Chemtec Midwest Serv., Inc. v. Insurance Co. of N. America

• Decision Date: 27 August 1968
• Docket Number: No. 66-C-30.,66-C-30.
• Parties: CHEMTEC MIDWEST SERVICES, INC., an Ohio corporation, Plaintiff, v. INSURANCE COMPANY OF NORTH AMERICA, a stock insurance company of Pennsylvania, Defendant.
• Court: U.S. District Court — Western District of Wisconsin

288 F. Supp. 763

CHEMTEC MIDWEST SERVICES, INC., an Ohio corporation, Plaintiff, v. INSURANCE COMPANY OF NORTH AMERICA, a stock insurance company of Pennsylvania, Defendant.

No. 66-C-30.

United States District Court W. D. Wisconsin.

August 27, 1968.

Charles J. Kersten and Kenan J. Kersten, Milwaukee, Wis., for plaintiff.

James E. Garvey, Eau Claire, Wis., for defendant.

OPINION AND PARTIAL DECLARATORY JUDGMENT

JAMES E. DOYLE, District Judge.

Plaintiff (hereinafter Chemtec Midwest) is a corporation incorporated under the laws of the state of Ohio with its principal place of business in the state of Indiana. Defendant (hereinafter INA) is a stock insurance company organized under the laws of the state of Pennsylvania. The amount in controversy is in excess of the sum of $10,000, exclusive of interest and costs. The action is for declaratory judgment, pursuant to 28 U.S.C. § 2201, declaring the rights and legal relations as between the parties, with respect to the coverage of a certain liability insurance policy issued to Chemtec Midwest by INA. This court has jurisdiction pursuant to 28 U. S.C. § 1332(a). There is an actual controversy between the parties and the action is appropriate for declaratory judgment under 28 U.S.C. § 2201.

Chemtec Midwest contends that the policy covers a situation more fully described hereinafter. INA has responded: (1) that the situation falls within a policy exclusion referred to as the "care, custody or control" exclusion; and (2) that the term "caused by accident", as used in the policy, saves INA from any obligation to Chemtec Midwest in the situation here present.

Trial of the issues related to the "care, custody or control" defense was had to the court, by agreement of the parties. The court ordered that evidence received at that trial which might be relevant to both defenses would be received only in relation to the "care, custody or control" defense. I concluded on the basis of this evidence that the "care, custody or control" exclusion was not applicable to the situation in question and accordingly entered a partial declaratory judgment to that effect on January 29, 1968, 279 F.Supp. 539 (W. D.Wis.1968).

Thereafter, following a pretrial conference, the parties were invited to submit to the court memoranda stating their respective positions with regard to the definition of the term "caused by accident" in the INA policy together with citation and discussion of pertinent authority. On the basis of these briefs the court has undertaken to enter a partial interlocutory judgment declaring the definition of "caused by accident" as the phrase appears in the INA policy. In reaching its decision, in addition to the memoranda submitted by the parties and the relevant legal authorities, the court has considered only the insurance policy itself and the pleadings in the related action of Sterling Pulp & Paper Co. v. Chemtec Midwest Services, Inc., C-64-72.

On or about March 31, 1963, INA issued a one-year term "comprehensive general liability policy", CGL 20 29 93, in which Chemtec Services, Inc., the parent company of Chemtec Midwest, was to be named insured. Endorsement No. 1, also effective March 31,^* 1963, provided that "the name of the insured is indicated to read as follows: Chemtec Services, Inc. the parent company, Chemtec Midwest, Inc. plaintiff herein, Dix Chemical Services, Inc., Coast Tank Services, Inc., McCormicks Chemical and Inspection Company, Inc., Chemtec Pacific Services, Inc., Chemtec Eastern Services, Inc., Walker Chemtec Services, Inc." The "Business of the Named Insured" is stated to be the "chemical cleaning of boilers and blast furnaces." By the terms of the policy INA agreed to pay on behalf of Chemtec Midwest (and the other named insureds) "all sums which the insured shall become legally obligated to pay as damages because of injury to or destruction of property, including the loss of use thereof, caused by accident." (emphasis added) The policy further provides, "With respect to such insurance as is afforded by this policy, the company shall * * defend any suit against the insured alleging such injury * * * or destruction. * * *"

On July 30, 1964, there was commenced in the Circuit Court for Eau Claire County, Wisconsin, an action by Sterling Pulp & Paper Company (hereinafter Sterling), a Wisconsin corporation which operates a plant in the City of Eau Claire, Wisconsin, against Chemtec Midwest. Chemtec Midwest removed said action to this court and it is pending here as case number C-64-72. The complaint in said action by Sterling alleges that in May, 1963, Chemtec Midwest made an offer to clean chemically two large boilers owned and operated by Sterling at its plant; that Chemtec Midwest made certain warranties; that in September, 1963, Sterling accepted the offer in reliance on the warranties; "that on or about the 29th day of September, 1963, Chemtec Midwest did through its employees and agents enter upon the property of the plaintiff in pursuance to said contract and did proceed to chemically clean said boilers in accordance with its own methods and using its own chemicals and materials"; that except for the need of cleaning, the boilers were in good condition; that Sterling performed its obligations under the contract "including the turning over to it Chemtec Midwest of the boilers in question in sound and satisfactory condition and the furnishing of commercial grade soda ash for the use of Chemtec Midwest as required by said contract"; that "shortly after the commencement of the services of Chemtec Midwest it was discovered by Sterling that the materials and methods used by Chemtec Midwest were causing serious damage to the tubes, drums, plates and other parts of said boilers by reason of acid corrosion destroying the surface and structural integrity of said parts"; and that Sterling was in fact damaged in the total amount of $123,035.53 by reason of Chemtec Midwest's failure properly to discharge the services represented and warranted in the contract. In a separate count, Sterling alleged the same damages to have resulted from Chemtec Midwest's negligent use of improper acid and materials, negligent failure to use proper chemicals and methods to counteract the action of said acid, negligent failure to use an adequate inhibitor for the acid concentration used, negligence with respect to the temperatures under which the cleaning operation was conducted, and negligent failure to observe the usual custom and practice and required procedures for the cleaning operation.

INA has declined to take any action in this matter on behalf of Chemtec Midwest on the grounds noted above: (1) that the situation falls within the "care, custody or control" exclusion; and (2) that the allegations do not describe damage "caused by accident" within the meaning of the policy.

It is the meaning of the term "caused by accident" in the insurance policy which the court is now called upon to define. In the opinion and partial declaratory judgment of January 29, 1968, I have already determined that the law of New Jersey governs the construction of this policy.

New Jersey adheres to the well settled rule that the obligation of an insurer under a liability insurance policy provision requiring it to defend an action brought against the insured by a third party is to be determined by the allegations in the complaint in such action. Danek v. Hommer, 28 N.J.Super. 68, 100 A.2d 198, aff'd, 15 N.J. 573, 105 A.2d 677 (1953); McAllister v. Century Indemnity Co., 24 N.J.Super. 289, 94 A. 2d 345, aff'd, 12 N.J. 395, 97 A.2d 160 (1953).

In construing the policy, the court is mindful of the well established rule that in case of doubt or ambiguity, the interpretation which favors the insured must be adopted. Washington Theatre Co., Inc. v. Hartford Accident and Indemnity Co., 157 A. 111, 9 N.J. Misc. 1212 (1931). Beyond this rule, the courts of New Jersey (as well as many others) view such policies from what they determine to be the reasonable expectations of the average purchaser in light of the contract language so that clear, basic terms and particular provisions may not be disregarded and a new contract judicially fashioned for the parties. Linden Motor Freight Co., Inc. v. Travellers Insurance Co., 40 N.J. 511, 525, 193 A.2d 217, 224 (1963).

New Jersey courts have had few occasions to construe the term "caused by accident" in liability insurance policies. Minkov v. Reliance Insurance Company of Philadelphia, 54 N.J.Super. 509, 149 A.2d 260 (1959), relied upon by Chemtec Midwest, presents a factual situation analogous to that in the case at bar. In Minkov the insurer agreed "to pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of injury or destruction to property, including the loss of use thereof, caused by accident and arising out of the hazards hereinafter defined * * *." The insured undertook certain iron and steel erection work in connection with the construction of a building. This involved the installation of steel roof trusses. Upon commencing work, the insured discovered that the walls, constructed by another subcontractor, were not square and it, therefore, became necessary to exert pressure on the rafters to pull them into position. Although the employees of the insured were alerted to watch for signs of damage to the wall, a crack developed and the wall subsequently caved in. The foreman testified that this procedure was common and that this was the first such occurrence in his 28 years of experience. The insurer contended that the damage was foreseeable, expected, and not unusual and hence not accidental. The court rejected this reasoning:

"Defendant's argument that the damage to the wall was not unusual—not accidental because foreseeable—alluding here to the dictionary definition of `accident' as an unforeseeable contingency —cannot prevail. * * * Although an intentional or wilful tort would

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