Zemelman v. Boston Insurance
1970 Cal. App. LEXIS 1499, 4 Cal.App.3d 15, 84 Cal. Rptr. 206 (1970)
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Rule of Law:
The fraudulent act of one partner, when making an insurance claim on behalf of the partnership, is imputed to the innocent partner and voids the entire insurance policy, barring recovery for the partnership.
Facts:
- Irving Zemelman and Hyman Zemelman were copartners in a business.
- The partnership held several fire insurance policies for its business premises, issued by the respondent insurance companies.
- A fire damaged the insured partnership premises.
- On behalf of the partnership, Irving Zemelman submitted claims to the insurance companies to recover for the fire loss.
- Irving Zemelman willfully included false and fraudulent statements within these insurance claims.
- Hyman Zemelman, the innocent copartner, had no knowledge of and did not participate in his partner's fraudulent conduct.
Procedural Posture:
- The Zemelman partners sued six insurance companies in the trial court to recover fire insurance proceeds.
- The insurance companies answered, asserting that the policies were void due to Irving Zemelman's false statements in the claim.
- The parties stipulated in the trial court that Irving Zemelman had been convicted of filing a fraudulent insurance claim.
- Five of the insurance companies moved for summary judgment based on the fraud.
- The trial court granted summary judgment in favor of the five respondent insurance companies.
- The Zemelman partners (appellants) appealed the trial court's grant of summary judgment to the intermediate court of appeal.
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Issue:
Does the willful and fraudulent act of one partner in submitting a false insurance claim on behalf of the partnership void the entire insurance policy, thereby precluding an innocent copartner from recovering any proceeds?
Opinions:
Majority - Reppy, J.
Yes, the fraudulent act of one partner in submitting an insurance claim on behalf of the partnership voids the entire insurance policy. The insurance proceeds, if recovered, would be partnership assets, not the individual property of the partners. Under partnership law, partners are agents of the partnership, and the fraudulent act of one partner committed within the scope of his authority binds the entire partnership. Filing an insurance claim is an act for 'apparently carrying on in the usual way the business of the partnership.' Therefore, Irving Zemelman's fraud is imputed to the partnership as a whole, voiding the policy for both partners and preventing any recovery.
Analysis:
This decision solidifies the application of agency law principles to partnerships in the context of insurance contracts. It affirms that for purposes of an insurance policy's fraud clause, a partnership is treated as a single entity, the 'insured.' The case draws a crucial distinction between fraudulent acts within the apparent scope of business (like filing a claim), which bind the partnership, and tortious acts outside that scope (like arson), which may not. This ruling underscores the significant risk partners assume for their copartners' misconduct in business dealings, even when they are personally innocent.
