Dakota Block Co. v. Western Cas. & Sur. Co.

• Decision Date: 04 February 1965
• Docket Number: No. 10150,10150
• Citation: 81 S.D. 213,132 N.W.2d 826
• Parties: DAKOTA BLOCK COMPANY, a Corporation, Plaintiff and Appellant, v. WESTERN CASUALTY & SURETY COMPANY, a Corporation, Defendant and Respondent.
• Court: South Dakota Supreme Court

Page 826

132 N.W.2d 826

81 S.D. 213

DAKOTA BLOCK COMPANY, a Corporation, Plaintiff and Appellant, v. WESTERN CASUALTY & SURETY COMPANY, a Corporation, Defendant

and Respondent.

No. 10150.

Supreme Court of South Dakota.

Feb. 4, 1965.

Rehearing Denied April 27, 1965.

Bangs, McCullen, Butler & Foye, Rapid City, for plaintiff and appellant.

Hanley, Costello & Porter, Rapid City, for defendant and respondent.

HOMEYER, Judge (on reassignment).

This is an action for a declaratory judgment to determine coverage under a Comprehensive General-Automobile Liability Policy issued by defendant insurance company to plaintiff. The court below found no coverage and dismissed the action. Plaintiff appeals.

Under Coverage C, Property Damage Liability-Except Automobile, defendant agreed 'To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damage because of injury to or destruction of property, including the loss of use thereof, caused by accident.' Under Exclusions there is a provision that the policy does not apply (under Coverage C) to injury or destruction of 'any goods, products or containers thereof manufactured, sold, handled or distributed or premises alienated by the named insured, or work completed by or for the named insured, out of which the accident arises.'

Defendant asserted (1) the damage was not caused by accident, and (2) if caused by accident, it was within the provisions of the exclusionary clause quoted above. The trial court found the damage was caused by accident, but nevertheless denied recovery by holding the damage sustained was excluded from coverage.

It appears from the evidence that plaintiff is engaged in the business of manufacturing and selling haydite and concrete block and other items related thereto. In December 1960 it began producing a new product known as Glazex block. The finished product consisted of an ordinary haydite block to which a colored polyester resin mixed with aggregate had been baked on an outside surface. The block was so designed that a building wall could be constructed in one step with a completely finished interior or exterior surface.

Plaintiff supplied and sold to a masonry subcontractor about 15,000 square feet of Glazex block which was used in the construction of the Douglas school building at Ellsworth Air Force Base. The block was used as an exterior wainscot under the window walls in classroom areas and on the top twenty feet of all sides of the gymnasium. Where necessary, vent stacks, electrical conduit, and insulation were placed in the core of the blocks forming the completed walls. The building plans specified a light blue color on the Glazex surface.

When the masonry work was about 90% completed, the project architect made complaint concerning the appearance of the exterior walls of the gymnasium which had begun to fade and discolor and had taken on a mottled appearance. Some units had turned to a shade of green and others had changed to a brownish-gray. In addition there was surface cracking in the Glazex facing on some of the block. There was no uniformity to the color change and it was most noticeable in the gymnasium section, but also appeared in other places where Glazex block had been used. The change took place when the block was exposed to the elements; however, it was a gradual process and the exact cause of the fading and discoloration was never determined.

Defendant insurance company was notified of the condition of the walls and the complaint, and it retained an adjustor to investigate; however it neither confirmed nor denied coverage for the loss. No progress was made towards settlement and the owners originally requested the walls be torn down. After about three months of negotiation and numerous conferences with contractors, architect and owners, plaintiff persuaded them to agree to a surface coating to cover the block and mortar joints comprising the walls. A commercial product known as 'Ev-Rock' was sprayed on the walls and the final result was a uniformly solid colored wall in a darker blue. The work was performed by another company for which plaintiff paid $9,263.00.

Counsel for plaintiff testified when the agreement in settlement was finally executed by plaintiff, the two prime contractors, the architect, and the school district, that they (school district and architect) insisted that 'the agreement be signed on that date, and if it wasn't signed that any--all settlement negotiations were off and that they were goint to insist on completely taking down the walls.' Testimony in the record is without contradiction that if the walls had been torn down and the block replaced, the cost of labor on the gymnasium alone would have exceeded $30,000.00 and this did not include cost of material and labor on the mechanical and electrical installations inside the walls.

In its complaint, plaintiff alleged the change in color and appearance of the block caused 'damage and injury to the value of the school building as a whole', and that such change in color damaged and injured the structure of which they are a part. On this appeal it vigorously maintains the evidence allows no conclusion except that the value of the building as a whole was diminished as the result of the faded, discolored, and cracked Glazex surfacing, and the damage cannot be confined to plaintiff's product so as to fall within the exclusion contained in the policy as contended by defendant. Plaintiff proposed Finding No. 10 as follows: 'As a result of the fading and surface cracking of the Glazex block, the school building of which they were a part was damaged in that the value of the building was greatly diminished.' The trial court rejected this finding as immaterial and affirmatively found 'No damage, injury, or diminution in value was occasioned to any property other than the said Glazex Blocks'. In so finding, we are of the opinion the court erred and we reverse the judgment.

We will briefly refer to cases decided in other courts involving the question presented. An exclusionary clause almost identical in form was before the Minnesota court in Hauenstein v. Saint Paul-Mercury Indem. Co., 242 Minn. 354, 65 N.W.2d 122. Some acoustical plaster had cracked, was removed and replaced, and a determination was sought of an insurer's liability for damages. The court reasoned: 'Although the injury to the walls and ceilings can be rectified by removal of the defective plaster, nevertheless, the presence of the defective plaster on the walls and ceilings reduced the value of the building and constituted property damage. The measure of damages is the diminution in the market value of the building, or the cost of removing the defective plaster and restoring the building to its former condition plus any loss from deprival of use, whichever is the lesser.'

In Volf v. Ocean Accident and Guarantee Corporation, 50 Cal.2d 373, 325 P.2d 987, stucco purchased by a general contractor and used in building houses cracked and the contractor remedied the condition by putting a new stucco exterior over the old at additional cost. In a suit to recover the extra cost, a divided court denied recovery relying on two provisions of an exclusionary clause, one of which was similar to that in the instant case; the other, an exclusion of 'injury to * * * property in the care, custody or control of the insured,' which is not applicable here. Both the majority and minority opinion cite the Hauenstein case as authority. The majority reasoned the case is distinguishable because in Hauenstein the plaster was removed and replaced. Justice Carter in his dissent said: 'It is an inconsequential distinction that the plaster had to be removed in the Hauenstein case but the damaged stucco in this case was merely covered over. The crux is that because of the damage the building's market value decreased. * * * The court held a proper measure of damages to be the cost of removing the defective plaster and restoring the building to its former condition. I interpret this to mean restoration with proper plastering.'

Shortly after its decision in Volf, supra, the California court again had substantially the same question before it in Geddes & Smith, Inc. v. Saint Paul-Mercury Indem. Co., 51 Cal.2d 558, 334 P.2d 881. A building contractor sued for damages resulting from defective doors supplied by a manufacturer. Recovery was allowed under the Hauenstein rule and the majority opinion distinguishes this case from the Volf case because the defective product (doors) was removed and replaced the same as in Hauenstein where defective plaster was removed and replaced. Justice Carter in a special concurrence reaffirmed his minority position in the Volf case saying the Hauenstein and Volf cases were not distinguishable and the conclusions in the two California cases were inconsistent.

In Pittsburgh Plate Glass Company v. Fidelity and Casualty Company of New York, 3 Cir., 281 F.2d 538, a manufacturer of paint sold its product to a manufacturer of jalousies (venetian blinds); the paint flaked and peeled off and the manufacturer had to remove the venetian blinds, return them to its plant, soak them in a chemical bath and remove the paint, etc. and then repaint and reinstall the jalousies. In holding the complaint stated a cause of action for property damage to a completed product, the court referred with approval to the Hauenstein and Geddes-Smith cases. A somewhat similar factual situation and result appears in Bundy Tubing Company v. Royal Indemnity Company, 6 Cir., 298 F.2d 151, where the manufacturer of small thin-walled...