Aetna Ins. Co. v. State Motors, Inc.

Decision Date17 July 1968
Docket NumberNo. 5693,5693
PartiesAETNA INSURANCE COMPANY v. STATE MOTORS, INC., et al.
CourtNew Hampshire Supreme Court

Devine, Millimet, McDonough, Stahl & Branch and Robert A. Backus, Manchester, for plaintiff, Aetna Ins. Co.

McLane, Carleton, Graf, Greene & Brown and James R. Muirhead, Manchester, for defendant, State Motors, Inc.

Wiggin, Nourie, Sundeen, Nassikas & Pingree, Manchester, for the defendant American Cab Co., filed no brief.

LAMPRON, Justice.

Petition for declaratory judgment brought by Aetna against its insured, State Motors, to determine the rights of the parties relating to an action brought by American Cab against the insured. Hearing before Loughlin, J. resulted in findings, rulings and a decree that Aetna was not obligated to defend or pay any judgment in this action. State Motor's exceptions to the Court's granting of certain requests, its denial of some and failure to rule on others, as well as to the Court's decree were reserved and transferred.

American Cab, on January 16, 1965, brought an action against State Motors based on its purchase, on February 28, 1964, of 'six new 1964 Comet '404' four door sedan automobiles.' The first count of the declaration alleges that State Motors negligently made representations to American Cab that these cars were fit and useable as taxi cabs, which in fact, were false and untrue, in that the clutches, transmissions, and other components of these cars were unfit, improper and required repair. The second count alleges that State Motors made certain warranties about these automobiles which were breached. As a result American Cab seeks damages for repair and replacement costs, loss of time, loss of business, injury to business reputation, inconvenience and other losses.

During the period in question, Aetna had issued to State Motors two consecutive 'Garage Liability Policy' each of which was identical in all respects material to this case. The only risk covered thereunder with which we are concerned is the following:

'Part I * * * Coverage B-Property Damage Liability. The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of * * * property damage * * * caused by accident arising out of the garage operations hazard for which insurance is afforded as indicated in the declarations; and the company shall have the right and duty to defend any suit against the insured seeking damages payable under the terms of this policy, even if any of the allegations of the suit are groundless, false or fraudulent' (emphasis added). 'Garage Operations Hazard (covers) the ownership, maintenance or use of the premises for the purposes of a garage, and all operations necessary or incidental thereto, hereinafter called 'garage operations'.'

The policy contains the following definitions: "garage' means an automobile sales agency, repair shop * * *'; " property damage' means physical injury to or destruction of tangible property'; "damages' includes * * * damages for loss of use of property.'

Exclusions of risks to which the policy does not apply include the following: '(a) to liability assumed by the insured under any contract or agreement, except * * * a warranty of goods or products;' '(i) to property damage to any goods, products or containers thereof manufactured, sold, handled or distributed by the named insured if such property damage results from a condition existing therein at the time possession of such goods, products or containers is relinquished to the purchaser thereof.'

State Motors properly conceded in its brief that because of exclusion (i) the Aetna policy does not cover it for its own repair or replacement costs to these automobiles. S. L. Rowland Const. Co. v. St. Paul Fire & Mar. Ins. Co., 434 P.2d 725 (Wash.1967); Hauenstein v. Saint-Paul- Mercury Indem. Co., 242 Minn. 354, 356, 65 N.W.2d 122; St. Paul Fire & Marine Ins. Co. v. Northern Grain Co., 365 F.2d 361, 368 (8th Cir. 1966); Bowman Steel Corp. v. Lumbermen's Mutual Casualty Co., 364 F.2d 246 (3rd Cir. 1966); Bundy Tubing Company v. Royal Indemnity Company, 298 F.2d 151, 153 (6th Cir. 1962).

State Motors maintains, however, that it is nevertheless covered for damages to others, such as American Cab, which result from property damage to these cars. In order to facilitiate consideration of this contention it would be useful to restate the material terms of Aetna's policy and the claims made by American Cab against which the policy must be measured. Lumbermen's &c. Co. v. McCarthy, 90 N.H. 320, 321, 8 A.2d 750, 126 A.L.R. 894; Ohio Cas. Ins. Co. v. Flanagin, 44 N.J. 504, 210 A.2d 221.

Aetna agrees to pay on behalf of State Motors all sums which State Motors shall become obligated to pay as damages (including damages for loss of use) because of property damage (which means physical injury to or destruction of tangible property) caused by accident arising out of State Motors' garage operations, that is the ownership, maintenance or use of its premises for the purposes of a garage (sales agency and repair shop) and all operations necessary or incidental thereto which includes liability under a warranty of goods or products (exclusion (a)), but not property damage caused by a condition in such goods or products at the time possession is relinquished to the purchaser thereof (exclusion i).

American Cab claims damages against the insured, State Motors, for repair and replacement costs, loss of time, loss of business, injury to business reputation, inconvenience and other losses resulting from a breach of warranty and negligent misrepresentation by State Motors which, because of the unfitness of the cars sold for use as taxicabs, resulted in clutch and transmission breakdowns which required these cars to be repaired and adjusted, parts and other material to be supplied and replaced in order to make these cars in fit working condition.

Leaving aside for the present the issue of whether the property damage claimed was caused by accident, recovery has been allowed in many instances under similar policies for physical damage to tangible property, other than the product itself, caused by a defect in the product bought from the insured. When house siding manufactured by the insured proved...

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