Green v. Aetna Insurance Company

• Decision Date: 08 July 1968
• Docket Number: No. 25094.,25094.
• Citation: 397 F.2d 614
• Parties: A. C. GREEN, Jr., et al., Appellants, v. AETNA INSURANCE COMPANY, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

397 F.2d 614 (1968)

A. C. GREEN, Jr., et al., Appellants, v. AETNA INSURANCE COMPANY, Appellee.

No. 25094.

United States Court of Appeals Fifth Circuit.

July 8, 1968.

Jack Banner, Banner & McIntosh, Wichita Falls, Tex., for appellants.

David Bland, Houston, Tex., for appellee.

Before GOLDBERG and CLAYTON, Circuit Judges, and HANNAY, District Judge

CLAYTON, Circuit Judge:

This case is here for the second time.¹ On its first appearance, we held in sum that under the complaint as then made in a declaratory action and under the policy of general liability insurance issued by Aetna Insurance Company with Rotary Tool and Joint Company² as named insured, Aetna had no duty to defend a pending personal injury damage suit (as then made by the pleadings)³ by Billy Lee Schafer against Rotary, but we reversed a holding by the district court declaring that there was no duty on the part of Aetna to pay any judgment obtained against its insured, since the record did not then permit a determination as a matter of law that under no possible state of facts could a claim be maintained against the insured within the coverage of the policy.⁴ It was then this court's view that the district court should not declare the rights of the parties with respect to liability for payment of judgment until after the tort case had been adjudicated in the state courts, and the district court stayed its hand until after the state court trial.

There was a final judgment in favor of Billy Lee Schafer against Rotary for $558,866 in state court; Schafer had intervened in the case sub judice, and there was then a trial without a jury in the district court.⁵ Findings of fact and conclusions of law were filed, and judgment entered declaring no liability on the part of Aetna to pay the Schafer judgment. Only the Intervenor, Schafer, appeals.

Appellant makes a multipronged attack on the actions of the district court, but the main thrust of his argument is that the reworking of the "pin" or "male" end of a drill collar is a separate and an independent operation from reworking the "box" or "female" end.⁶ He argues that inasmuch as the box end of the drill collar which was involved in the injury to Schafer had not been worked upon that "operations," within the language of the policy, could not be completed nor abandoned.

For present purposes, we may accept as undisputed in the record facts necessary to determine the one question of coverage. Their essence is that in accordance with an oral agreement Rotary customarily did repair work for Luke Grace Drilling Company, and under this agreement, Rotary undertook to repair for Grace six drill collars. Such collars have a pin end and a box end. Grace expected Rotary to repair both ends, and Rotary intended to do so. Rotary repaired all six pin ends and three of the box ends. It did nothing to the other three box ends. The drill collars were returned to Grace without notice or knowledge of Rotary's failure to do the complete job which Grace had expected. One of the unrepaired box ends malfunctioned, causing the injuries to Schafer. This occurred on premises which were in no way connected with Rotary.

Exclusions from the coverage, which may be relevant here, are:

First: On one of the schedules, there appears:

"(d) Products (Including Completed Operations)," there was typed "NONE COVERED HEREUNDER."

Second: Where dollar amounts of coverage were inserted, on the line for "Aggregate Products," there was typed "NOT COVERED."

Third: There was an endorsement reading:

"Exclusion of Products Hazard

"* * * It is agreed that this policy does not apply to the products hazard as defined therein."

Fourth: The relevant parts of the policy language defining products hazard is:

"Products Hazard. The term `products hazard\' means

"(1) goods or products manufactured, sold, handled or distributed by the named insured or by others trading under his name, if the accident occurs after possession of such goods or products has been relinquished to others by the named insured or by others trading under his name and if such accident occurs away from premises owned, rented or controlled by the named insured * * *;

"(2) operations, if the accident occurs after such operations have been completed or abandoned and occurs away from premises owned, rented or controlled by the named insured; provided, operations shall not be deemed incomplete because improperly or defectively performed or because further operations may be required pursuant to an agreement; * * *."

When the six drill collars were placed in Rotary's hands, Grace expected Rotary to repair both ends, and Rotary intended to do so, according to the Grace-Rotary agreement. The Schafer accident occurred away from premises owned, rented or controlled by Rotary, and after Rotary had relinquished possession of the drill collars. When the drill collars left Rotary, one or more or all of the situations following existed:

1) Rotary had not completed the repair work ("operation") as had been contemplated and, thus, had abandoned it.⁷

2) Rotary's repair work had been "improperly or defectively performed," since Rotary had not done all it was required to do by the Grace-Rotary agreement. Since, under the language of the policy, "operations shall not be deemed incomplete because improperly or defectively performed," this would be a "completed" operation, under the language of the policy. (Emphasis added.)⁷

3) Rotary had not done all that was expected of it under the Grace-Rotary agreement and, thus, to fulfill their obligations thereunder, Grace could have required Rotary to undertake "further operations * * * pursuant to an agreement * * *".⁷

With the foregoing being so, under the views afterward expressed herein, it is irrelevant whether the repairs to the drill collars were two operations, as contended by appellant, or one, as was probable.

The allegations of negligence in the petition in the tort case which we held did not create on Aetna's part the duty to defend were these:

That Rotary Tool and Joint Company and its owners, acting by and through their employees or agents was guilty of negligence in failing to properly inspect the drill collar in question, in failing to repair the same, in declaring the same was in condition for use, in warranting that such joint would be properly repaired and in failing to warn that in truth and in fact no proper repairs had been made on such drill collar and each and every one of the above acts, individually or collectively constituted carelessness, heedlessness and negligence which reasonably could be anticipated would lead to injury or damage.

Responding to special issues in the tort cases, the jury found that Rotary failed to repair the box end of the drill collar; that it failed to warn that this had not been done and that it failed to inspect that end of the drill collar. The jury thus found the existence of the very facts which we held did not create the duty to defend. These are facts which we must now accept. This being so, it possibly might be sufficient for us to say that it would be inconsistent and against reason to hold that a duty to pay now exists on precise facts which we have held created no duty to defend. However, to avoid muddying the clear exposition by Justice Hamilton⁸ with respect to the distinction between the duty to defend and the duty to pay, Heyden Newport Chemical Corp. v. Southern General Insurance Co., 387 S.W. 2d 22 (1965),⁹ we should go further. The allegations upon which we held there was no duty to defend have now become facts upon which we hold there is no duty resting with Aetna to pay the Schafer judgment.

We are Erie¹⁰ bound to follow Texas law which on the facts here is not difficult to ascertain. We rely principally upon two Texas cases to support our view. They are Pan American Insurance Company v. Cooper Butane Company, 157 Tex. 102, 300 S.W.2d 651 (1957), and Maryland Casualty Company v. Knorpp, 370 S.W.2d 898 (Tex. Civ.App.1963) (writ ref'd n. r. e.). We rely also on our earlier opinion on the first appearance of this case here. (Footnote 1, supra.) See also, Pan American Insurance Company v. White, no writ history, 321 S.W.2d 337 (Tex.Civ. App.1959).

We first outline the analysis of Cooper as it was articulated by Judge Brown in writing for this court in the earlier appearance here of the case sub judice:

1) Liability under the policy "is a matter of contract upon which contract principles apply".

2) "Policy provisions excluding liability for damages occurring after an assured's activity has ceased are perfectly valid."

3) The plain meaning of language comparable to that of "(2) operations" of the policy in suit, supra "excludes occurrences taking place after operations have been completed".

4) "Premises — Operations" hazard does not encompass "damages growing out of failures occurring away from premises owned, rented, or controlled by the assured and happening after operations have been completed * * *."

5) "Operations" need not be tied to a product which is manufactured, sold, handled or distributed in order to make the "completed operations" section of the Products Liability hazard operative.

While it is true that the Texas Supreme Court in Cooper dealt only with questions of whether "operations" had been "completed," that court recognized, we think clearly, that if the operations had been "abandoned," the same result would be reached. It stated:

If the insured had wished coverage for liability for damages growing out of accidents occurring after operations had "been completed or abandoned at the place of occurrence thereof and away from premises owned, rented or controlled by the insured" it should have purchased coverage against hazard No. 4, "Products". It did not do so.¹¹

Knorpp, supra, adds strength to our views with respect to what Texas courts have held. The court there held "Division 4 — Products — Completed Operations" has to do with liability after relinquishment for...