Champion Intern. Corp. v. Continental Cas. Co.

• Decision Date: 09 December 1976
• Docket Number: No. 956,D,956
• Citation: 546 F.2d 502
• Parties: CHAMPION INTERNATIONAL CORPORATION, Plaintiff-Appellee, v. CONTINENTAL CASUALTY COMPANY, Defendant-Appellant. ocket 75-7664.
• Court: U.S. Court of Appeals — Second Circuit

Page 502

546 F.2d 502

CHAMPION INTERNATIONAL CORPORATION, Plaintiff-Appellee, v. CONTINENTAL CASUALTY COMPANY, Defendant-Appellant.

No. 956, Docket 75-7664.

United States Court of Appeals, Second Circuit.

Argued May 11, 1976.

Decided Dec. 9, 1976.

Seymour Shainswit, New York City (Kronish, Lieb, Shainswit, Weiner & Hellman, Martin A. Teicher, New York City, of counsel), for plaintiff-appellee.

Jack Hart, New York City (Hart & Hume, Cecil F. Holland, Jr., New York City, of counsel), for defendant-appellant.

Before MOORE and TIMBERS, Circuit Judges, and NEWMAN, ^* District judge.

MOORE, Circuit Judge.

Continental Casualty Company ("Continental") appeals from a judgment of $1,320,139.64 ($1,000,000 plus interest) entered against it by the district court, after a non-jury trial, and in favor of Champion International Corporation ("Champion"). Jurisdiction exists under 28 U.S.C. § 1331.

This action involves the quite frequently perplexing problem presented in endeavoring to construe clauses in insurance policies. The policies in issue here were issued by Continental and Liberty Mutual Insurance Company ("Liberty Mutual") to Champion, to cover products liability losses which might be sustained by Champion. The material facts giving rise to the insurance claim underlying this action are not in serious dispute.

I

Champion, in 1969 and 1970, amongst many other products, sold vinyl-covered paneling to manufacturers of houseboats, house trailers, motor homes and campers. It purchased the paneling from Continental Vinyl ("Vinyl"). Not long after the panels had been installed in the various vehicles they commenced to delaminate, or in less technical parlance, to split apart. Naturally, claims were asserted against Champion for damages incurred, which in turn caused Champion to look to its insurance coverage.

Champion had two insurance policies: one, written by Liberty Mutual, covered products hazards and was in the amount of $100,000 for each "occurrence" ($200,000 aggregate) and subject to $5,000 deductible "per occurrence" for property damage liability; the second, written by Continental, an "Umbrella Excess Third Party Liability Policy" ("Umbrella Excess policy"), the policy period being three years from November 30, 1967 to November 30, 1970, provided for excess coverage over Champion's underlying insurance (namely, Liberty Mutual's policy) of $1,000,000 for "any one occurrence" and $1,000,000 in the aggregate for each annual period.

Thus, from a business point of view, Champion had assumed as a self-insurer the first $5,000 of any loss (the $5,000 deductible); it had the Liberty Mutual policy for the next $100,000 ($200,000 aggregate); and above these amounts, it had the Continental Umbrella Excess policy for $1,000,000.

As found by the trial court, some 1400 vehicles manufactured by some 26 different customer companies of Champion were damaged by the defective panels during the policy period.

Champion employed Liberty Mutual to investigate and settle such claims on a fee basis. As of September 13, 1974, Champion had paid Liberty Mutual $1,513,116.82 for property damage settlements which Liberty had effected. No question is raised as to the reasonableness of those settlements.

The trial proceeded on the basis of first determining liability. Once this was determined in plaintiff's favor, damages were easily ascertained because they were in excess of the upper limits of Continental's policy. Judgment thus was awarded for $1,000,000 plus interest.

II

We are confronted with a situation in which the trial court, finding in favor of the plaintiff, said "Each party contends that the language of the policies is clear and unequivocal and supports its contentions", but addressing the sole issue, namely, "whether there was one occurrence which proximately resulted in damage to many vehicles, or whether the damage suffered by each of those vehicles was a separate occurrence", found in favor of the plaintiff because it held "that the contested language is ambiguous"; that plaintiff's interpretation was a "reasonable one"; and that that "is all plaintiff is required to prove". See Joint appendix at 159-165.

The sole appellate issue is the scope to be attributed to the word "occurrence" in the policies. ¹ If each occurrence means each of the 1400 individual installations of the defective panels, there is no liability under the Liberty Mutual policy because it is conceded that the damage in each instance did not exceed $5,000 and hence, would come within the $5,000 deductible provision. Nor would there be liability under the Umbrella Excess policy, for the same reason. If, on the other hand, the cause of Champion's damage, namely, the delivery of defective panels, is the "occurrence", then this delivery in the aggregate resulted in losses totalling some $1,600,000 of which $1,100,000 would be covered by the two insurance policies ($100,000 under the Liberty Mutual policy and $1,000,000 under the Umbrella Excess policy). ²

Since Continental's policy was intended to cover excess liability, the question is presented: excess over what? Excess could only arise if coverage under Liberty Mutual's underlying policy was inadequate to compensate Champion for its losses. Therefore, reference must first be made to the appropriate provisions of the Liberty Mutual policy.

Under the Liberty Mutual policy, Liberty Mutual was to pay for property damage "caused by an occurrence" to a maximum of $100,000 payment for any one occurrence. Joint appendix at 491, 499, 510. To determine how the maximum was to be applied, the policy provided that "all . . . property damage arising out of continuous or repeated exposure to substantially the same general conditions . . . shall be considered as arising out of one occurrence." Joint appendix at 498-99.

Continental's policy indemnified Champion for property damage (defined as "ultimate net loss") caused by or arising out of "each occurrence". Joint appendix at 448. Ultimate net loss was stated to be the "total sum which the Insured or any company as his insurer becomes obligated to pay by reason of (p) roperty damage. . . ." Joint appendix at 451.

As previously mentioned, this appeal centers around the question of what constitutes an "occurrence". The trial judge believed that the loss and the compensation therefor were determined on the basis of language in the respective policies which was ambiguous. We would prefer to examine the policies in light of the business purposes sought to be achieved by the parties and the plain meaning of the words chosen by them to effect those purposes.

We can immediately reject Continental's argument that there were 1400 separate occurrences. There could have been 1400 separate claims presented by the owners of the damaged vehicles against the 26 manufacturers; those are not before us. Such claims might have been funneled through the 26 manufacturers to Champion and Champion could have turned to the panel manufacturer, Vinyl, for protection, which it apparently did. However, Champion, as the seller of the defective paneling, was primarily liable and had paid out almost $1,600,000 on this liability. This amount was a sum which Champion (the insured ) became obligated to pay by reason of property damage and hence, was encompassed within the Umbrella Excess policy's term "ultimate net loss".

Important in the interpretation of "occurrence" is Champion's selection, under the heading "Amount and basis of Deductible" in the Liberty Mutual policy, of a "per occurrence" basis (and its corresponding rejection of a "per claim" basis). This indicates that the policy was not intended to gauge coverage on the basis of individual accidents giving rise to claims, but rather on the underlying circumstances which resulted in the claim for damages. ³ Since the terms of the Liberty Mutual policy were made controlling over the Umbrella Excess policy, ⁴ this reading of the Liberty Mutual policy applies equally to that issued by Continental.

Although "occurrence" has received different interpretations in the many cases cited by the respective parties, ⁵ the definition given that term by the Umbrella Excess policy is controlling unless it is ambiguous (and we find no ambiguity here). Exposure there was, when Champion sold the paneling, and during this process, it was continuous and repeated. There is no dispute that damage resulted which was unexpected. Whether the property damage occurred during the policy period is a factual question which was resolved in Champion's favor below; ⁶ this finding is not subject to reversal unless it is clearly erroneous. ⁷ We have examined the record and find that the evidence presented to the district court fairly supports that court's conclusion; accordingly, the district court's finding will not be disturbed. ⁸

Since we conclude that the plain language of the Umbrella Excess policy supports the liability of Continental on the insurance policy, we need not consider the applicable state rules for the interpretation of insurance policies which were discussed by the court below on the assumption that the policy in question was ambiguous.

For the foregoing reasons, the judgment of the district court is affirmed.

NEWMAN, District Judge (dissenting).

While I confess to some sympathy with the majority's effort to construe the terms of the insurance policy in a way that provides payments to the insured, I dissent from their conclusion because (1) in my view it is incorrect, and (2) unless the decision is limited to its precise facts, it can in the future lead to the denial to many insureds of substantial payments to which they are entitled.

1. We agree that the issue is whether in the circumstances indisputably established by the record there has been one or more than one "occurrence" within the meaning of the Liberty Mutual policy. We also agree that this issue can be resolved by the plain meaning of the words in the policy. We reach opposite...