CORNELL, HOWLAND, HAYES & M., INC. v. Continental Cas. Co.

• Decision Date: 03 July 1972
• Docket Number: 26186.,No. 26178,26178
• Citation: 465 F.2d 22
• Parties: CORNELL, HOWLAND, HAYES & MERRYFIELD, INC., a corporation, Plaintiff-Appellee, v. CONTINENTAL CASUALTY COMPANY, also known as Continental National American Group, and American Motorists Insurance Company, Illinois corporations, Defendants, American Motorists Insurance Company, Appellant. CORNELL, HOWLAND, HAYES & MERRYFIELD, INC., a corporation, Appellant, v. CONTINENTAL CASUALTY COMPANY, also known as Continental National American Group, and American Motorists Insurance Company, Illinois corporations, Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

465 F.2d 22 (1972)

CORNELL, HOWLAND, HAYES & MERRYFIELD, INC., a corporation, Plaintiff-Appellee, v. CONTINENTAL CASUALTY COMPANY, also known as Continental National American Group, and American Motorists Insurance Company, Illinois corporations, Defendants, American Motorists Insurance Company, Appellant.

CORNELL, HOWLAND, HAYES & MERRYFIELD, INC., a corporation, Appellant, v. CONTINENTAL CASUALTY COMPANY, also known as Continental National American Group, and American Motorists Insurance Company, Illinois corporations, Appellees.

Nos. 26178, 26186.

United States Court of Appeals, Ninth Circuit.

July 3, 1972.

Stewart M. Whipple (argued), of Seitz, Whipple, Bemis & Breathouwer, Portland, Or., for American Motorists Insurance Co.

Paul N. Daigle (argued), Ken E. Roberts, Portland, Or., for Continental Casualty Co.

John Gordon Gearin (argued), David C. Landis, Portland, Or., John B. Fenner, Corvallis, Or., for Cornell, Howland, Hayes & Merryfield, Inc.

Before: HAMLIN, HUFSTEDLER, and GOODWIN, Circuit Judges.

ALFRED T. GOODWIN, Judge:

Cornell, Howland, Hayes & Merryfield, Inc., a firm of consulting engineers known as CH2M, brought declaratory judgment proceedings against two insurance companies to establish that at least one insurer would furnish coverage for claims arising out of alleged negligence in the preparation of plans and specifications for a city sewer project.

The district court held that American Motorists Insurance Company was liable, and that Continental Casualty Company was not liable. American appeals, and CH2M cross-appeals (as a hedge), from that part of the judgment exonerating Continental.

On August 15, 1959, CH2M purchased a professional-liability policy from Continental. The policy insured CH2M for losses resulting from CH2M's negligent acts or omissions occurring during the period of coverage, provided that claims against the insured were made within the period.

In 1961, the City of Salem, Oregon, retained CH2M to prepare plans and specifications for an outfall sewer project. CH2M completed the plans in 1963, and the city in due course awarded the contract to the M & S Construction Company (M & S).

In December of 1964, after the project's completion, M & S advised CH2M by letter that the City of Salem had failed to supply M & S with certain information, the absence of which caused M & S a substantial financial loss. M & S, therefore, made a claim for damages against the City of Salem. At that time, no claim had been made against CH2M.

In August of 1965, an agent of American solicited CH2M in what proved to be a successful effort to cause CH2M to change insurance carriers. American's agent orally advised CH2M's counsel that, after the change, should either M & S or the City of Salem make a claim against CH2M, CH2M would be covered.

On August 13, 1965, CH2M's counsel, in conjunction with American's agent, wrote a letter to Continental advising Continental of CH2M's plan to change insurers. This letter also advised Continental of the potential M & S claim. On August 15, 1965, American issued its policy to CH2M, and Continental terminated its coverage.

The American policy provided that coverage would be extended for CH2M's acts, errors, or omissions occurring prior to the policy's effective date only if: (1) the insured did not know of such acts, errors, or omissions, and (2) no other insurance was applicable to such negligent conduct.

In September, 1966, M & S commenced an action in Oregon's state courts against CH2M seeking damages totaling $481,741.01. Continental declined to defend CH2M, on the ground that no claim had been made against CH2M within the period of Continental's coverage. American also refused to defend, contending that prior to the effective date of its policy CH2M had knowledge of the acts or omissions upon which the M & S claim was based.

The district court dismissed CH2M's action against Continental, after finding that the M & S claim against CH2M had not been made within the period of Continental's coverage. The court also found that, prior to the effective date of American's policy, CH2M had knowledge of the facts surrounding the sewer project. These two findings, standing alone, would leave CH2M with no insurance at all for the M & S claim.

The district court also found, however, that, insofar as the M & S claim was concerned, American either had waived or was estopped from relying upon the policy provision limiting coverage to acts of negligence about which the insured had no knowledge at the time the policy was written. The court, therefore, determined that American was obligated to defend CH2M against the M & S action, and awarded CH2M judgment for the costs it had incurred during the M & S litigation and attorneys' fees in the present action against Continental and American.

Waiver is the voluntary relinquishment of a known right. Fred Meyer, Inc. v. Central Mutual Insurance Co., 235 F.Supp. 540 (D.Or. 1964). In order to waive an insurance policy provision, the insurer must have knowledge of that provision, and must intend that it not apply. Fred Meyer, Inc. v. Central Mutual Insurance Co., supra; Grau v. Northwestern Mutual...