International Marine Underwriters v. ABCD Marine, LLC
The IMU opinion is an interesting example of legal gymnastics. The lead opinion engages in “interpretation” followed by “construction” – distinguishing between the two – in order to give meaning to the operative insurance policy. It then applies Washington partnership law to ascertain the relationship between a partner and a general partnership to determine whether the partner was a “third party” and therefore entitled to coverage. The concurring opinion simplifies the issue, although it is still far from simple, and the dissent accuses both the lead opinion and the concurring opinion of misunderstanding partnership principles. Although not joined by a majority of justices, the lead opinion is likely to be useful precedent in other cases involving complex contract interpretation/construction issues.
Albert Boogaard purchased a comprehensive marine liability insurance policy from International Marine Underwriters (IMU) for his general partnership, ABCD Marine. He subsequently suffered injuries as a result of a forklift accident while will working as an independent contractor for Northland Services Inc. (NSI). Boogaard submitted a claim for those injuries to IMU.
IMU denied coverage, claiming that Boogaard was not covered as a “third party” under the IMU policy because he was a general partner of the policyholder ABCD. IMU filed a complaint for declaratory relief regarding the coverage issue. The trial court granted summary judgment in IMU’s favor, finding as a matter of law that the damages arising out of the forklift incident were not covered by the IMU policy.
The court of appeals affirmed, holding that Boogaard was not a “third party” under the IMU policy. The Washington Supreme Court granted discretionary review and likewise affirmed.
Justice J.M. Johnson authored the lead opinion, with Justices Madsen and Owen concurring. Justice Johnson approached the coverage issue in two steps. First, Justice Johnson both “interpreted” and “construed” the IMU policy. Interpretation, Justice Johnson explained, refers to ascertaining the parties’ intent at the time they executed the contract, whereas construction refers to determining the legal effect of the contract. Based on that analysis, Justice Johnson concluded that the parties intended “third party” to mean those persons or entities that are not principals/parties to the Access Agreement that ABCD had signed in order to work for NSI.
Second, Justice Johnson turned to the Revised Uniform Partnership Act (RUPA) and general partnership principles to determine whether Boogaard, as a partner in ABCD (a general partnership), was a principal/party to the Access Agreement. The answer to that question, Justice Johnson explained, was “yes” because RUPA aggregates general partners and their partnership and does not treat the partnership as a distinct entity. Instead, the liability of the partners is the liability of the partnership and vice versa. Consequently, both ABCD and Boogaard were parties to the Access Agreement, and Boogaard was not covered as a “third party” under the IMU policy.
Justice Wiggins, joined by Justice Fairhurst, concurred. According to Justice Wiggins, the lead opinion unnecessarily complicated the issue presented, which is a simple matter of determining whether Boogaard was a “third person” as that phrase is used in the IMU policy. Addressing that issue, Justice Wiggins focused on whether Boogaard was a third person in relation to the indemnified party, NSI. Because all partners are jointly and severally liable under RCW 25.05.125(1) for all obligations of a partnership, Boogaard was not a third party as to NSI and IMU therefore owed ABCD no coverage.
Justice C. Johnson dissented, with Justices Stephens, Gonzalez, and Gordon-McCloud concurring. Justice Johnson concluded that both the lead opinion and the concurring opinion were contrary to statutory guidance regarding the relationship between partners and a partnership and the roles that partners take when acting on behalf of the partnership. Clearly distinguishing between partners and their partnership, Justice Johnson concluded that Boogaard signed the Access Agreement as an agent of ABCD. And while Boogaard might be liable for the partnership’s debts, that liability would first flow through the partnership. As a result, Boogaard was a third party to the underlying indemnity agreement and entitled to coverage as such.