 40 L.Ed. 712 ]; Oceanic Steam Navigation Co. v. Campania Transatlantica Espanola, 144 N.Y. 663 [ 39 N.E. 360 ].”

It was held in Muise v. Century Indem. Co., 319 Mass. 172 [ 65 N.E.2d 98 ], that the finding in a prior action against an insured that the decedent was a guest and not an employee of the insured was equivalent to finding that the decedent’s presence in the insured automobile at the time of the accident had no causal relation to employment of the decedent by the insured, and that the finding was binding on the insurer.

It follows St. Paul cannot deny the fact that Clark did not sustain any injury arising out of and occurring in the course of his employment. But it can still insist on any defenses not necessarily inconsistent with that fact. (Sweeney v. Frew, 318 Mass. 595 [ 63 N.E.2d 350 , 351]; 1 Freeman on Judgments, 5th ed., 991, § 450.) The question is whether the defense now insisted on—that Clark sustained injuries “while engaged in the employment of the insured”— is inconsistent with the finding that he did not sustain any injury arising out of and occurring in the course of his employment. We have concluded it is.

Generally, exclusionary clauses in liability policies use the words “engaged in the business” of the insured. Some use the words “engaged in the employment” of the insured as does St. Paul’s policy. The courts have split as to whether to apply the decisions construing the language of workmen’s

In I-L Logging Co. v. Manufacturers & Wholesalers Indem. Exchange, 202 Ore. 277 [ 273 P.2d 212 , 275 P.2d 226 ], the policy contained the identical exclusionary clause found in St. Paul’s policy. It was contended the words “engaged in the employment of the Insured” do not mean the same as “arising out of and in the course of his employment” as those words occur in the Workmen’s Compensation Law. After an exhaustive review of the authorities the court stated (p. 224 [273 P.2d]) :

“We have encountered no decision which endeavors to disclose any difference in meaning between ‘engaged in the employment’ and ‘arising out of and in the course of his employment.’ The practical affairs of life, according to our belief, would gain nothing of consequence if a court should undertake to discover a difference in the connotation of those two groups of words. We do not believe that the Passmore decision [B. & H. Passmore M. & R. Co. v. New Amsterdam Casualty Co., 10 Cir., 147 F. 2d 536 ] holds that the two terms actually differ in meaning, but indicates that courts, in determining whether a workman was ‘engaged in his employment’, are more inclined to answer ‘no’ than when they inquire whether he was engaged ‘in the course of his employment.’ The difference is one of judicial attitude rather than one of difference in phraseology. The difference has its origin in the fact that in the one case a contract of insurance is the subject of attention and in the other an item of remedial legislation. We can see merit in the distinction. In all other respects we embrace the Lumber Mutual opinion [Lumber Mutual Casualty Ins. Co. v. Stukes, 4 Cir., 164 F.2d 571 ].”

It was held in Moss v. St. Paul-Mercury Indem Co., (La.App.) 35 So.2d 867 , that since the employee’s injury did not arise out of and in the course of his employment, it did not occur “while engaged in the employment ... of the insured.” (Also see Cardinal v. United States Cas. Co., 195

Exceptions and exclusions in a policy of insurance are to be construed strictly against the insurer and liberally in favor of the insured. (Arenson v. National Auto. & Cas. Ins. Co., 45 Cal.2d 81 , 83 [ 286 P.2d 816 ] ; Pendell v. Westland Life Ins. Co., 95 Cal.App.2d 766 , 769 [ 214 P.2d 392 ].) The understanding of an ordinary person is the standard used in construing a contract of insurance, and any ambiguity in the language must be resolved against the insurer. (Arenson v. National Auto. & Cas. Ins. Co., supra.) It has been held that the phrase ‘1 engaged in the employment” is ambiguous. (Francis v. Scheper, 326 Mich. 441 [ 40 N.W.2d 214 , 217]. Cf. Elliott v. Behner, 150 Kan. 876 [ 96 P.2d 852 , 855].) Liability insurance contracts should, if possible, be construed so as not to be a delusion to those who have bought them.

The liability on which Clark recovered in action 586886 was not a liability based on the relation of employer and employee or because Clark was engaged in the employment of Artukovich Bros, at the time of the altercation. It was a liability growing out of the relationship between Artukovich Bros, and Vido—respondeat superior. The fact that Clark was not engaged in the employment of Artukovich Bros, was essential and indispensable to the judgment against the latter in action 586886. Neither the fact that Clark was “an employee” of Artukovich Bros, nor the fact that he was on its premises at the time of the altercation establishes that he was engaged in his employment at that time. Everyone who is engaged in the employment of the insured would be its employee, but not every employee is engaged in the employment of the insured all the time. (See Moss v. St. Paul-Mercury Indem. Co., (La.App.) 35 So.2d 867 ; Green v. Travelers Ins. Co., 286 N.Y. 358 [ 36 N.E.2d 620 ] ; Hardware Mut. Cas. Co. v. Ozmun, 217 Minn. 280 [ 14 N.W.2d 351 ].)

Applying the rule that an exclusionary clause should be construed strictly against the insurer, we are of the opinion that the defense now insisted on by St. Paul—that Clark sustained injuries “while in the employment of the insured”—is inconsistent with the finding in action 586886 that he did not sustain any injury arising out of and in the course of his employment. The phrase “while engaged in the employment of the Insured” encompasses both “arising out of”

The Appeal of Artukovich Bros.

This appeal is from that part of the judgment in favor of Industrial. Counsel for Artukovich Bros, do not press its appeal wholeheartedly. With commendable candor they say, “We feel in all fairness, however, that the pattern of coverage indicates that where one coverage ends the other begins.” In other words, if St. Paul’s policy covers, Industrial’s does not. Since we have held that St. Paul’s policy covers the loss sustained by Artukovich Bros., it would appear in view of this concession that Industrial’s does not. There is another reason why the judgment for Industrial must be affirmed. Its policy contains this condition:

“Conditions . . . P. Notice of Injury, Claim or Suit. Written notice of any such injuries, with the fullest information available, and of any claim or suit resulting therefrom, and every demand, notice, summons or other process served upon the Employer shall be forwarded as soon as practicable, to the Company by the Employer. ...”

It is conceded that Artukovich Bros, did not comply with this provision in any particular. No one representing it ever requested Industrial to appear for it in action 586886, and

In the absence of waiver or estoppel it is well settled that if a liability policy makes compliance with a “Notice of Injury, Claim or Suit” provision such as that in Industrial’s policy a condition precedent to liability, no recovery can be had where the provision has not been complied with if prejudice to the insurer has resulted. (Abrams v. American Fid. & Cas. Co., 32 Cal.2d 233 [ 195 P.2d 797 ] ; Gibson v. Colonial Ins. Co., 92 Cal.App.2d 33 [ 206 P.2d 387 ] ; Aronson v. Frankfort etc. Ins. Co., 9 Cal.App. 473 , 475-478 [ 99 P. 537 ]. See cases collected 76 A.L.R. 23 , 182, 123 A.L.R. 950 , 981, 139 A.L.R. 771 , 781, 18 A.L.R.2d 443 , 452.) There is no claim of waiver or estoppel.

Whether an insured has complied with a “Notice of Injury, Claim or Suit” is a question of fact. (Reed v. Pacific Indem. Co., 101 Cal.App.2d 151 , 159 [ 225 P.2d 255 ].) There is a presumption that prejudice occurred. The presumption is not a conclusive one. The burden of proving an excuse for a failure to give notice of suit, and to forward the complaint, process, and other suit papers to the insurer rests on the insured. (8 Appleman, Insurance Law and Practice, 145, § 4746.) No such proof was made. “The ultimate conclusion in each case must depend on its own facts.” (Abrams v. American Fidelity & Cas. Co., supra, 239.) The failure of Artukovich Bros, to comply with the “Notice of Injury, Claim or Suit” provision of Industrial’s policy is nonetheless a breach notwithstanding the fact the company had notice of the injury and appeared in the proceeding before the Industrial Accident Commission. (Potter v. Great

Affirmed.

Shinn, P. J., and Wood (Parker), J., concurred.

The petition of defendant and appellant for a hearing by the Supreme Court was denied June 12, 1957.