Gulf Mississippi Marine Corp. v. George Engine Co., Inc.

• Decision Date: 07 February 1983
• Docket Number: No. 81-3665,81-3665
• Citation: 697 F.2d 668
• Parties: GULF MISSISSIPPI MARINE CORP., et al., Plaintiffs, v. GEORGE ENGINE COMPANY, INC., Defendant, and ORANGE SHIPBUILDING CO., INC., Defendant-Appellant, v. FIREMEN'S INSURANCE CO. OF NEWARK, NEW JERSEY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 668

697 F.2d 668

GULF MISSISSIPPI MARINE CORP., et al., Plaintiffs, v. GEORGE ENGINE COMPANY, INC., Defendant, and ORANGE SHIPBUILDING CO., INC., Defendant-Appellant, v. FIREMEN'S INSURANCE CO. OF NEWARK, NEW JERSEY, Defendant-Appellee.

No. 81-3665.

United States Court of Appeals,

Fifth Circuit.

Feb. 7, 1983.

Henderson, Hanemann & Morris, Charles Hanemann, Houma, La., for defendant-appellant.

Normann & Normann, Russell M. Cornelius, New Orleans, La., for defendant-appellee.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before WISDOM, RANDALL and TATE, Circuit Judges.

TATE, Circuit Judge:

This appeal concerns only the dismissal by summary judgment of a third-party complaint by a defendant ("Orange") against its insurer ("Firemens"). The defendant Orange had constructed or assembled some vessels for another defendant ("George Engine"), which had sold them to the plaintiffs. The plaintiffs' admiralty action had joined as defendants George Engine, Orange, and the manufacturers of the vessels' engines and gears, alleging damages had resulted from defects in the design, manufacture, and installation of major components of the vessels, particularly the engines and gears.

Orange was sued for the cost of repairs and replacements of the engines and gears and other defective or defectively installed parts, as well as for the plaintiffs' loss of revenue down to downtime thereby necessitated. Orange impleaded Firemens as third-party defendant, as its insurer under a Comprehensive General Liability coverage. The district court granted Firemens' motion for summary judgment, upholding the insurer's contention that the vessel and all its constituent parts were Orange's "work products" and thus wholly within exclusion clauses of Firemen's policy. We find, however, that the certain of allegedly defective components of the vessels were owned by George Engine (not by Orange) and were under the factual showing merely installed by Orange as a subcontractor for George Engine--and were thus not Orange's work or products, since neither "products manufactured, sold, handled or distributed by the named insured" nor work performed by, or on behalf of the named insured, within the policy definitions. We therefore reverse the grant of summary judgment as improvidently entered.

1. The "Work Products" Exclusion Clauses: In General

In its motion for summary judgment, Firemens relied upon certain clauses of its policy, to be quoted below, (see 673 infra ), that excluded from coverage property or other damage attributable to the named insured's products or to work performed by the named insured. The jurisprudential background underlying the adoption of these work products exclusion clauses in the new 1966 standard comprehensive liability insurance coverage is authoritatively analyzed in Henderson, Insurance Protection for Products Liability and Completed Operations, 50 Neb.L.Rev. 415 (1971). In general, their purpose is to exclude from coverage any obligation of the policyholder to repair or replace his own defective work or defective products; the coverage thus extends only to damages to the products of other than the named insured. ¹ The exclusion clauses are also intended, in general, to apply to a manufacturer's or supplier's entire finished products, regardless of whether he makes each component part himself, or buys some or all parts and assembles them into the final product. ²

The central contention of Firemens, the insurer, is that its exclusion clauses preclude any coverage because the entire vessels and all their component parts are Orange's products, since Orange manufactured the entire vessel--not only their defective installation, the defects in the component parts themselves, are thus to be regarded as defects in Orange 's finished product. Orange opposed summary judgment by pointing out that it had only undertook to perform certain work as a subcontractor, building the hull, and that it installed other parts of the vessel from components principally furnished and owned by George Engine. Orange thus contends that damages to these non-owned component parts, or resulting from defects therein, did not result from defective work or product of Orange, the named insured.

2. The Present Facts

Preliminarily, we note that the coverage issue was decided by summary judgment, which may be granted only where "there is no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). In assessing whether a party moving for summary judgment has met "the exacting burden" of so showing, all factual showings and the inferences therefrom must be viewed most favorably to the opposing party, and all reasonable doubts about the facts resolved in his favor. Impossible Electronic Techniques, Inc. v. Wackenhut Protective Systems, Inc., 669 F.2d 1026, 1031 (5th Cir.1982). Therefore, although some of the damages here sought may possibly be excluded from coverage by the clauses in question, we will not for present purposes--deciding whether summary judgment was properly granted--attempt to analyze those within and those excluded from the coverage. For present purposes, it is sufficient to determine only whether some of the damages sought from Orange are arguably within (i.e., not indisputably without) the protection afforded Orange by the policy issued to it by Firemens.

The plaintiffs' complaint seeks damages from Orange resulting from, inter alia, defects in the design of the vessels purchased, as well as defects in the design, manufacture, and construction of the gears and engines (and other parts). Orange is sought to be held liable for defects in the component parts, as the builder of the entire vessels, as well as, additionally, for improper installation of the component parts and other construction defects. The latter include the use of improper materials and components, one of which was the mismating of the particular types of engines used with the particular type of gears used.

The vessels were built or assembled by Orange for George Engine pursuant to a contract between them. There, Orange as "Subcontractor" agreed to "build, equip, and deliver complete" the vessels to George Engine, as "Owner". However, under the actual terms of the contract, Orange's contractual responsibility was to build a hull and assemble and install in it principal components (such as engines and gears) furnished to it by George Engine, in accordance with plans and specifications furnished by the latter. Although Orange warranted its own work and product, it did not warrant any of the major components supplied by George for it to install. Instead, the ownership of these components remained with George Engine, which arranged for the manufacturer's warranties to "pass through" to each vessel's ultimate purchaser. The vessels, incidentally, were built "on speculation" by George Engine, which was principally a distributor in maritime engines and gears, etc., with this owner planning to find customers for them prior to, or soon after, their completion.

In summary, Orange is sought to be held liable as builder or assembler of the vessels for, inter alia, damages (the costs of repair and replacement of the components, and damages consequentially resulting from their malfunctioning) that resulted from defects in the design of the vessels and in the component parts (including engines and gears) themselves, including also the mismatched selection of component parts that caused them to be unfit for their intended purposes. The cited deficiencies were aspects of the construction of the vessels that, by the terms of Orange's contract with George Engine, pertained to components owned and furnished by George Engine for installation by Orange in accordance with George Engine's designs and specifications.

Under the factual showing made for purposes of summary judgment, thus, the general issue for determination of whether the "works products" exclusion applies is: if Orange is ultimately cast for damages resulting from the defects in these component parts and their mismatched selection, are these component parts and their selection to be regarded as Orange's "product", as defined by the policy (and thus excluded from coverage by the clauses in question).

3. The Particular "Works Products" Exclusion Clauses and their Application to the Present Facts

In holding that the damages sought were entirely excluded from coverage, the district judge primarily relied upon exclusion clause (n), and a policy definition. This clause provides that the policy does not apply

(n) to property damage to the named insured's products arising out of such products or any part of such products (Emphasis added.) The policy definition relied upon was that defining the products of Orange, the named insured:

"named insured's products" means goods or products manufactured, sold, handled or distributed by the named insured or by others trading under his name, including any container thereof (other than a vehicle), * * *

(Emphasis added.)

With regard to the defective engines, gears, and other parts furnished by George Engine to Orange for assembly by Orange into the completed vessel, the district court concluded that--even though they were not "manufactured", "sold", or "distributed" by Orange--, they were nevertheless "handled" by it.

In so doing, the trial court relied upon Kendall Plumbing, Inc. v. St. Paul Mercury Insurance Co., 189 Kan. 528, 370 P.2d 396 (1962). There, a heating contractor had purchased two components for installation by it as a complete unit, but it had negligently connected one of them to the other, causing damage to the other. The court rejected the contention that the exclusion clause only applied to...