Hartford Acc. & Indem. Co. v. Olson Bros., Inc.

Decision Date02 July 1971
Docket NumberNo. 37842,37842
Citation188 N.W.2d 699,187 Neb. 179
PartiesHARTFORD ACCIDENT & INDEMNITY COMPANY, a Corporation, Appellee, v. OLSON BROS., INC., a Corporation, Appellant. Impleaded with Lozier Corporation, a Corporation, Appellee.
CourtNebraska Supreme Court
Syllabus by the Court

1. An insurer's duty to defend an action against the insured must, in the first instance, be measured by the allegations of the petition against the insured.

2. A policy of insurance should be considered as any other contract to give effect to the intention of the parties at the time it was made as expressed therein. The language of it should be considered not in accordance with what insurer intended the words to mean, but what a reasonable person in the position of the insured would have understood them to mean.

3. Exclusion in a liability policy excluding from coverage injury to or destruction of any goods sold by the named insured or work completed by the named insurer out of which accident arises eliminates any coverage for injury to or destruction of the product furnished or work completed by the named insured.

4. Under exclusion in a liability policy excluding from coverage injury to goods sold or work completed by the named insured, if defect in the product furnished or work completed by the named insured causes damage to other property, there is coverage for such damage to other property.

Young, Baird, Holm, McEachen, Pedersen, Hamann & Haggart, Gerald P. Laughlin, Omaha, for appellant.

Cassem, Tierney, Adams & Henatsch, Charles F. Gotch, T. J. Stouffer, Omaha, for Hartford Accident.

Abrahams, Kaslow & Cassman, Omaha, for Lozier Corp.


CLINTON, Justice.

This is an action for a declaratory judgment brought by Hartford Accident & Indemnity Company, the insurer, against Olson Bros., Inc., the insured, and the Lozier Corporation, plaintiff in another action wherein Olson is defendant, to determine the rights of the parties under the terms of an insurance policy issued by Hartford to Olson. The question involved is whether the language of certain 'exclusions' in the policy is such that Olson was not afforded coverage in the suit of Lozier against Olson. The trial court determined there was no coverage. Olson appealed. We affirm the judgment of the trial court.

Olson is a roofing contractor. It furnished under contract with Lozier the materials for and constructed and installed in three different stages a roof deck and covering of built-up four-ply paper, asphalt, and gravel on a manufacturing plant belonging to Lozier. The roof in all three stages was of identical materials and construction, consisting of roof deck panels of a wood fiberboard known as 'tectum,' metal 'bulb-tees' which were small 'I' beam-like metal strips welded at right angles to the structural roof members at proper distances to support the panel ends, and a gypsum grout which sealed together the bulb-tees and the panels. On top of this deck was laid the paper, asphalt and gravel. Olson also furnished and installed flashing.

The first stage was completed about April 18, 1963; the second stage about June 21, 1965; and the third about March 24, 1967. Early in 1968 Lozier discovered that the tectum panels of the first two stages had 'cupped' or warped so that water stood in each of the panels after rains and the warping caused cracks and check marks to appear in the paper and asphalt which marks or cracks where present generally defined the panel edges. The last stage was beginning to show the same characteristics. The 2-year warranty period of the construction contract had expired.

Lozier on October 20, 1969 brought an action against Olson in which it alleged: The construction of the roof by Olson; that Lozier originally planned to install a conventional steel deck with insulation but upon the recommendation of Olson contracted for the use of tectum; that in discussing the recommendation with Olson, Lozier had pointed out its manufacturing operations involved moisture and heat and the roofing on the plant would have to be satisfactory for these conditions; that Olson orally represented to Lozier a tectum roof would not be affected by moisture and heat and would be satisfactory under the conditions in the Lozier plant; that the representations were made as positive statements of fact with the intent that Lozier should act thereon; that Lozier, believing the representations, relied thereon and on that basis contracted for the roof with Olson; that the representations of Olson were false when made; that the roof was severely affected by heat and moisture involved in the operation of the Lozier plant; that the panels deteriorated and this deterioration was reported to Olson and Olson has failed and refused to remedy the situation; and that Lozier was damaged in the amount of $240,000, 'being the fair and reasonable cost of removing said roofing * * * and installing proper roofing thereon.'

The plaintiff, Hartford, investigated Lozier's claim and denied Olson coverage under the policy. Hartford then brought this action. Olson counterclaimed for attorneys' fees and expenses in defending Lozier's action. Pending the determination of this suit in the district court, proceedings in Lozier's action against Olson were enjoined.

Hartford's evidence is uncontradicted that there is no damage to property other than the roof and that other physical parts of the building such as steel walls, foundation, etc., are not damaged by the roof deterioration. Olson introduced evidence of a real estate appraiser who testified that the market value of the premises was damaged by reason of the roof deterioration as this was a factor which prospective buyers would consider in making an offer. He also testified that replacement of the roof would restore the market value.

Pertinent policy provisions are the following:

'The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of * * *

'Coverage B--property damage

'to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but the company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company's liability has been exhausted by payment of judgments or settlements.


'This insurance does not apply: * * *

'(k) to bodily injury or property damage resulting from the failure of the named insured's products or work completed by or for the named insured to perform the function or serve the purpose intended by the named insured, if such failure is due to a mistake or deficiency in any design, formula, plan, specifications, advertising material or printed instructions prepared or developed by any insured; but this exclusion does not apply to bodily injury or property damage resulting from the active malfunctioning of such products or work;

'(1) to property damage to the named insured's products arising out of such products or any part of such products;

'(m) to property damage to work performed by or on behalf of the named insured arising out of the work or any portion thereof, or out of materials, parts or equipment furnished in connection therewith; * * *.'

The pertinent definitions of the policy are as follows:

'Definitions * * *

"completed operations hazard' includes bodily injury and property damage arising out of operations Or reliance upon a representation or warranty made at any time with respect thereto, but only if the bodily injury or property damage occurs after such operations have been completed or abandoned and occurs away from premises owned by or rented to the named insured. 'Operations' include materials, parts or equipment furnished in connection therewith * * *.

"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), but 'named insured's products' shall not include a vending machine or any property other than such container, rented to or located for use of others but not sold;

"occurrence' means an accident, including injurious exposure to conditions, Which results, during the policy period, in bodily injury or property damage neither expected nor intended from the standpoint of the insured; * * *

"products hazard' includes bodily injury and property damage Arising out of the named insured's products or Reliance upon a representation or warranty made at any time with respect thereto, but only if the bodily injury or property damage occurs away from premises owned by or rented to the named insured and after physical possession of such products has been relinquished to others; * * *.' (Emphasis supplied.)

As is to be noted, the policy in question covers what is usually called 'products liability' and 'completed operations hazard.'

The parties apparently agree that the completed roof is the product of the insured, Olson, within the meaning of the policy and that the roof construction is a completed operation within the meaning of the policy.

Hartford contends that exclusions (1) and (m) eliminate any coverage here as the only damage is to the insured's 'product' or 'work completed.' Olson makes certain contentions with reference to exclusion (k) as it relates to the interpretation of the policy and we will note this later in the opinion.

Olson contends that the burden is upon Hartford to prove facts showing that the risk falls within the exclusions; that the risk is not within the exclusions because...

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