American Motorists Ins. Co. v. Trane Co.

• Decision Date: 07 October 1983
• Docket Number: 82-2475,Nos. 82-2472,s. 82-2472
• Citation: 718 F.2d 842
• Parties: AMERICAN MOTORISTS INSURANCE COMPANY, an Illinois Corporation, Plaintiff-Appellant, Cross-Appellee, v. The TRANE COMPANY, a Wisconsin Corporation, Defendant-Appellee, Cross-Appellant, Employers Mutual Liability Insurance Company of Wisconsin, St. Paul Fire & Marine Insurance Co., and American Home Assurance Co., Defendants, Cross-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 842

718 F.2d 842

AMERICAN MOTORISTS INSURANCE COMPANY, an Illinois Corporation, Plaintiff-Appellant, Cross-Appellee, v. The TRANE COMPANY, a Wisconsin Corporation Defendant-Appellee, Cross-Appellant Employers Mutual Liability Insurance Company of Wisconsin St. Paul Fire & Marine Insurance Co., and American Home Assurance Co., Defendants, Cross-Appellees.

Nos. 82-2472, 82-2475.

United States Court of Appeals, Seventh Circuit.

Argued Feb. 25, 1983.

Decided Oct. 7, 1983.

Laura S. Arvold, Jenswold, Studt, Hanson, Clark & Kaufman, Madison, Wis., for American Motorists Ins. Co.

Eugene O. Gehl, Brynelson, Herrick, Gehl & Budaida, Madison, Wis., for Employers Mut. Liability Ins. Co. of Wisconsin.

Michael D. LaMaster, Schlottauer & Johnson, Madison, Wis., for American Home Assur. Co.

Paula D. Osborn, Oppenheimer, Wolff, Foster, Shepard & Donnelly, St. Paul, Minn., for St. Paul Fire & Marine Ins. Co.

Christian L. Campbell, Sidley & Austin, Chicago, Ill., for Trane Co.

Before WOOD and ESCHBACH, Circuit Judges, and GRAY, Senior District Judge. ^*

ESCHBACH, Circuit Judge.

The Trane Company ("Trane") manufactured and sold heat exchangers to three companies collectively known as "Pritchard." Pritchard utilized these heat exchangers as essential components in four liquefied natural gas plants that it constructed. The heat exchangers apparently did not perform as well as expected and, therefore, the plants did not operate at their full capacities.

Employing a variety of legal theories, Pritchard filed claims in federal court against Trane for damages associated with the shortfalls in production, the harm to business reputation, and the cost of remedying the heat-exchanger problems. Trane tendered the defense of these claims to its four insurers, including American Motorists Insurance Company ("American Motorists"). The insurance companies did not come to Trane's defense and American Motorists instead brought this action for a declaratory judgment as to its rights and duties under its policy with Trane.

While this declaratory judgment action was pending, Trane settled its dispute with Pritchard. Therefore Trane, alleging breaches of contractual duties to defend, filed a counterclaim and cross-claims against the four insurers. Ruling on motions for summary judgment, the district court made many holdings, including that American Motorists did have a duty to defend Trane against Pritchard's claims; other issues between the parties, however, were held over for resolution at trial. Finding no just reason for delay, the district court entered a final judgment pursuant to Fed.R.Civ.P. 54(b) and thus we have jurisdiction under 28 U.S.C. Sec. 1291 to consider the appeals of American Motorists and Trane.

One is directed to the thorough district court opinion, published at 544 F.Supp. 669 (1982), for the details of the lower court's judgment and analysis. After carefully studying that opinion, the appellate briefs, and the case law, we have concluded that we cannot improve upon the district court's decision and opinion. With the addition of a few paragraphs of our own, therefore, we affirm the district court's judgment and adopt its exceptional opinion as our own.

American Motorists had a contractual duty to defend Trane only if Pritchard's complaint alleged "property damage." "Property damage" is defined in the policy as "physical injury to ... tangible property ... including the loss of use thereof." The district court concluded that Pritchard made such an allegation in averring that as a result of Trane's faulty heat exchangers, the four plants were unable to operate at full capacity--i.e., some of each plant's usefulness was lost. The district court's conclusion closely followed the Supreme Court of Wisconsin's decision in Sola Basic Industries v. United States Fidelity & Guaranty Co., 90 Wis.2d 641, 280 N.W.2d 211 (1979). The insurance policy construed in Sola Basic Industries, however, did not have the adjective "physical" before the noun "injury" in the definition of "property damage."

We agree with the district court that the word "physical" does not so alter the meaning of "property damage" as to remove from the definition the loss of use of Pritchard's plants. The definition still encompasses "loss of use" of "tangible property," which Pritchard clearly claimed. To be sure, the adjective "physical" may mean that the "loss of use" must have its origin in a physical infirmity. In this case, however, such physical infirmities were alleged; the faulty heat exchangers...