Associated Engineers, Inc. v. American Nat. Fire Ins. Co.

• Decision Date: 04 August 1959
• Docket Number: No. 37491.,37491.
• Citation: 175 F. Supp. 352
• Parties: ASSOCIATED ENGINEERS, INCORPORATED, Plaintiff, v. AMERICAN NATIONAL FIRE INSURANCE COMPANY, a corporation, Defendant.
• Court: U.S. District Court — Northern District of California

175 F. Supp. 352

ASSOCIATED ENGINEERS, INCORPORATED, Plaintiff, v. AMERICAN NATIONAL FIRE INSURANCE COMPANY, a corporation, Defendant.

No. 37491.

United States District Court N. D. California, S. D.

August 4, 1959.

Hardy, Carley, Thompson & Love, Palo Alto, Cal., for plaintiff.

George H. Hauerken, Hauerken, St. Clair & Viadro, San Francisco, Cal., for defendant.

ROCHE, Judge.

Plaintiff seeks to recover upon a policy of insurance issued by defendant. Jurisdiction is based upon diversity of citizenship. The insurance contract was executed in California and it is not disputed that California law is applicable in deciding the substantive issues of the case.

On June 3, 1957, plaintiff was engaged by the City of Los Altos to construct a sanitary sewage system. On July 9, 1957, defendant issued to plaintiff a policy insuring all property of plaintiff to be used in connection with said construction against all risk of physical loss or damage for one year. Laying of the sewer lines was completed in early November, leaving only testing, paving and cleanup still to be done. Subsequently, while testing, it was discovered that leakage from the system was in excess of the maximum allowed by the contract and on December 6, 1957 broken pipe was uncovered for the first time. From December 6 to February 14, 1958, additional sections of broken pipe were found along with leaky collars in many of the connecting joints. Testing was completed by February 20 and final repairs were made on February 26.

The record reveals that notification of loss was rendered by Associated in a letter received by its broker on March 12, 1958; the letter was immediately turned over to American. Defendant's attorneys replied on March 19 requesting information as to the date and nature of the loss, but defendant took no additional action. Plaintiff's next communication was a letter to defendant's attorneys, postmarked May 16, 1958, containing an explanation of the loss, a summarization of the cost of repairs and a swearing by T. C. Binkley, president of Associated. A more detailed description and notarized swearing followed on or about May 22.

Plaintiff alleges that while engaged in the work of backfilling and tamping trenches in which sewer pipe had been laid, it inadvertently caused certain sections of pipe to become broken and damaged, that it expended $20,301.02 (a revised figure offered during the course of trial) to replace broken pipe and to repair leaky collars improperly installed by its employees, and that said loss resulted from a peril insured against by defendant. American has rejected Associated's claim on various grounds.

Defendant does not seriously dispute plaintiff's explanation of how the loss was caused but contends that "poor workmanship" is not a peril covered by the policy. According to its terms the policy provides coverage on all property "against all risks of physical loss or damage from any cause howsoever and wheresoever occurring" until the work has been completed and accepted. An explicit exception to the above coverage is "loss or damage caused by wear, tear, gradual deterioration and/or inherent vice." This type of policy is generally referred to as All-Risk insurance and it is unlike other types in that it does not specify the events which must cause loss or damage before the insurer is liable; it is a promise to pay upon the fortuitous and extraneous happening of loss or damage from any cause whatsoever. The uncontroverted evidence reveals that the loss was not attributable to normal wear and tear, inherent vice or gradual deterioration in the pipes or collars, nor to any wilful act by the plaintiff. The entire loss was clearly caused by negligence on the part of Associated, a fortuitous and extraneous event and not a necessary or normal consequence of the work. The risk of negligence does not come within any exception to the policy and therefore it is an insured peril. Central Manufacturers' Mutual Insurance Co. v. Elliott, 10 Cir., 1949, 177 F.2d 1011; Federal Insurance Co. v. Tamiami Trail Tours, 5 Cir., 1941, 117 F.2d 794; New York, New Haven & Hartford Railroad Co. v. Gray, 2 Cir., 1957, 240 F.2d 460.

Defendant further contends that even if the loss is one covered by the policy, plaintiff is not entitled to recover because it did not render prompt notice nor file a sworn proof of loss within ninety days as required by the contract. The applicable provision reads:

"2. Notice and Proof of Loss

"The Assured shall as soon as practicable report to this Company or its agent every loss or damage which may become a claim under this policy and shall also file with the Company or its agent within ninety days from date of loss a detailed sworn proof of loss. Failure by the Assured to report the said loss or damage and to file such sworn proof of loss as hereinbefore provided shall invalidate any claim under this policy for such loss."

A sworn proof of loss should supply particulars of damage and circumstance — as well as having the weight of a swearing by the insured — in order to enable the insurer to form an estimate of its rights and liabilities. Culley v. New York Life Insurance Co., 1945, 27 Cal.2d 187, 163 P.2d 698. It is not possible to prepare a proof of loss until a complete inspection of the damage may be accomplished and the full extent of loss thereby ascertained. National Wall Paper Co. v. Associated Manufacturers' Mutual Fire Insurance Corporation, 1903, 175 N.Y. 226, 67 N.E. 440. Breakage was initially discovered by Associated on December 6, but plaintiff did not learn the...