Waller v. Keene

Menchine, J., delivered the opinion of the Court. This is an appeal from a reversal by the Circuit Court for Baltimore County of a decision of the Workmen’s Compensation Commission (Commission). The Commission had ruled that Gilbert Keene (claimant) had sustained an accidental injury arising out of and in the course of his ³⁶⁹ employment by A & L Contractors, 1 and that Leonard W. Pauza (Pauza) was protected as an employer by the terms and provisions of a policy of workmen’s compensation insurance issued to him as an individual by Pennsylvania National Mutual Casualty Company (Penn National). The Commission also found Harry Waller (Waller) to be a statutory employer, thereby causing him and his insurer, Nationwide Mutual Insurance Company (Nationwide) also to be responsible for compensation benefits due to the claimant by reason of the provisions of Article 101, § 62. 2 Penn National appealed.

In the Circuit Court for Baltimore County the cause was submitted to Judge Kenneth C. Proctor, sitting without a ³⁷⁰ jury. Judge Proctor held that the claimant was employed by a partnership consisting of Leonard W. Pauza and Arthur Grimes, t/a A & L Contractors (partnership), and that the insurance policy issued by Penn National to Pauza as an individual did not provide insurance to the partnership. The trial court affirmed that part of the Commission’s order finding that Waller as statutory employer and Nationwide, his insurer, were liable for the payment of compensation benefits to the claimant. Waller, Nationwide and Pauza have appealed. 3 Pauza, on appeal, asks: Is John W. Walter, trading as Col-Mar Insurance Company, the agent of Pennsylvania National Mutual Casualty Insurance Company under the Doctrine of Estoppel?

Waller and Nationwide, on appeal, suggest that: “The lower court erred in ruling that the policy of workmen’s compensation insurance issued by Penn National to Leonard Pauza did not cover the injury sustained by the claimant, who was employed by a partnership of which Pauza was a member.” The Facts 4 Pauza, through his broker, John W. Walter, t/a Col-Mar Insurance Agency (Col-Mar), in 1970 had obtained a policy of workmen’s compensation insurance written by Penn National through J. B. Schaftel Company (Schaftel), its general agent. The policy involved in the subject proceeding, the second renewal of that earlier policy, had been issued for ³⁷¹ the period August 5, 1972 to August 5,1973. The first page of the policy thus described the insured: Leonard William Pauza INDIVIDUAL x 25 Prospect Avenue PARTNERSHIP _ Catonsville, Baltimore Co., CORPORATION_ Maryland 21228 OTHER _ Under the heading of “Classification of Operations” the insured was described as engaged in “Carpentry installation of cabinet work or interior trim.” The estimated payroll was $10,000.00 annually. At all times prior to September, 1972 Pauza had conducted his carpentry business as an individual.

Sometime in September, 1972 Leonard William Pauza and Arthur Grimes formed a partnership under which they traded as A & L Contractors. They had no prior association as employers. Contemporaneously with the formation of that partnership, Pauza and Grimes as partners, entered into a contract with Waller for “all carpentry work (rough and trim) in Section 1, consisting of 9 Buildings, 7 “A” Buildings (43 units) & 2 “D” Buildings (12 units), project known as QUEEN ANNE VILLAGE.” New State and Federal tax numbers were issued to the partnership upon application. Pauza continued as an individual employer on other projects.

On September 29, 1972 claimant was employed by the partnership to work on the Waller job. He was paid by A & L Contractors, by partnership check. He had never been employed by Pauza individually. Pauza, believing that the new partnership and the broadened character 5 of carpentry work undertaken by the partnership would affect his workmen’s compensation insurance, contacted his broker, Col-Mar on or about ³⁷² September 27, 1972, told him about the formation of the partnership and requested that requisite changes in workmen’s compensation insurance be effected.

Col-Mar submitted a bill to A & L Contractors, care of Pauza, for $133.00 for the estimated additional premium under the existing policy. Pauza, believing that the additional premium cost would exceed the billed figure, sent Col-Mar a partnership check for $200.00 that was deposited by Col-Mar. Col-Mar did not notify Schaftel or Penn National of Pauza’s change in status or the broadened nature of the partnership operation until November 29, 1972, eleven days after the accidental injury to claimant. Neither Schaftel nor Penn National ever received any part of the $200.00 paid by the partnership to Col-Mar.

The partnership was obligated, under the terms of its contract with Waller, to “furnish all required Insurance Certificates for Workmen’s Compensation * * * before actual work commences.” Schaftel was requested to issue and on September 27, 1972 did in fact issue to Waller a Certificate of Insurance, certifying that the Pennsylvania National Mutual Casualty Insurance Company had issued to Leonard William Pauza, 25 Prospect Avenue, Catonsville, Maryland 21228 a Workmen’s Compensation insurance policy providing coverage within the statutory limits provided by the Workmen’s Compensation Law of the State of Maryland and Employer’s liability to a limit of $100,000.00 by policy number WC000094642 for a policy term from 8/5/72-73. Waller’s general superintendent pointed out to Pauza that the certificate had been issued under a policy insuring Pauza only as an individual. Pauza, however, made no effort to obtain a revised certificate nor did Waller demand one. Estoppel There can be little doubt that an estoppel would arise against Penn National if Col-Mar was its agent.

The trial court found that Col-Mar at no time held himself out as agent of Penn National. The record fully supports the finding. There is not a scintilla of evidence that Schaftel or Penn National had knowledge of the formation of Pauza’s ³⁷³ partnership with Grimes nor of the broadened scope of Pauza’s operations until after injury to the claimant. Under such circumstances it is quite clear that Col-Mar was the agent of Pauza and not the agent of Penn National.

Article 48 A, § 166; American Casualty Co. v. Ricas, 179 Md. 627, 631 , 22 A. 2d 484, 487 . The case of Reserve Insurance Company v. Duckett, 240 Md. 591 , 214 A. 2d 754 , cited by Pauza, recognized the validity of the doctrine that an insurer may be bound by one not specifically authorized, if the insurer’s actions were such as reasonably would lead a third party to believe that the agent had authority to bind the insurer. The subsequent appeal of that case after remand, however, Reserve Insurance v. Duckett, 249 Md. 108 , 238 A. 2d 536 , demonstrates that the decision is inapposite here. At page 115 [540] of the second appeal, the Court stated: “Reserve was aware that Davis appeared on the face of its policies as agent and from this was charged with knowledge that Davis was issuing its policies as agent.

Although in a two-year period, 1960-1962, Reserve received 1011 copies of its policies with Davis appearing as agent, it never repudiated Davis or denied the validity of the issued policies.” In the subject case it is uncontradicted that Penn National had a firm rule against brokered business and had no knowledge whatever that Pauza’s policies had been obtained through Col-Mar. All Pauza policies had been issued for Penn National by Schaftel. We find no estoppel. Coverage Under Penn National Policy The question whether a workmen’s compensation insurance policy, issued to an individual, affords him protection against claims of an employee of a subsequently formed partnership of which he is a member, is a matter of first impression in Maryland.

The authorities in other jurisdictions are divided upon the question. ³⁷⁴ The leading case espousing the doctrine that such an insurance policy provides coverage is Reed v. Industrial Accident Commission, 73 P. 2d 1212 (S. Ct. Cal. 1937), 114 A.L.R. 720 . In Reed , a building contractor obtained a policy of workmen’s compensation insurance for an insurer. He thereafter became associated with another in the conduct of a building business. On those facts the Court said at 1213 [721]: “The position of said respondent is, in brief, that the policy insured W. B. Mellott, an individual, and not the partnership of Gordon & Mellott; that Reed was employed by the firm of Gordon & Mellott, and not by W. B. Mellott; and that consequently, the policy did not cover the injury, because Reed’s employer, the partnership, was not insured.

This position is unsound on principle and contrary to prior decisions in this state. “The underlying fallacy in respondent’s argument is the assumption that the partnership is a distinct unit, separate from the members thereof. Occasional suggestions of this ‘entity’ theory of partnership are found in statutes or decisions, but, apart' from exceptional situations, & partnership is not considered an entity, but an association of individuals. See First Nat. Trust & Savings Bank v. Industrial Accident Commission, 213 Cal. 322, 331 , 2 P.2d 347 , 78 A.L.R. 1324 ; 9 Cal.

L. Rev. 119 . In consonance with this view, an employee of a partnership is an employee of each of the partners, and no individual partner may escape liability to such employee on the ground that only the partnership and not the individuals composing it can be held. It is immaterial whether the liability of the partners in this situation is joint and several, or joint, for even in the case of joint liability, a several judgment may be had against an individual partner by ’proper joinder and pleading. See Palle v. Industrial Commission, 79 Utah 47 , 7 P.2d 284 , 81 ³⁷⁵ A.L.R. 1222; Merchants’ Nat.

Bank v. Clark-Parker Co., 215 Cal. 296 , 9 P.2d 826 , 81 A.L.R. 778 . The result is that W. B. Mellott, a partner in the firm of Gordon & Mellott, was an employer of petitioner Reed, and was undoubtedly liable to Reed for workmen’s compensation. Since W. B. Mellott procured insurance with respondent company to cover such liability, and paid the required premium therefor, the company must perform its obligation by paying the award.” A dissenting Justice in Reed , after pointing out that the California workmen’s compensation statute required the word “employer” to include every firm and voluntary association, grounded his dissent upon the fact: (p. 1215 [724]) “The only contract which the insurer made in this case was with W. B. Mellott, an individual. It did not agree to insure either a partnership of which Mr. Mellott might thereafter become a member, or the individual liability of Mr. Mellott as a member of such a partnership,” In Weir v. New Amsterdam Cas.

Co., 20 A. 2d 12 , the Court of Common Pleas of New Jersey, Passaic County, although declaring that it was unnecessary to decide the question, cited the Reed decision. On appeal, Weir v. New Amsterdam Cas. Co., 24 A. 2d 562 , the Supreme Court of New Jersey, although not citing Reed, supra, adopted the view expressed therein, declaring at 564: “The prosecutor’s third point goes to the proposition that the policy did not cover the award inasmuch as the policy was written to indemnify Harry Pilchman and was not written in coverage of the co-partnership of Harry Pilchman and Louis Lipschultz. We are of the opinion, however, that the policy did cover the award.

Assuming the fact to be that at the time of the employment of Weir, as well as at the time of the accident, the employer was a partnership, it remains that the insured was, as a member of that partnership, an employer of Weir and that a judgment or award obtained by Weir ³⁷⁶ against the partnership was collectible from Pilchman. The situation is quite different from that which exists when the partnership' is the insured employer and the hiring is by one of the members individually in an employment outside the partnership. The accident sued upon arose out of and in the course of an employment in the business conducted under the trade name of ‘Clinton Hill Painters and Decorators'. Pilchman, as an employer therein, was liable.

We perceive no sound reason why his insurer, which undertook to indemnify him as an employer in that business, should not be held responsible. It is made liable by its contract.” (Decision affirmed per curiam 28 A. 2d 126 ). See also, Parker v. Zanghi, 131 A. 2d 802, 807 (Superior Ct. of N. J. App. Div. 1957). 6 Greenstein v. Kastonowitz, 24 N.Y.S.2d 792 (S. Ct. App. Div., 3rd Dept. 1941), appeal denied 26 N.Y.S.2d 608 , applied the rule under circumstances where the intent to cover the business was not questioned. In U. S. F. & G. v. Collins, 95 So. 2d 456 (S. Ct. of Miss. 1957), under similar facts, the Court said at 460: “The general rule is that a compensation policy insuring an individual member of a partnership covers an injury to an employee of the partners. 45 ³⁷⁷ C.J.S. Insurance § 826, p. 877; 58 AmJur., Workmen’s Compensation, Section 565; Reed v. Industrial Accident Commission, 1937, 10 Cal.2d 191 , 73 P.2d 1212 , 114 A.L.R. 720 ; Brollier v. Van Alstine, 1942, 236 Mo.App. 1233 , 163 S.W.2d 109 .” 7 In Clawson v. General Insurance Co., 412 P. 2d 597 (S. Ct. Idaho 1966), although Reed, supra, was cited in a case involving joint venturers and its rule was there applied, the Court left open [p. 600] the question whether the decision would have been otherwise had a partnership been involved.

Other cases in the State of Missouri, formerly adhering to the Reed doctrine were expressly rejected in a later decision. 8 The leading case espousing the doctrine that such insurance policy does not provide coverage is Kalson v. Industrial Commission, 21 N.W.2d 644 (S. Ct. Wisc. 1946). In Kalson , the Wisconsin statute defined “employer” as ³⁷⁸