Gulf Ins. Co. v. Parker Products, Inc., B--3704
| Decision Date | 18 July 1973 |
| Docket Number | No. B--3704,B--3704 |
| Parties | GULF INSURANCE COMPANY, Petitioner, v. PARKER PRODUCTS, INC., Pespondent. |
| Court | Texas Supreme Court |
Brown, Crowley, Simon & Peebles, M. Hendriks Brown, and Anne Gardner, Fort Worth, for petitioner.
Wynn, Irby, Brown, McConnoci & Mack, Tom Renfro, Fort Worth, for respondent.
Parker Products, Inc. sued its insurer, Gulf Insurance Company, on its general liability policy for the amount and expenses of a settlement made between Parker and a third party claimant. Gulf Insurance denied that the claim was covered by the policy and obtained summary judgment on that ground in the trial court. The Court of Civil Appeals reversed the judgment and remanded the case for the determination of the reasonableness of the settlement and of the attorney's fees incurred by Parker in defending the claim. 486 S.W.2d 610. We affirm the judgment of the Court of Civil Appeals.
Parker is in the business of manufacturing candy flavoring mixes for sale to ice cream manufacturers. In 1970 Parker manufactured and sold to Associated Dairy Products Company of California, Inc., coffee and lemon candy mix flavorings which were used in the making of some 4696 gallons of ice cream. The maker of the ice cream, Parker's customer, discovered that paper had been contained in the flavoring and had then been mixed into the ice cream so as to make it all unfit for consumption and worthless. Associated Dairy Products Company presented Parker with a claim for the cost of labor and ingredients in manufacturing the ice cream, and Parker called upon Gulf Insurance for protection. Gulf Insurance refused to defend and denied coverage. This suit was subsequently brought by Parker to recover the amount ($6,481.77) of its settlement with Associated Dairy Products Company and also for $450 expended in attorney's fees.
Parker holds comprehensive liability insurance under a policy issued by Gulf Insurance, which policy protects Parker against both bodily injury liability and property damage liability. However, Gulf Insurance contends that exclusion (n) applies to this particular claim. Under that exclusion, the insurance does not apply:
(n) to damages claimed for the withdrawal, inspection, repair, replacement, or loss of use of the named insured's products or work completed by or for the named insured or of any property of which such products or work form a part, if such products, work or property are withdrawn from the market or from use because of any known or suspected defect or deficiency therein;
Gulf Insurance argues that the ice cream was property of which Parker's defective mix formed a part and that, therefore, the damages for the replacement of that ice cream are excluded by the quoted clause. We find no cases construing this relatively new policy provision, but it is discussed in 2 Long, Law of Liability Insurance, App. § 15 (1966). The provision is there referred to as the 'sistership exclusion' and is explained as follows:
It denies coverage for claims based upon the cost of withdrawing a product from the market, replacing a product or the loss of use of a product which is temporarily or permanently withdrawn from the market because of occurrences involving the same or a similar product. The name derives from an occurrence in the aircraft industry where all airplanes of a certain make and type were grounded by an order of the Civil Aeronautics Administration because one crashed and others were suspected of having a common structural defect. The damages arising out of the loss of use of all the sister ships were enormous.
The recall of equipment or parts discovered to have a common fault involve expenses incurred to prevent accidents which have not occurred. While the insurance covers damages for bodily injuries and property damage caused by the product that failed, it was never intended that the insurer would be saddled with the cost of preventing other failures, any more than it was intended that the insurer would pay the cost of preventing the first...
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