Austin P. Keller Construction Co. v. Drew Agency, Inc.

OPINION FOLEY, Judge. Three groups appeal denial of summary judgment in a declaratory judgment action. Appellants sought a declaratory judgment that respondent insurers have a duty to defend and indemnify two construction companies and one construction company employee against personal injury claims arising out of a gas explosion allegedly caused by the negligence of a now defunct joint venture between the companies. The insurance companies denied completed operation coverage because of joint venture exclusions in the companies’ insurance policies. The trial court denied summary judgment and certified as important and doubtful the interpretation of the exclusion clause. FACTS In 1970, Austin P. Keller Construction and Erwin Montgomery Construction Company formed a joint venture to construct water and sewer lines for the city of Ano-ka. Allen Montgomery supervised the work. The project was completed in 1972 and the joint venture was dissolved shortly thereafter. In March 1982, Eleanor Knutson and others were injured in a gas explosion in Ano-ka. They brought a personal injury action against the utility company, the City of Anoka, Keller and Montgomery construction companies, and Allen Montgomery, personally. The action alleges that the explosion occurred as a result of negligent backfilling by the joint venture. The joint venture insured the project during construction. However, that coverage was effective only for accidents which occurred during the policy period. That insurance expired long before the explosion. When Montgomery and the construction companies were sued in connection with the project, they looked to their current “completed operations” insurers for coverage. Keller Construction was insured by Maryland Casualty and Mission Insurance. The policies were effective July 1981 — July 1982. Montgomery Construction and Montgomery were insured by Great American Insurance Company. That policy was effective February 1982 — February 1983. All three policies were purchased through the Drew Agency. Montgomery and the construction companies tendered their defenses to their respective insurers. The insurers refused coverage and declined to defend because of joint venture exclusions in the policies. All three policies contained the following provision: This insurance does not apply to bodily injury or property damage arising out of 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. Montgomery was a named insured on the Great American policy. The joint venture was not a named insured on any of the policies. [82] Various parties brought a declaratory judgment action seeking a declaration of coverage. The trial court found that all three policies include coverage for completed operations. It also found that the damages allegedly suffered by Knutson would clearly arise out of á covered occurrence under the policies, except for the disputed joint venture exclusions. The trial court denied summary judgment and certified the following question for consideration by this court: Whether insurer may deny completed operations coverage to plaintiff contractors, and to the individual insured Allen Montgomery, by reason of a clause excluding liability with respect to a “joint venture of which the insured is a partner or member” when the insured were not members of a joint venture at the time coverage was purchased or in effect? Keller Construction, Montgomery Construction and Montgomery (# C6-84-1291), Knutson (# CO-84-1271) and the Drew Agency (# C9-84-1320) appealed the denial of summary judgment. We have consolidated the appeals for consideration. ISSUES May insurers deny completed operations coverage based on policy language excluding liability with respect to a “joint venture of which the insured is a partner or member” when the insureds were not members of a joint venture at the time the coverage was purchased or in effect? ANALYSIS An insurance policy is a contract. The court’s function is to determine what the agreement was and enforce it. Western World Ins. Co., Inc. v. Hall, 353 N.W.2d 221 (Minn.Ct.App.1984). If the terms of the policy are plain and unambiguous, their plain meaning should be given effect. Any ambiguity should be construed in favor of the insured and against the insurer. Fillmore v. Iowa National Mutual Insurance Co., 344 N.W.2d 875, 877 (Minn.Ct.App.1984). If any part of a cause of action is arguably within the scope of coverage the insurer has a duty to defend. An insurer seeking to avoid affording a defense has the burden of demonstrating that all parts of the cause of action fall clearly outside the scope of coverage. Prahm v. Rupp Construction Co., 277 N.W.2d 389, 390 (Minn.1979). The joint venture exclusion at issue is commonly used. However, its application to claims arising from a joint venture terminated before the issuance of the policy appears to be a question of first impression. In one case an Oklahoma court found the exclusion was not applicable because there was no joint venture, Maryland Casualty Company v. Turner, 403 F.Supp. 907 (W.D.Okla.1975). In two others, courts applied the exclusion to joint ventures in progress during the relevant policy period. Associated Metals and Minerals Corp. v. Hartford Accident and Indemnity Co., 1977 Fire and Casualty Cases 907 (S.D.N.Y. March 21, 1977); Fireman’s Fund Insurance Co. v. E.W. Burman, Inc., 120 R.I. 841, 391 A.2d 99 (1978). We find that the exclusion does not extend to joint ventures terminated before the issuance of the policy. The exclusion language is limited to the present tense. It excludes liability only with respect to a “joint venture of which the insured is a partner or member.” We cannot, as the dissent suggests, gloss over the distinction between “is” and “was.” If the insurers intended to exclude claims arising out of work by a terminated joint venture they could have specified “joint venture of which the insured is or was a partner or member.” Nor can we accept the insurers’ contention that, because the construction companies continue to be liable individually for the negligence of the terminated venture, they were currently members of the venture at the time the policies were issued. A joint venture is not in a strict legal sense a partnership. But, in general, the same rules and principles apply to joint ventures as to partnerships. Rehnberg v. Minnesota Homes, Inc., 236 Minn. 230, 52 [83] N.W.2d 454 (1952). Joint venturers, like partners, are jointly liable for negligent work undertaken on behalf of their mutual undertaking. Krengel v. Midwest Automatic Photo, Inc., 295 Minn. 200, 203 N.W.2d 841, (1973). And a joint venture, like a partnership, may be dissolved at will. Swanson v. Lindstrom, 151 Minn. 19, 185 N.W. 950 (1921). Liability for the negligence of a partner or joint venturer acting in the course of the partnership or venture survives dissolution. See Kangas v. Winquist, 207 Minn. 315, 291 N.W. 292 (1940); Williams v. McDaniel, 119 F.Supp. 247 (D.Nev.1953). However, survival of that liability does not extend indefinitely the duration of the joint venture. A joint venture is by its nature limited to an association of two or more persons to carry out a single business enterprise for profit. Keiswetter v. Rubenstein, 235 Mich. 36, 209 N.W. 154 (1926). After the enterprise is completed and the joint venture is terminated the parties’ liability is that of former members of the terminated venture, not as current members of an ongoing venture. The record does not indicate that the insurers ever inquired if the construction companies had ever been members of a terminated joint venture. Since the companies dissolved their joint venture long before the policies were issued or the explosion occurred, the exclusion does not apply to claims against the companies arising out of the explosion. The exclusion is also inapplicable to Montgomery because he was a named insured and an employee rather than a member of the terminated joint venture. DECISION We reverse and remand to the trial court with instructions to enter judgment requiring Maryland Casualty and Great American Insurance to defend, and Maryland Casualty, Great American and Mission Insurance to indemnify their respective insureds. The plain language of the exclusion prohibits the insurers from denying completed operations coverage to plaintiff contractors, and to the individually insured Allen Montgomery, by reason of a clause excluding liability with respect to a “joint venture of which the insured is a partner or member” when the insured were not members of a joint venture at the time coverage was purchased or in effect. WOZNIAK, J., dissents.