American Mfg. Corp. v. National Union Fire Ins. Co. of Pittsburg, PA.

• Decision Date: 29 June 1942
• Docket Number: 36452.
• Citation: 203 La. 515,14 So.2d 430
• Court: Louisiana Supreme Court
• Parties: AMERICAN MFG. CORPORATION, Inc., v. NATIONAL UNION FIRE INS. CO. OF PITTSBURG, PA.

14 So.2d 430

203 La. 515

AMERICAN MFG. CORPORATION, Inc., v. NATIONAL UNION FIRE INS. CO. OF PITTSBURG, PA.

No. 36452.

Supreme Court of Louisiana

June 29, 1942

Rehearing Denied June 21, 1943.

Lemle, Moreno & Lemle, of New Orleans, for defendant and appellant.

Lazarus Weil & Lazarus, of New Orleans, for plaintiff and appellee.

ODOM Justice.

Plaintiff, a corporation, is engaged in the business of manufacturing storing, and selling women's garments in the City of New Orleans. It brought this suit against the National Union Fire Insurance Company to recover the sum of $2,225.89, alleging as a cause of action that defendant issued to it an insurance policy insuring it against all direct loss and damage by 'sprinkler leakage', to an amount not exceeding $52,500, on all contents belonging to it in the premises 1052 Constance Street in New Orleans; that the policy was in full force and effect in February 26, 1939, when a 'sprinkler leakage' occurred in the building used and occupied by it for the purposes of its business, causing water damage to its manufactured products and raw material then in said premises.

The defendant admitted the issuance of the policy, and admitted that the policy was in effect on February 26, 1939, when the alleged damage occurred. But it denied liability on the ground that the plaintiff's loss as not covered by the insurance contract, its special defense being that the policy contained the following clause;

'This Company shall not be liable for loss or damage caused directly or indirectly by * * * fire, lightning, cyclone tornado, windstorm * * *.'

This exception was specially pleaded by defendant, and it alleged that plaintiff's loss, if any, was caused directly or indirectly by one of the above enumerated exceptions.

There was judgment for plaintiff in the amount claimed, and defendant appealed.

The plaintiff attached the insurance policy to its petition and made it a part thereof. The policy contains the following coverage clause:

'* * * against all direct loss and damage by 'sprinkler leakage', except as herein provided.'

The terms of the policy restrict the coverage to the contents of the building, and provide that it is made and accepted subject to the stipulations and conditions 'printed on the back hereof, which are hereby made a part of this policy.'

On the back of the policy, 'sprinkler leakage' is defined as follows:

'Wherever in this policy the term 'Sprinkler Leakage' occurs, it shall be held to mean leakage or discharge or water or other substance from within the 'Automatic Sprinkler System' resulting in loss or damage to the property described herein.'

On the back of the policy there is also printed the following 'Hazards Not Covered' clause:

'This Company shall not be liable for loss or damage caused directly or indirectly by seepage or leakage of water thru building walls, foundations, sidewalks, or sidewalk lights (unless caused by 'Sprinkler Leakage'), or by condensation or deposits on the 'Automatic Sprinkler System,' or by floods, inundations, or backing up of sewers or drains, or by the influx of tide water or water from any source other than the 'Automatic Sprinkler System', or by fire, lightning, cyclone, tornado, windstorm, earthquake, explosion, including explosion and/or repture of steam boilers and flywheels, blasting, invasion, insurrection, riot, civil war or commotion, or by military or usurped power, or by order of any civil authority, or by theft, or by neglect of the insured to use all reasonable means to save and preserve the property at and after a 'Sprinkler Leakage'; nor, unless otherwise provided by agreement in writing added hereto, for loss or damage caused directly or indirectly by aircraft and/or aircraft equipment (whether on or off the ground--and not contained in the building(s) described herein) and/or objects falling or descending therefrom.'

The facts are not disputed. For the manufacture, storage, and sale of women's garments, the plaintiff corporation used space on the third floor of a four-story building, in which there had been installed an Automatic Sprinkler System. One of the feed pipes, 3 1/2 inches in diameter, which conveyed water from the city mains to the sprinkler system, was attached to the roof of the building. At or about midnight on February 26, 1939, a section of the roof to which this pipe was attached was blown off by a tornado or windstorm. This broke the feed pipe, and from or through it there escaped into the building on the fourth floor a large quantity of water, which reached the third floor, where plaintiff had its establishment, through stairways and elevator shafts. Plaintiff's manufactured articles and raw material then stored on the third floor were damaged by the water. The amount of the damage is admitted by defendant. But it denied liability.

This litigation arose out of a disagreement between the parties as to the interpretation and meaning of the comprehensive 'Hazards Not Covered' clause written into the policy. That clause mentions numerous hazards which are not involved in this case. The only ones material for the determination of the issues here involved are 'cyclone, tornado, windstorm'. That clause may therefore be narrowed, as far as this suit is concerned, to this: 'This Company shall not be liable for loss or damage caused directly or indirectly by * * * cyclone, tornado, windstorm * * *.'

Counsel for plaintiff argue that, under the agreed statement of facts, which shows that the damage to plaintiff's property was caused by water which came from the sprinkler system, its loss is covered by the policy, because the coverage clause quoted above insured it against all direct loss and damage by sprinkler leakage even though the event which admittedly brought about the leakage is one of the hazards named in the 'Hazards Not Covered' clause. They say the hazards mentioned in that clause are wholly unrelated to the hazard insured against. Referring to the 'Hazards Not Covered' clause, which begins with the statement that the company shall not be liable 'for loss or damage caused directly or indirectly by' certain named hazards which follow, counsel say in their brief that it would be erroneous grammatical construction and contrary to reason to say that 'the words 'directly or indirectly', in the second line of the exceptive clause, carry their meaning, significance and restriction down through the entire eighteen lines of the exception'. They say that the 'Hazards Not Covered' clause does not relate back to the phrase 'except as herein provided', as used in the coverage clause, and that the two are not to be read and construed together. They contend further that the policy, construed as a whole, is ambiguous, and they invoke the well recognized rule that, if an insurance policy is so drawn as to be equivocal, uncertain, or ambiguous and, for that reason, susceptible of two or more interpretations, either one being reasonable and sensible, the interpretation most favorable to the insured should be adopted.

We recognize this rule. Muse v. Metropolitan Life Ins. Co., 193 La. 605, 192 So. 72, 75, 125 A.L.R. 1075. The reason for the rule is that 'The language employed is that of the company and it is consistent with both reason and justice that any fair doubt as to the meaning of its own words should be resolved against it'. Stroehmann et al. v. Mutual Life Ins. Co. of New York, 300 U.S. 435, 57 S.Ct. 607, 609, 81 L.Ed. 732.

While we recognize this general rule, yet, for reasons which we shall presently state, we cannot subscribe to counsel's argument that the language used in the policy here involved is uncertain or ambiguous.

The position taken by counsel for the insurance company is that the provisions of the policy are not ambiguous; that the 'Hazards Not Covered' clause relates back to the phrase 'except as herein provided', and that the words 'directly or indirectly' relate to each of the hazards mentioned. Plainly stated, the insurance company rests its defense on its contention that the 'Hazards Not Covered' clause in clearly, under the admitted facts, an exclusion of liability for the damage to plaintiff's property.

Courts are bound to give legal effect to all contracts having a lawful purpose according to the true intent of the parties, and that intent is to be determined by the words of the contract when these are clear and explicit and lead to no absurd consequence. Revised Civil Code, Article 1945.

Insurance policies are contracts between the parties, and, in construing them, courts must first of all ascertain the true intent of the parties, if this is possible.

'When a clause is susceptible of two interpretations, it must be understood in that in which it may have some effect, rather than in a sense which would render it nugatory.' Revised Civil Code, Article 1951.

'All clauses of agreements are interpreted the one by the other, giving to each the sense that results from the entire act.' Revised Civil Code, Article 1955.

These general rules are fundamental.

In the case of Rolland's Heirs v. McCarty, 19 La. 77, decided in 1841, it was held by this court that 'The court will not presume, that parties make use of words in their contracts to which no meaning is attached by them. Some effect is to be given to every word if possible; and but rarely will the court reject words or phrases in a contract as surplusage'. In Clay v. Ballard, 9 Rob. 308, 41 Am.Dec. 328, decided in 1844, this court held that 'In the interpretation of a contract, it will not be presumed that either party intended to impose an absurd or impossible condition'.

The general rule announced in the above cited cases has been consistently followed by this court. Istrouma Mercantile Co.,...