Opinion ID: 2614519
Heading Depth: 1
Heading Rank: 4

Heading: the joint venture exclusion

Text: The court of appeals affirmed the trial court's orders granting summary judgment to Compass and Commercial Union on the ground that some of their policies contained joint venture clauses. See Englewood, 940 P.2d at 956-57. In doing so, the court of appeals affirmed the trial court's conclusion that the Bi-City Plant constituted a joint venture between the Cities and was therefore excluded from coverage from certain policies issued to the Cities. See id. at 957. In the trial court, Guaranty National and American States moved for summary judgment on the basis of both the pollution exclusion clause and the joint venture clause. See id. at 958. The trial court granted summary judgment to these companies based on the pollution exclusion clauses in their policies and did not rule on the joint venture issue with respect to these companies. See id. Following the principle that a correct judgment will not be disturbed on appeal, the court of appeals did not reverse the summary judgment rulings for Guaranty National and American States based on the pollution exclusion clause but rather affirmed these rulings based on the joint venture clause. See id. Reviewing the trial court's interpretation of the joint venture clause de novo, we construe the ambiguous term joint venture against the Insurers and conclude that the trial court erred in ruling that the Bi-City Plant was a joint venture. Therefore, we hold that summary judgment should not have been entered on behalf of any of the Insurers on the basis of the joint venture clause, and we reverse these rulings of the court of appeals.
We begin by reiterating the fundamental principle that an ambiguous provision in an insurance policy contract must be construed against the drafter and in favor of providing coverage to the insured. See Chacon, 788 P.2d at 750. An ambiguous provision is a provision that is reasonably susceptible to different meanings. Id. Thus, in Hecla, we explained that [i]n order to avoid policy coverage, an insurer must establish that the exemption claimed applies in the particular case, and that the exclusions are not subject to any other reasonable interpretations. Hecla, 811 P.2d at 1090. Here, the term joint venture was not defined by the insurance companies that drafted the insurance policies at issue. The joint venture clauses appear in the persons insured sections of the insurance policies. Unlike the pollution exclusion clauses, the joint venture clauses are not delineated as exclusions for coverage within the separate exclusion sections in the policies. A joint venture is a type of relationship under the law of partnership and agency; it is not defined by regular, non-legal dictionaries. Both the trial court and the court of appeals relied on the technical legal definition of joint venture as set forth in our case law: A joint venture exists when there is: (1) a joint interest in property; (2) an express or implied agreement to share in profits or losses of the venture; and (3) actions and conduct showing joint cooperation in the venture. Englewood, 940 P.2d at 957 ( citing Hancock Constr. Co. v. Cummins, 791 P.2d 1208 (Colo. App.1990)). Both the Insurers and the Cities frame their arguments according to this definition of a joint venture. The Cities concede that the first and third elements are present in their agreement to form the Bi-City Plant. However, they dispute that there was any agreement between them to share in profits or losses. Insurers argue, and the courts below held, that a reduction in costs resulting from the fact that the Bi-City Plant enables the Cities to provide necessary services to their residents more efficiently than they would otherwise be able to provide constitutes an agreement to share profits. See Englewood, 940 P.2d at 957. In doing so, the court of appeals relied on dictionary definitions of the term profit to interpret that term broadly to mean a benefit or an advantage. See id. Although it is certainly appropriate to rely on dictionary definitions of undefined terms used in an insurance contract, we note that the term profit does not appear in the insurance policy exclusion at issue but rather derives from the technical legal definition of joint venture. For this reason, we find the reasoning of the court of appeals ultimately unpersuasive, especially in light of the rule that ambiguous terms are to be construed against the insurer that drafted the policy and in favor of policy coverage. See Chacon, 788 P.2d at 750. Under Colorado law, the term joint venture is most frequently associated with a business or commercial enterprise. [15] In such contexts, it may make sense to broadly construe the term profits in our definition of a joint venture to include a reduction in costs; because such entities are in the business of generating profits, any savings in costs they achieve necessarily results in greater profits. Here, however, there is no evidence in the record that the Bi-City Plant was in the business of generating profits. Rather, the agreement establishing the Bi-City Plant represents the Cities' attempt to efficiently pay for municipal wastewater treatment services, which they must provide to their residents, in accordance with legislation permitting them to provide such services jointly. [16] In contexts such as this, where the joint entity is not-for-profit, it is questionable whether the term profits should be broadly construed to include a reduction in costs or more narrowly construed to mean commercial revenues. Since we find the term profits to be ambiguous, we also hold that the term joint venture as used in the insurance contracts here is ambiguous. Therefore, we must construe this term against the insurance companies that drafted the policies and in favor of providing coverage to the insured. See Chacon, 788 P.2d at 750. Accordingly, we construe the term joint venture as used in the insurance policies here narrowly to exclude an entity formed for the limited purpose of providing more efficient municipal services. Thus, reviewing the trial court's interpretation of the joint venture clause of the insurance contract de novo, we hold that the trial court erred in concluding that the Bi-City Plant was a joint venture. Therefore, we reverse the judgment of the court of appeals affirming summary judgment for Compass, Commercial Union, Guaranty National, and American States based on the joint venture clauses in certain of their policies.
Our analysis of the joint venture clause, section IV.A., supra, is dispositive of all of the joint venture-based summary judgment rulings that were the subject of this appeal. Hence, we do not address whether summary judgment on the basis of the joint venture clause was precluded by the fact that the Bi-City Plant is statutorily defined as a municipality. Similarly, we decline to address whether the Joint Powers Between Governmental Bodies designation in the persons insured clause in certain policies issued to the City of Littleton conflicts with the joint venture clause, thereby precluding summary judgment. The Cities make three other arguments related to the joint venture clause which, for the sake of clarifying the complex record in this case, we briefly address here.
The Cities contend that the court of appeals failed to recognize that the insurance companies acknowledged that the Bi-City Plant is a municipality and not a joint venture. Based on our reading of the record, this argument applies to Commercial Union only. We simply note that the Cities are correct that Commercial Union issued two comprehensive general liability policies to the Bi-City Plant itself and that in each of these policies, Commercial Union identified the named insured  i.e., the Bi-City Plantas a municipality and not as a joint venture.
The Cities also contend that the court of appeals erred in failing to recognize that the insurance companies waived the right to assert the joint venture clause as a defense. We disagree, based on the long-standing principle that a waiver cannot have created liability where none existed under the policy. Empire Cas. Co. v. St. Paul Fire & Marine Ins. Co., 764 P.2d 1191, 1198 (Colo.1988); see also Hartford Live Stock Ins. Co. v. Phillips, 150 Colo. 349, 352, 372 P.2d 740, 742 (1962) (the doctrine of waiver cannot be invoked to create a primary liability and bring within the coverage of the policy risks not included or contemplated by its terms).
Finally, the City of Littleton argues that the court of appeals erroneously affirmed summary judgment rulings for Guaranty National with respect to four policies that it issued to the City of Littleton when only one of those policies actually contained a provision excluding coverage for joint ventures that are not also named insureds. Guaranty National does not dispute this factual assertion. Rather, it suggests a different interpretation of the court of appeals opinion, arguing that the court of appeals only affirmed summary judgment for Guaranty National with respect to that one policy. According to our reading of the court of appeals opinion and of the record in this case, the Cities' concern is valid. Guaranty National issued four policies to the City of Littleton. It moved for summary judgment based on the pollution exclusion clause with respect to all four policies and for summary judgment based on the joint venture clause with respect to one policy only. The trial court granted Guaranty National's summary judgment motion based on the pollution exclusion clause; that is, it granted summary judgment with respect to all four policies. Our reading of the court of appeals opinion in this case is that the court of appeals mistakenly assumed that all four policies also contained joint venture clauses. See Englewood, 940 P.2d at 958 (because a correct judgment will not be disturbed on review, [Guaranty National and American States] now are entitled to affirmance of their summary judgment on the duty to defend based on the joint venture exclusion). Had the court of appeals realized that only one of the four policies issued by Guaranty National contained a joint venture clause, the court undoubtedly would have reversed the trial court's summary judgment rulings with respect to the other three policies. However, in light of our holding in section IV.A., supra, this mistake is irrelevant.