Central Bearings Co. v. Wolverine Ins. Co.

• Decision Date: 02 September 1970
• Docket Number: No. 53900,53900
• Citation: 179 N.W.2d 443
• Parties: CENTRAL BEARINGS CO., Inc., Appellee, v. WOLVERINE INSURANCE COMPANY, Appellant.
• Court: Iowa Supreme Court

Page 443

179 N.W.2d 443

CENTRAL BEARINGS CO., Inc., Appellee, v. WOLVERINE INSURANCE COMPANY, Appellant.

No. 53900.

Supreme Court of Iowa.

Sept. 2, 1970.

Nyemaster Goode, McLaughlin, Emery & O'Brien, Des Moines, for appellant.

Janss, Dreher, Wilson & Adams, Des Moines, for appellee.

BECKER, Justice.

Plaintiff corporation sues defendant for breach of insurance policy contract in that it failed to defendant and indemnify it against loss due to a claim and eventual lawsuit brought against it. The action was for damages resulting from the failure of a cable sold by insured in the regular course of its business. Defendant filed answer admitting issuance of the insurance policy to defendant but denying liability. Defendant asserted the policy did not cover the claim and eventual loss by plaintiff. After the issues were joined defendant filed motion for adjudication of law points. The court ruled in favor of plaintiff, held the loss was covered by the policy in question and entered judgment against defendant. Defendant appeals. We reverse.

Part of plaintiff's business includes the sale of steel cable used in operating heavy equipment. Plaintiff sold a 5/8 inch non-rotating cable to a customer. About two months later the cable, while being used on a pile driver, broke and fatally injured Earl W. Kuhnke. Mr. Kuhnke's administrator sued the manufacturer and plaintiff as retailer. The administrator's petition was bottomed on (1) negligence, (res ipsa loquitur); (2) negligence, (specifications); ¹ and (3) breach of warranty.

Defense was tendered to insurer and declined. Plaintiff settled the action against it during trial by paying $2125 as its share of the settlement with decedent's estate. Costs of defense were $4073.70. The question of damages is not at issue here.

The insurance contract was in effect at all times material to the accident. The policy was prepared to afford protection against four types of hazards. ² Only the Premises--Operations Coverage was purchased. There is no question of misrepresentation, misunderstanding or overreaching in connection with the issuance of the policy. The sole question here is: Does the policy as issued cover the risk involved, the loss sustained and the expenses in connection therewith?

I. The rules of construction of insurance policies are well established. The insurance policy is a contract which must be construed as a whole. The words used must be given their ordinary, not technical, meaning to achieve a practical and fair interpretation. Youngwirth v. State Farm Mutual Auto. Ins. Co., 258 Iowa 974, 140 N.W.2d 881, 883.

If the words are fairly susceptible to two interpretations the one which will sustain the insured's claim will be accepted. Thus the policy will be strictly construed against the insurer. State Auto. & Cas. Underwriters v. Hartford Acc. & Ind. Co. (Iowa, 1969), 166 N.W.2d 761. This rule is amplified by the statement that the court should ascertain what an insured as a reasonable person would understand the policy to mean, not what the insurer actually intended. Goodsell v. State Auto & Cas. Underwriters, 261 Iowa 135, 153 N.W.2d 458.

Stated otherwise, the climate under which an insurance policy is examined favors imposition of coverage largely because the carrier drew the contract and has the expertise in the field. However, if after construing both the policy in question, the pleadings of the injured party and any other admissible and relevant facts in the record, it appears the claim made is not covered by the indemnity insurance contract issued, the insurer has no duty to defend or indemnify. Hagen Supply Corp. v. Iowa National Mutual Ins. Co. (8 Cir. 1964), 331 F.2d 199, 203, 204 and authorities cited therein. If such be the case, the words and phrases of the policy should not be strained to impose liability that was not intended and not purchased.

II. Plaintiff argues that defendant's duty to defend does not in all cases and under all circumstances depend solely on the terms of the policy and the allegations in the petition filed against the insured. We agree.

'* * * Where there are facts extraneous to the allegations in the complaint which are known either to insurer or insured which, if proved, make out a case against the insured which is covered by the policy, the duty to defend exists. We do not deem it necessary to give further consideration to this exception and the circumstances which may bring it into play because no basis for application of the exception can possibly exist here. * * *.' Hagen Supply Corporation v. Iowa National Mutual Ins. Co., supra; Annotation 50 A.L.R.2d 458, 501.

We also agree with plaintiff that in considering the petition of the injured party all facts admissible under the allegations should be considered. In other words, as indicated by Judge Hand in Lee v. Aetna Casualty & Surety Co. (2 Cir., 1949), 178 F.2d 750, 752:

'Whether the insurer ought to defend such an action at least until it appears that the claim is not covered by the policy is not free from doubt; but it seems to us that we should resolve the doubt in favor of the insured. * * *.' Blohm v. Glens Falls Insurance Co. (1962), 231 Or. 410, 373 P.2d 412; 44 Am.Jur., 2d, Insurance, §§ 1540, 1541, pages 422--424.

We therefore assume the injured litigant might have proved its case under either of the three theories pled. Also we assume the charge of failure to warn might have been developed to be a charge of misrepresentation.

III. The problem presented by this case is new to this court. We find two lines of authority in other jurisdictions that are to us irreconcilable. A large number of courts under varying fact situations have imposed liability in analogous cases: Brant v. Citizens Mutual Automobile Ins. Co. (1966), 4 Mich.App. 596, 145 N.W.2d 410 (sale of natural gas heater for L.P. gas heater); Atkins v. Hartford Accident & Indemnity Co. (1967), 7 Mich.App. 414, 151 N.W.2d 846 (wrongful sale of habitforming drugs); Employers Liability Assur. Corp. v. Youghiogheny & O. Coal Co. (8 Cir. 1954), 214 F.2d 418 (defective coal car door); Lessak v. Metropolitan Casualty Ins. Co. (1958), 168 Ohio St. 153, 151 N.E.2d 730 (illegal sale of B.B. shot to minor); St. Paul Fire and Marine Ins. Co. v. Coleman (8 Cir. 1963), 316 F.2d 77 (gas spilled into bilge of boat); Cf. Eastcoast Equipment Co. v. Maryland Casualty Co. (1966), 207 Pa.Super. 383, 218 A.2d 91 (representation that the cable was safe for use on crane); Reed Roller Bit Co. v. Pacific Employers Ins. Co. (5 Cir. 1952), 198 F.2d 1 (representation that abrasive wheel could be safely used).

There is another large group of cases in which the courts have refused to extend coverage because the loss was not covered by the policy: Hagen Supply Corp. v. Iowa National Mut. Ins. Co. (8 Cir. 1964), 331 F.2d 199 (sale of tear gas device); Blohm v. Glens Falls Ins. Co. (1962), 231 Or. 410, 373 P.2d 412 (sale and representation as to lawn mower); Standard Acc. Ins. Co. v. Roberts (8 Cir. 1942), 132 F.2d 794 (installation of gas refrigerator); Tidewater Associated Oil Co. v. Northwest Casualty Co. (9 Cir. 1959), 264 F.2d 879 (delivery of gas rather than stove oil as ordered); Service Welding & Machine Co. v. Michigan Mut. Liability Co. (6 Cir. 1962), 311 F.2d 612 (improper loading truck trailer); Inductotherm Corp. v. N.J. Mfrs. Cas. Ins. Co. (1964), 83 N.J.Super. 464, 200 A.2d 358 (failure of industrial crucibles); Smith v. Maryland Casualty Co. (1967), 246 Md. 485, 229 A.2d 120 (sale of defective sling shot); Cf. Lee v. Aetna Casualty & Surety Co. (2 Cir. 1940), 178 F.2d 750 (fall down elevator shaft). Neither of the above lists of cases is meant to be exhaustive.

In most of the cases imposing liability the original wrongful act is treated as an 'accident' within the meaning of that term as used in the policy. This is illustrated in Brant v. Citizens Mut. Auto. Ins. Co., supra, relied upon by the trial court in which it is said:

'The fact situation of the instant case is actually composed of two incidents, both of which we regard as 'accidents.' The first 'accident', occurred when the appellants here sold Mr. Hughes the wrong heater according to the complaints in the suits against the Brants. The issue of whether this sale was a question of mistake, negligence or breach of warranty, is not before this court. * * *

'The second 'accident' occurred when the natural gas heater was installed to the wrong type of gas supply for it and injury resulted therefrom. Again, the question of ultimate liability is not before this court. However, according to Michigan law, this too falls within a definition of 'accident.' * * *.' (loc. cit. 145 N.W.2d at page 412).

The Michigan court reasoned that since the first 'accident' was complete before the stove left the premises, the Products--Completed Coverage exclusion did not apply.

The other line of reasoning treats the initial wrongful act as a pre-existing condition or cause which preceded the accident in question. Under these cases the 'accident' is treated as the unexpected or untoward event which immediately preceded the injury. If this event occurred after the operation was complete the coverage must be found under the Products--Completed Operations clause or not at all. Blohm v. Glens Falls Insurance Co. (1962), 231 Or. 410, 373 P. 412, 416, illustrates this line of reasoning:

'In the case of Bitts v. General Accident Fire & Life Assur. Corp., 282 F.2d 542, the United States Court of Appeals for the Ninth Circuit, in interpreting a clause defining 'products hazard' which reads identically with the clause in the defendant's policy, stated:

"* * * Here the excluded hazard is not the negligent act proximately causing injury. It is, by express definition, 'the handling or use of' the product sold. It cannot be denied that this was the cause in fact of the injury. Unlike the cited California cases, the clause here expressly provides exclusion 'if the Accident...