Geddes & Smith, Inc. v. St. Paul-Mercury Indem. Co.

• Citation: 334 P.2d 881,51 Cal.2d 558
• Decision Date: 10 February 1959
• Docket Number: PAUL-MERCURY
• Court: United States State Supreme Court (California)
• Parties: GEDDES & SMITH, INC. (a Corporation), Appellant, v. SAINTINDEMNITY CO. (a Corporation), Respondent. * . Sac. 6914.

Page 881

334 P.2d 881

51 Cal.2d 558

GEDDES & SMITH, INC. (a Corporation), Appellant, v. SAINT PAUL-MERCURY INDEMNITY CO. (a Corporation), Respondent. ^*.

Sac. 6914.

Supreme Court of California, In Bank.

Feb. 10, 1959.

Riggins, Rossi & Kongsgaard and Clarence N. Riggins, Napa, for appellant.

Desmond, McLaughlin & Russell and Jerome M. McLaughlin, Sacramento, for respondent.

TRAYNOR, Justice.

Plaintiff appeals from a judgment for defendant in an action to recover on an insurance policy issued by defendant to California Aluminum Products, Inc., hereinafter referred to as Aluminumm Products.

Plaintiff, a building contractor, ordered 760 aluminum doors, door jambs, and attached hardware from Aluminum Products in November, 1950. The doors were to be used in 76 houses being constructed by plaintiff in the cities of Napa and Fairfield. The deliveries of the doors occurred from December, 1950, to February, 1951. The doors were kept in storage for some time, and plaintiff began to install them in May, 1951, and installed all of them within a few months. After installation, defects appeared in some of the doors within a few days and in others after various periods of time ranging up to six months. Some of the doors sagged on their hinges and dragged on the floors. Some went out of shape. Parts of some of the doors fell out. Some doors could not be closed and others that were closed became locked in place and could not be opened. Plaintiff notified Aluminum Products, which undertook to supply other doors. Many of the new doors and the same defects as the old. Some were found damaged when received by plaintiff. Some could not be used because they were unsuitable; for example, 22 doors shipped as replacement-bathroom doors were equipped with chimes and letter drops. Aluminum Products shipped a total of 2,604 doors before enough suitable doors were obtained, and plaintiff was engaged in handling, storing, repairing, removing and installing doors for over a year.

In May, 1952, plaintiff brought an action against Aluminum Products alleging breach of warranty and negligence. Plaintiff alleged that by reason of expenses incurred in removing, installing, repairing, storing, and shipping doors, expenses incurred in office overhead during the time it was engaged in settling disputes arising out of installation of the doors and loss of profit, it was damaged in excess of $10,000. Aluminum Products notified defendant and asked it to defend the action. Defendant refused to do so on the ground that damage to the doors was excluded from coverage under the policy issued to Aluminum Products. Aluminum Products then undertook the defense of the action. It denied the allegations of the complaint and filed a cross-complaint for some $8,000 alleged to be unpaid on the doors. When that action came on for trial, counsel for both parties stipulated findings of fact and conclusions of law. pursuant thereto, the court found that allegations of the complaint were true, that nothing was unpaid on the doors, entered judgment on the complaint for plaintiff in the sum of $100,000 and costs, and entered judgment against Aluminum Products on the cross-complaint.

Plaintiff then brought this action against defendant to recover the amount of the judgment under the insurance policy issued by defendant to Aluminum Products. The judgment roll of the prior action was admitted into evidence.

The policy in question was issued for the period from May 1, 1951, to May 1, 1952. Under the terms of the policy defendant was obligated to defend any actions against Aluminum Products alleging damages within the policy coverage. An insurer that has been notified of an action and refuses to defend on the ground that the alleged claim is not within the policy coverage is bound by a judgment in the action, in the absence of fraud or collusion, as to all material findings of fact essential to the judgment of liability of the insured. The insurer is not bound, however, as to issues not necessarily adjudicated in the prior action and can still present any defenses not inconsistent with the judgment against the insured. Sawyer v. Sunset Mutual Life Ins. Co., 8 Cal.2d 492, 499-501, 66 P.2d 641; Artukovich v. St. Paul-Mercury Indem. Co., 150 Cal.App.2d 312, 320-321, 310 P.2d 461; see Rest., Judgments, § 107a, pp. 513-518. Defendant contends that the judgment against Aluminum Products is only presumptive evidence of the matters necessarily adjudicated therein because it was a stipulated judgment. This question need not be considered since the trial court's findings in the instant case on issues necessarily adjudicated in the prior action are the same as the findings in the prior action. Thus, the findings on such issues are supported by the record of the prior judgment, whether it be considered as conclusive on those issues or only as presumptive evidence thereon. The issues that defendant litigated in the trial court and that are raised in this appeal concern the scope of policy coverage and were not adjudicated in the prior action.

The pertinent provisions of the policy are as follows. Under Coverage 'C,' 'Property Damage Liability other than Automobile,' defendant agreed: 'To pay on behalf of the Insured all sums which the insured shall become obligated to pay by reason of the liability imposed upon him by law or contract because of injury to or destruction of property, including the loss of use thereof, caused by accident.' Under 'Exclusions' it is provided that: 'This Policy does not apply: * * * (e) under Coverage C, to injury to or destruction of (1) any goods or products * * * sold * * * by the Insured * * * out of which the accident arises.' Endorsement number 1, effective May 1, 1951, entitled 'Exclusion of Products Liability,' provides: 'It is agreed that the policy does not apply to: (1) the handing or use of, the existence of any condition in or a warranty of goods or products * * * sold * * * by the named insured occurring after the insured has relinquished possession thereof to others * * *.' Endorsement number 4 was executed on April 1, 1952, and provided that retroactive to May 1, 1951, the 'exclusion of products liability endorsement number 1 is cancelled flat.' The policy provides that it applies to accidents taking place during the policy period.

Plaintiff contends that since endorsement 1 excluded liability for any breach of warranty of goods sold after the insured had relinquished possession thereof to others, its cancellation by endorsement 4 must be interpreted as providing coverage to the extent theretofore excluded, and that accordingly damages for breach of warranty in the sale of the doors were necessarily covered. There is no merit in this contention. Each of the endorsements contains the provision: 'Nothing herein contained shall be held to vary, alter, waive or extend any of the terms, conditions, provisions, agreements or limitations of the undermentioned Policy, other than as above stated.' Coverage A provides for bodily injury liability. Coverage C includes damages 'because of injury to or destruction of property, including the loss of use thereof, caused by accident.' Exclusion (e) excepts 'injury to or destruction of (1) any goods or products * * * sold * * * by the Insured * * * out of which the accident arises.' Endorsement 1 is an additional products liability exclusion. It excludes products liability for damage to property other than the products themselves and bodily injuries. It neither increases the coverage nor limits the exclusions otherwise provided, and its cancellation by its express terms leaves such coverage and exclusions fully intact. Accordingly, plaintiff cannot recover under the policy unless the damages were damages 'because of injury to or destruction of property, including loss of use thereof, caused by accident,' and were not damages because of 'injury to or destruction of (1) any goods or products * * * sold * * * by the Insured * * * out of which the accident arises.'

Defendant contends that there was no injury to or destruction of property caused by accident. No all-inclusive definition of the word 'accident' can be given. It has been defined 'as 'a casualty something out of the usual course of events, and which happens suddenly and unexpectedly and without design of the person injured.' Rock v. Travelers' Ins. Co., 172 Cal. 462, 465, 156 P. 1029, 1036, L.R.A.1916E, 1196; Richards v. Travelers Ins. Co., 89 Cal. 170, 175, 26 P. 762, (23 Am.St.Rep. 455).' Zuckerman v. Underwriters at Lloyd's, 42 Cal.2d 460, 473, 267 P.2d 777, 784. It "includes any event which takes place without the foresight or expectation of the person acted upon or affected by the event." Richards v. Travelers Ins. Co., 89 Cal. 170, 176, 26 P. 762, 763; see also, Ritchie v. Anchor Casualty Co., 135 Cal.App.2d 245, 252-253, 286 P.2d 1000; Moore v. Fidelity & Cas. Co., 140 Cal.App.2d Supp. 967, 971, 295 P.2d 154. 'Accident, as a source and cause of damage to property, within the terms of an accident policy, is an unexpected, unforeseen, or undesigned happening or consequence from either a known or an unknown cause.' Hauenstein v. Saint Paul-Mercury Indem. Co., 242 Minn. 354, 65 N.W.2d 122, 126. The door failures were unexpected, undesigned, and unforseem. They were not the result of normal deterioration, but occurred long before any properly constructed door might be expected to wear out or collapse. Moreover, they occurred suddenly. It bears emphasis that we are concerned, not with a series of imperceptible events that finally culminated in a single tangible harm (cf., Canadian Radium and Uranium Corp. v. Indemnity Ins. Co., 342 Ill.App. 456, 97 N.E.2d 132, 139-140), but with a series of specific events each of which manifested itself at an identifiable time and each of which caused identifiable harm at the time it occurred. The trial court found that 'these defects, in some cases, developed within a few days after (the doors) were...