Chancler v. American Hardware Mut. Ins. Co.

• Decision Date: 05 November 1985
• Docket Number: No. 15938,15938
• Citation: 712 P.2d 542,109 Idaho 841
• Parties: Denny CHANCLER, individually, and Denny Chancler Equipment Company, and Stevon Christensen, Plaintiffs-Appellants, v. AMERICAN HARDWARE MUTUAL INSURANCE COMPANY, Defendant-Respondent.
• Court: Idaho Supreme Court

Page 542

712 P.2d 542

109 Idaho 841

Denny CHANCLER, individually, and Denny Chancler Equipment Company, and Stevon Christensen, Plaintiffs-Appellants, v. AMERICAN HARDWARE MUTUAL INSURANCE COMPANY, Defendant-Respondent.

No. 15938.

Supreme Court of Idaho.

Nov. 5, 1985.

Rehearing Denied Jan. 27, 1986.

[109 Idaho 843] Gary L. Cooper, Pocatello, for appellant Christensen.

L. Charles Johnson, Pocatello, for appellant Chancler.

David H. Maguire, Pocatello, for respondent.

BISTLINE, Justice.

HISTORY

This is a declaratory judgment action in which plaintiffs-appellants, Stevon Christensen and Denny Chancler, have requested a judicial determination of insurance coverage provided by the defendant-respondent, American Hardware Mutual Insurance Co.

The facts of this case are undisputed. On May 1, 1980, Christensen suffered severe and permanently debilitating injuries when a crane sold by Chancler collapsed on him as he was operating it. The crane sold by Chancler was a used crane, and before selling it, Chancler had modified it by adding a ten-foot extension to the boom.

When Chancler sold and delivered the crane to the business firm that employed Christensen, no safety information of any sort listing the maximum weight loads for the modified crane was supplied. It was the modification that collapsed and injured Christensen when the load the crane was carrying exceeded its carrying capacity.

Christensen sued Chancler, alleging the crane was a "defective product." Chancler notified American Hardware of the suit, but the company denied coverage and refused to defend the suit. Chancler and Christensen then united to bring this declaratory action, seeking a judicial determination on the question of insurance coverage.

The district court found for American Hardware, holding that an applicable exclusion in the insurance policy at issue effectively denied coverage. Christensen and Chancler appealed, and the Court of Appeals affirmed the district court in Chancler v. American Hardware Mutual Insurance Co., 107 Idaho 953, 694 P.2d 1301 (Ct.App.1985). A petition for review was filed, and on March 26, 1985, this Court granted the petition. We now reverse and remand to the district court.

I.A.

The policy in question is complex, convoluted, and confusing. It begins by broadly declaring:

The company will pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of

Coverage A. bodily injury or

Coverage B. property damage

to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damages, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but the company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company's liability has been exhausted by payment of judgments or settlements.

But what one giveth, one can taketh away, and in 17 lengthy exclusions much is taken away. Exclusion no. 16 (listed as "p") ¹ states that the insurance coverage does not include: "bodily injury or property damage included within the completed operations/hazard or the products hazard." The terms "completed operations hazard" and "products hazard" are defined on a different page of the policy as follows:

"completed operations hazard" includes bodily injury and property damage arising out of operations or reliance upon a representation or warranty made at any time with respect thereto, but only if the bodily injury or property damage occurs after such operations have been completed or abandoned and occurs away from premises owned by or rented to the named insured. "Operations" include materials, parts or equipment furnished in connection therewith. Operations shall be deemed completed at the earliest of the following times:

(1) when all operations to be performed by or on behalf of the named insured under the contract have been completed,

(2) when all operations to be performed by or on behalf of the named insured at the site of the operations have been completed, or

(3) when the portion of the work out of which the injury or damage arises has been put to its intended use by any person or organization other than another contractor or subcontractor engaged in performing operations for a principal as a part of the same project.

Operations which may require further service or maintenance work, or correction, repair or replacement because of any defect or deficiency, but which are otherwise complete, shall be deemed completed.

The completed operations hazard does not include bodily injury or property damage arising out of

(a) operations in connection with the transportation of property, unless the bodily injury or property damage arises out of a condition in or on a vehicle created by the loading or unloading thereof,

(b) the existence of tools, uninstalled equipment or abandoned or unused materials, or

(c) operations for which the classification stated in the policy or in the company's manual specifies "including completed operations";

"products hazard" includes bodily injury and property damage arising out of the named insured's products or reliance upon a representation or warranty made at any time with respect thereto, but only if the bodily injury or property damage occurs away from premises owned by or rented to the named insured and after physical possession of such products has been relinquished to others; ....

The district court held, and the Court of Appeals agreed, that the "products hazard" component of exclusion "p" effectively denied coverage to Chancler for the harm suffered by Christensen. Essentially, the reasoning of the two courts is that what the "products hazard" exclusion attempts to exclude is coverage arising out of products liability claims, and that because Christensen's claim is, for all practical purposes, a products liability claim, there is no coverage. We disagree.

B.

The Court of Appeals defined the scope of the "products hazard" exclusion far too broadly. Included within that definition, the Court of Appeals argues, are claims for failure to instruct or warn about the proper and improper use of the product in question. The Court of Appeals felt compelled to reach this result, arguing that to rule otherwise would render the exclusion "meaningless." We do not find this argument persuasive.

We find that the correct view of the "products hazard" exclusion, when we apply the proper rules of construction for insurance policies, which we set forth below, see part I.D. infra, is that it was only intended to avoid claims based in strict products liability. Furthermore, Idaho law is clear that the negligent rendering of a service involving repair or post-repair inspection of a product, which later causes an accident, provides a basis for a claim to be made in negligence and not strict products liability. Steiner Corp. v. American Dist. Telegraph, 106 Idaho 787, 789-90, 683 P.2d 435, 437-38 (1984); Hoffman v. Simplot Aviation, Inc., 97 Idaho 32, 35-36, 539 P.2d 584, 587-88 (1975). ² Accordingly, applying Steiner and Hoffman, we must determine if Christensen's claim of failure to warn can be viewed as one based in negligence. If it is, then the "products hazard" exclusion cannot be held to be an effective exclusion of coverage in this case.

C.

The Court of Appeals held that Chancler's failure to provide information about the maximum weight loads for the modified crane is not a "negligent service" but an item of proof that the crane was a defective product. That is, what made the crane "defective," and, therefore, "unsafe" pursuant to strict products liability was the failure of the product to be supplied with adequate information of its proper uses.

The Court did acknowledge that strict products liability theory does not include claims involving the rendition of negligent services "distinguishable" from the product. Chancler, supra, 107 Idaho at 955, 694 P.2d at 1303. Here, though, the Court of Appeals said that Christensen's claim was one in strict products liability, because the alleged negligent service--failing to warn about the crane's load capacities--was a service not "distinguishable" from the product.

We find that the Court of Appeals committed error when it entered into this semantical exercise. Strict products liability and negligent rendition of service are not mutually exclusive theories. Davis v. Globe Machine Manufacturing Co., Inc., 102 Wash.2d 68, 684 P.2d 692, 696 (1984). That is, an injury may give rise to claims that can be made out either under principles of strict products liability or negligence, and failure to prove one theory does not preclude proving another theory. Id.

Prosser and Keeton on the Law of Torts, § 101, p. 708 (5th ed. 1984), points out that at least two separate, independent theories of recovery are available to plaintiffs who have suffered physical injury from a defective product. These two theories are negligence and strict liability. Numerous courts have reached this same conclusion. See Mays v. Ciba-Geigy Corp., 233 Kan. 38, 661 P.2d 348 (1983); Barry v. Don Hall Laboratories, 56 Or.App. 518, 642 P.2d 685 (1982); Shell Oil Co. v. Gutierrez, 581 P.2d 271, 119 Ariz. 426 (App.1978); First National Bank in Albuquerque v. Nor-Am Agricultural Products, Inc., 88 N.M. 74, 537 P.2d 682 (App.1975), cert. denied, 88 N.M. 29, 536 P.2d 1085.

Thus, the Court of Appeals placed itself in a needless dilemma of determining whether Christensen's claim is one sounding in strict products liability or in negligence. Nothing precludes it from sounding in both theories. So long as the necessary proof is presented, Christensen may prevail on either claim. We agree with the Court of Appeals that American Hardware has...