Chemtec Midwest Services, Inc. v. Insurance Co. of No. America

• Decision Date: 29 January 1968
• Docket Number: No. 66-C-30.,66-C-30.
• Citation: 279 F. Supp. 539
• 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

279 F. Supp. 539

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.

January 29, 1968.

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

Frank L. Morrow and James E. Garvey, Eau Claire, Wis., for defendant.

JAMES E. DOYLE, District Judge.

Plaintiff (hereinafter Chemtec Midwest) is a corporation incorporated by the state of Ohio, which has its principal place of business in the state of Indiana, and 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 general liability insurance policy issued to Chemtec Midwest by INA. This court enjoys 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.

To Chemtec Midwest's contention that the policy covers a certain 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 word "accident", as used in the policy, saves INA from any obligation to Chemtec Midwest in the situation here present (hereinafter referred to as the "no-accident" defense).

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 the trial which may be relevant to both defenses would be received only in relation to the "care, custody or control" defense.

Rulings on a number of evidentiary issues were reserved at trial. To the extent that decisions with respect to them have proved necessary to a determination of the "care, custody or control" issue, said evidentiary rulings will be noted at appropriate points hereinafter.

Upon the basis of the entire record herein, I make the findings of fact and reach the conclusions of law set forth hereinafter.

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 stated to be the 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 Services, Inc. plaintiff herein, Dix Chemical Services, Inc., Coast Tank Services, Inc., McCormicks Chemical and Inspection Co., Inc., Chemtec Pacific Services, Inc., Chemtec Eastern Services, Inc., Walker Chemtec Services, Inc." The "Business of the Named Insured" is shown as "chemical cleaning of boilers and blast furnaces."

By the terms of said 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." The exclusions section of the policy provides that it does not apply: "to injury to or destruction of * * (2) except with respect to liability under sidetrack agreements covered by this policy, property used by the insured, or (3) except with respect to liability under such sidetrack agreements or the use of elevators or escalators at premises owned by, rented to or controlled by the named insured, property in the care, custody or control of the insured or property as to which the insured for any purpose is exercising physical control. * * *"

I find that the possible liability of Chemtec Midwest for damage to property involved in this action and in the related action of Sterling Pulp & Paper Co. v. Chemtec Midwest Services, Inc., C-64-72, is not "liability under sidetrack agreements covered by this policy", and is not "liability under * * * the use of elevators or escalators at premises owned by, rented to or controlled by the named insured. * * *" Therefore, the relevant language of the exclusion is: "property in the care, custody or control of the insured or property as to which the insured for any purpose is exercising physical control. * * *"

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"; that Sterling immediately by phone notified Chemtec Midwest of the damage, and later gave written notice, and later gave notice of the extent of the damage and made demand for payment; 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.

Chemtec Midwest has filed an answer in C-64-72. The answer generally denies the giving of the alleged warranties; "admits that Chemtec Midwest entered upon the property of Sterling to perform such services, and proceeded to chemically clean such boilers"; alleges that the chemicals and materials used were procured from third parties; alleges that Chemtec Midwest used standard methods and processes; denies knowledge of the condition of the boilers and therefore "denies that said boilers were turned over to Chemtec Midwest in a sound and satisfactory condition"; denies knowledge whether the material furnished to Chemtec Midwest by Sterling was commercial grade soda ash; denies that the materials and methods used by Chemtec Midwest were discovered by Sterling to be causing damage to the boilers; denies that any act of Chemtec Midwest caused damage to the boilers and resulting financial damage to Sterling; denies that Sterling duly notified it of any alleged breach of warranty or resulting damages; denies any negligence on the part of Chemtec Midwest and denies that any damage resulted from any negligence on its part. As an affirmative defense, Chemtec Midwest alleges that "at the time said boilers were turned over to it for such services", the boilers and connected equipment were in an unsound and defective condition; that Chemtec Midwest had no way of knowing of such condition at the time; and that any damage which may have occurred was the result of Sterling's own acts and omissions.

Considerable evidence was offered at the trial herein, both in the form of testimony and exhibits, with respect to the activities of Chemtec Midwest and INA, in relation to one another, subsequent to September 29, 1963, the date on which the cleaning of the Sterling boilers occurred. A blanket and continuing objection was made to all such offered evidence on the ground that it is irrelevant to the issues in this case. The testimony was heard and the exhibits submitted, subject to the objection, and a ruling on the objection was reserved. More particular objection was made to testimony and exhibits relating to the period subsequent to a so-called "reservation of rights" by INA in February, 1964. Both the broader and the narrower objections are hereby overruled. I conclude that the testimony and exhibits are relevant to two issues. One is the issue whether the exclusionary language is ambiguous; evidence of uncertainty and hesitation on the part of the insurer, subsequent to the disputed occurrence, is relevant. The second is the issue of the intent of the parties at the time the policy was issued; a course of conduct over a period of time may form a pattern from which inferences reasonably may be drawn about a party's state of mind early in the period. All testimony and exhibits to which such objection was made are hereby received....