Diversified Products Co. v. Fidelity & Casualty Co. of NY, 16315.

Decision Date04 February 1966
Docket NumberNo. 16315.,16315.
Citation355 F.2d 846
PartiesDIVERSIFIED PRODUCTS COMPANY, a dissolved Michigan Corporation and Warner H. Kimball and Bruce R. Mayhew, Directors and Trustees of Diversified Products Company, Plaintiffs-Appellees, v. The FIDELITY & CASUALTY COMPANY OF NEW YORK, Defendant-Appellant.
CourtU.S. Court of Appeals — Sixth Circuit

Robert G. Russell, Detroit, Mich. (Sweeny, Dodd, Kerr, Wattles & Russell, Detroit, Mich., on the brief), for appellant.

Frank K. Zinn, Detroit, Mich. (Dykema, Wheat, Spencer, Goodnow & Trigg, Detroit, Mich., on the brief), for appellees.

Before WEICK, Chief Judge, CECIL, Senior Circuit Judge, and BROOKS, District Judge*.

WEICK, Chief Judge.

We are called upon in this case to construe the products hazard exclusion clause contained in a Comprehensive General-Automobile Liability Policy issued by The Fidelity & Casualty Company to Diversified Products Company1.

The business of Diversified as stated in the policy was the manufacture of automobile fibreboard panels.

In the insuring agreement, Fidelity agreed to pay on behalf of Diversified, all sums which it shall become legally obligated to pay as damages sustained by any person and caused by accident. Fidelity further agreed to defend any suit against the insured alleging such injury, even if the suit was groundless, false or fraudulent.

It was stipulated that the policy covered the accident hereafter related, unless excluded under the provisions of the products hazard clause. Diversified did not pay any premium for products hazard coverage and hence was not entitled to the protection afforded by that clause. If the accident was embraced within the coverage provided by the products exclusion clause, then the insurer would not be liable on the policy.

In 1958 Diversified contracted with Ford Motor Company to supply armrests and quarter panels for the 1959 Ford Galaxie automobile. Diversified in turn agreed with Superwood Corporation that the latter would produce the armrests and quarter panels for Diversified. Superwood was to mold, press, and trim the parts involved. The trimming operation, however, required a punch press which Superwood did not possess. At Superwood's request, Diversified informed Superwood of several used presses available for purchase from suppliers in the area. Superwood thereafter selected and purchased one of the presses direct from a supplier.

The press was delivered to Superwood's Duluth, Minnesota plant, where it was inspected, cleaned, oiled, and operated by Superwood employees. The press was also tested by Superwood employees and appeared to be in good working order. No employee of Diversified participated in this operation, although its Production Engineer, Glenn Alsup, was present at the time of installation. Thereafter, the press was shipped to Superwood's Floodwood plant, where it was installed by Superwood's employees. Dies were installed on the press by Superwood's employees under the supervision of Diversified's engineer. Mr. Alsup, who then adjusted the die guides, operated the press, and trimmed several hundred pieces of material. There was evidence that Mr. Alsup was present at the Floodwood plant from time to time to see that the parts trimmed by the press met the specifications of the Ford Motor Company. He made many trips to the Floodwood plant for quality control purposes, both before and after the press was installed and operated.

On August 28, 1958 the press was operated by John Hutchinson, an employee of Superwood. When Hutchinson reached in the press to remove trimmed parts, the press automatically repeated itself. His hands were caught in the press, severely injuring them. No employee or agent of Diversified was present at the time of the accident.

On July 21, 1960 Hutchinson instituted an action in the United States District Court, District of Minnesota, for damages for personal injuries against the supplier of the press, the repairer, and Diversified. Fidelity was timely notified by Diversified of the Hutchinson claim and suit and was requested to defend the suit. Fidelity refused to defend the suit claiming that the accident was within the "Products Hazards" exclusion clause of the policy. Diversified employed an attorney to defend it in the case. The suit was finally settled for approximately $40,000, of which Diversified contributed $10,500.

Diversified filed the present action against Fidelity in the District Court for reimbursement, under provisions of the policy, of the amount it paid in the settlement and defense of the Hutchinson suit. The action was tried without a jury. The District Court adopted findings of fact and conclusions of law and entered judgment against Fidelity, from which judgment this appeal was taken.

The District Court in its findings of fact and conclusions of law concluded that the "Products Hazard" exclusion could not be held to apply to a phase or incident of the manufacturing process of Diversified. Specifically, the Court held:

"* * * Diversified\'s activities in connection with the procurement, installation, and adjustment of the punch press and * * * its activities in connection with quality control were a part of its manufacturing operations, and within the ambit of the phrase in the policy `Manufacturer of automobile fiberboard\' * * * and the
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