Aetna Cas. & Sur. Co. v. Martin Bros. Contain. & Timber Pr. Corp.

Decision Date21 January 1966
Docket NumberCiv. No. 64-392.
Citation256 F. Supp. 145
PartiesAETNA CASUALTY & SURETY COMPANY, a Connecticut corporation, Plaintiff, v. MARTIN BROS. CONTAINER AND TIMBER PRODUCTS CORP., an Ohio corporation, Defendant.
CourtU.S. District Court — District of Oregon

Kenneth E. Roberts, Mautz, Souther, Spaulding, Kinsey & Williamson, Portland, Or., for plaintiff.

Irving Rand, Robert Clapperton and George W. Mead, Portland, Or., for defendant.


KILKENNY, District Judge.

This is a declaratory judgment action in which plaintiff seeks a declaration of rights and liabilities under its insurance policies issued to, and in favor of, the defendant. Plaintiff is a corporation organized under the laws of the state of Connecticut. Picton-Cavanaugh, Inc., with offices in Toledo, Ohio, was authorized to execute and issue in behalf of the plaintiff various forms of insurance coverage and for many years, on behalf of the plaintiff, issued to defendant, as agent for the plaintiff, various forms of insurance coverage, including the two policies here in question. Plaintiff maintained a claim department in Oregon with head offices in Portland. One of the policies under observation was issued on November 1, 1960. The other, on or about November 1, 1963. The policies covering a period from November 1, 1960, until November 1, 1964. These policies were issued through the Ohio agency of plaintiff to defendant at its principal place of business in Toledo, Ohio. Defendant is engaged in the business of manufacturing and sale of plywood and forest products and operates plants in the states of Ohio, Tennessee, Louisiana, California and Oregon.

During the policy period, defendant employed Albina Engine & Machine Works (Albina) to erect and install a new steam generating plant at the mill of defendant in Oakland, Oregon. The type of boilers selected by Albina required material alterations in order to convert them from their former use as part of an electric power system, to one where the power would be developed by the use of sawdust from defendant's mill. The plant was placed in operation on October 12, 1963, and, from the outset, the parties experienced difficulty in bringing the boiler pressure up to a point which would permit the mill to operate at full capacity. Likewise, from the start, "flyash" was emitted from the stacks and some of this material settled on the mill and in outlying areas. As the plant approached full capacity, the emission of the "flyash" increased to such an extent that in early December, the Council of the City of Oakland had the problem before it and some three or four days later a woman owning a motel in the area complained to the defendant about the substance being deposited on her property. It was not, however, until December 30th that the situation reached a point where the Council called a representative of defendant to its meeting. There, defendant's representative learned of many complaints that had been made about the deposit of the substance on property other than defendant's. Shortly after the December meeting, the defendant notified its Ohio office and, in turn, on January 11, 1964, the plaintiff was notified of the problem. Plaintiff commenced its investigation on or about January 21st. During the course of the investigation numerous law suits were filed against defendant in the state courts of the state of Oregon in connection with the emission and deposit of "flyash" materials on the claimants' properties. The charges against defendant, in those actions, have been summarized by the parties in the pre-trial order as follows:

"In each of said actions so filed by said claimants the complaint of the plaintiff alleges in substance that on or about October 15, 1963, the defendant, Martin Bros., put said steam plant into operation and since said date and to the date of filing the complaint burned in the furnace of the steam plant large amounts of bark, sawdust and other wood products, and the furnaces did not efficiently dispose of the large volume of wood products burned therein, and as a result of the operation of the steam plant, the defendant, Martin Bros., allowed and permitted quantities of soot, ashes and cinders to enter the atmosphere and to be disbursed and deposited upon and over the property of the claimant in the action, to the claimant's damage in the amount alleged."

Seventeen of the state court actions resulted in judgments or settlements totaling $46,354.00 for property damage and $16,200.00 for personal injuries. One of the actions is still pending. Attorney fees in defending the actions which have been settled or have gone to judgment amount to $4,782.50 and costs in the sum of $932.32.

Although plaintiff admits the reasonableness of the settlements and the validity of the state courts' judgments, it disclaims liability on the following grounds:

1. That the plaintiff is not obligated to defend the actions filed against the defendant for property damage claims, and that it is under no obligation to pay any judgment that may be rendered against the defendant in said actions.
2. That the plaintiff is informed and believes and therefore contends that the defendant did not give written notice to the plaintiff as soon as practicable of the claims arising from the emission of `flyash' from the defendant's plant at Oakland, Oregon; the plaintiff is informed and believes and therefore alleges that the defendant had knowledge of said claims shortly after the 12th of October, 1963, and that its first notice of said claims to the plaintiff was in January or February of 1964.
3. That the emission of `flyash' from the defendant's plant at Oakland, Oregon, following the installation of the new boiler system was not an `occurrence' as that term is defined in the policies of insurance.

Significant portions of the insurance policies, which must be construed, are set forth in the footnote.1 By endorsement, the policies were modified.2 Additionally, the policies provided for notice.3

(1) The first point for consideration is defendant's contention that it has no duty to defend in connection with the property damage claims. It is settled law, both in the states of Oregon and Ohio, that the insured's obligation to defend is settled by the allegations in the pleadings. Journal Publishing Co. v. General Cas. Co., 210 F.2d 202 (9th Cir. 1954); Lessak v. Metropolitan Cas. Ins. Co., 168 Ohio St. 153, 151 N.E.2d 730 (1958); Socony-Vacuum Oil Co. v. Continental Cas. Co., 144 Ohio St. 382, 59 N.E.2d 199 (1945).

Here, we must turn to the agreed charges in the pre-trial order which supersedes the pleadings. The charges in the pleadings, as summarized in the pre-trial order, clearly state a claim for violation of a legal right. The fact that the charges may sound in tort for trespass, or for common law negligence or as constituting a nuisance or otherwise, is of no importance. The charges were sufficient to show a probable liability under the policy. If there is any doubt as to whether the charges against an insured state a claim within the coverage of the policy, such doubt will always be resolved in favor of the insured. Macdonald v. United Pacific Ins. Co., 210 Or. 395, 311 P.2d 425 (1957); Blohm v. Glens Falls Ins. Co., 231 Or. 410, 373 P.2d 412 (1962). Plaintiff had an obligation to defend the actions and is liable for the attorney fees and costs incurred.

(2) Since the insurance policies were made, executed and delivered in the state of Ohio, the law of that state will govern on the issue of proper notice. Lane v. Brotherhood of Locomotive Enginemen & Firemen, 157 Or. 667, 73 P.2d 1396 (1937); Sterrett v. Stoddard Lbr. Co., 150 Or. 491, 46 P.2d 1023 (1935); Restatement, Conflict of Laws, § 318.

In Ohio, it is well established that an insurance company relying on a policy provision with reference to notice, must establish that the failure to give notice prejudicially affects its rights. Nationwide Mutual Ins. Co. v. Motorists Mutual Ins. Co., 116 Ohio App. 22, 186 N.E.2d 208 (1961); Mettes v. Taylor, Ohio Mun., 172 N.E.2d 747 (1959); Keith v. Lutzweit, 106 Ohio App. 123, 153 N.E.2d 695 (1957). Here, the first notice of a complaint on damage by the deposit of "flyash" was in the early part of December and the plaintiff was notified of claims in the early part of the following January. This court has already spoken on the subject where the occurrence was of such a nature that the assured did not believe harm would occur. General Ins. Co. v. Gilliam County High School Dist., 234 F.Supp. 109 (D. Or.1964). I find that plaintiff was not prejudicially affected by any delay in notification.

"As soon as practicable," means notice within a reasonable period of time. Hoffman v. Employer's Liability Assur. Corp., 146 Or. 66, 29 P.2d 557 (1934). So even if we apply Oregon law, that notice is a condition precedent to liability, Hoffman v. Employer's Liability Assur. Corp., supra, I would be compelled to find, under the facts and circumstances of this case, that notice was given within a reasonable period of time.

Although the record contains a statement by the general manager of the plant that he was aware of soot falling on "people's properties from October 12th on," the record is clear that the fall-out in the early operations was of a very minor nature and, as previously stated, the damaging nature of the deposits was not definitely called to the company's attention until the early part of December. What was a reasonable length of time in which to give notice is an issue of fact, which I resolve against the plaintiff. The insurance company, being the author of the language "as soon as practicable" must face the burden of an unfavorable construction. And if the policy is to be construed under the searchlight of Oregon law, the plaintiff in seeking a declaratory judgment has the burden of proof throughout the case. First National Bank v. Malady, Oregon Supreme Court, 408 P.2d 724. The Oregon rule is...

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