Insurance Co. of North America v. Electronic Purification Co.

• Citation: 433 P.2d 174,67 Cal.2d 679,63 Cal.Rptr. 382
• Decision Date: 14 November 1967
• Docket Number: S.F. 22259
• Parties: , 433 P.2d 174 INSURANCE COMPANY OF NORTH AMERICA, Plaintiff and Appellant, v. ELECTRONIC PURIFICATION COMPANY, Inc. et al., Defendants and Respondents.
• Court: California Supreme Court

Page 382

63 Cal.Rptr. 382

67 Cal.2d 679, 433 P.2d 174

INSURANCE COMPANY OF NORTH AMERICA, Plaintiff and Appellant, v. ELECTRONIC PURIFICATION COMPANY, Inc. et al., Defendants and Respondents.

S.F. 22259.

Supreme Court of California,

In Bank.

Nov. 14, 1967.

Popelka, Graham, Henifin, Van Loucks & Allard and H. T. Faaland, San Jose, for plaintiff and appellant.

Harold A. Parichan, Fresno, and R. W. Levy, Berkeley, for defendants and respondents.

TOBRINER, Justice.

This appeal is from a judgment in a declaratory relief action in which the court ordered plaintiff Insurance Company of North America to defend its insured, defendant Electronic Purification Company, Inc., in a wrongful death action, and, subject to the limits of its policy, to pay any judgment rendered against the insured in that action. The insurer urges that by reason of a products hazard exclusion in its policy it owes no obligation to the insured in regard to the subject matter of the wrongful death action.

We hold that the products hazard exclusion does not apply to this case. Two independent and alternative grounds support this result: first, the very language of the exclusion does not embrace a product, or operations involving a product, which has been 'rented * * * but not sold,' and here the involved product, a water purification device, had been rented but not sold; second, the complaint in the wrongful death action alleges as the cause of death negligent performance of pool cleaning work, which constitutes a service, not an operation related to a product, and thus is not within the products hazard exclusion. The products hazard clause would, if loosely interpreted to cover the service involved in the instant case, eliminate coverage which the ordinary businessman would under the circumstances reasonably expect from this policy. As we shall point out, neither the language of the policy nor the principles announced in the cases compel that elimination. ¹

Electronic engaged in the business of selling, leasing, and installing water purification machines, called Nion generators, which were manufactured by Aladdin Electronics. Mel Seals served as a part-time employee in the capacity of salesman and installed most of the Nion generators for Electronic. Seals' principal occupation was that of policeman; he also operated out of his home his own pool servicing business.

Defendants Robert and Mary Puccinelli, who owned the Canal Farm Inn and Motel, leased a Nion generator from Electronic for use in connection with their motel swimming pool. The lease ran for a term of one year, and provided for the payment of rent in monthly installments. By the terms of the lease, Electronic agreed to make all repairs and replacements to the Nion generator at its own cost, except those caused by misuse; it retained the right to make inspections, repairs, and replacements at reasonable times. It was not, however, required to undertake the inspections. The Puccinellis agreed to advise Electronic when the Nion generator was not functioning.

Because the walls of the motel pool were plagued with unsightly black algae, Electronic suggested to the Puccinellis that Seals, who was to install the Nion generator, be engaged to clean and acid-wash the pool prior to installation. Although the proper functioning of the Nion generator, which was designed to purify the water, did not require the acid-washing, the washing would contribute to the desired esthetic result. Electronic usually billed the customer for Seals' acid-washing service when performed in connection with the installation of a Nion generator.

Seals and his assistant, Fred Call, acid-washed the pool and installed the Nion generator over a three-day period. On the second day, Seals and Call, working late in the evening with the pool drained of water, used the underwater light in the pool to enable them to see what they were doing. The light, which should have been cooled by the water, blew out; the next morning they replaced it. By noon of that day they had completed the acid-washing work. Call left the job; Seals installed the Nion generator and filled the pool with water.

The next day Kevin Thompson, a 12-year-old guest at the motel, sustained a fatal electric shock while swimming in the motel pool. Thereafter, his parents filed a complaint for wrongful death naming Electronic and the Puccinellis as defendants and alleging that they 'negligently, carelessly and recklessly maintained and installed the electric wiring leading to the submerged pool floodlight fixture * * * in such a way as to cause the said submerged pool floodlight fixture to become highly charged with electricity along its frame and exterior surfaces * * * Kevin Thompson entered said swimming pool and while engaged in swimming therein a portion of his body came in contact with one of the objects appurtenant and affixed to the said (siwmming) pool, and * * * received into his body a deadly electric shock * * *'

At the time of Kevin Thompson's death Electronic carried a comprehensive multiple liability policy undertaken by plaintiff insurer. Plaintiff originally issued the policy to Scott and Evelyn Moore doing business as Central California Oral Ceramics Studio. By subsequent endorsement in consideration of an additional premium to be determined by audit, the business name of Scott and Evelyn Moore was amended to add Electronic Purification Company. The endorsement likewise added a new classification of the insured's business as 'Installation of 'Nion Generators" followed by language which we set out In haec verba infra (see fn. 5). The parties attached the typewritten special endorsement to the policy and caused the changes to be handwritten on the declarations page of the policy.

The policy sets out the general coverage involved here in a single sentence under the general heading ,'comprehensive Liability Insurance' and the subheading 'Insuring Agreements.' ² That sentence declares that the insurer agrees with the insured 'To pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of bodily injury, sickness or disease, including death at any time resulting therefrom, sustained by any person.' The insurer further agrees to defend any suit against the insured involving such injury. The policy provides similar coverages for property damage, caused either by automobile or otherwise.

Under the subheading of 'Exclusions,' the policy sets out situations in which it does not apply; under another subheading, 'Conditions,' the policy lists Condition 3(g), ³ which, the insurer asserts, establishes the non-coverage of the policy in this case. A schedule attached to the policy ⁴ purports to isolate and limit the coverages provided from those available. Under the heading 'Description of Hazards' and subheading '(a) premises--operations' the policy describes the business of Electronic as set out in the margin. ⁵ Except for the omission of the italicized language, the description parallels that on the special endorsement.

Although the 'Products Hazard' condition excludes coverage of the risks which it specifically describes, it does Not exclude coverage of the risks which it does not describe and which otherwise fall under the general coverage of the policy. Both insured and insurer agree that the products hazard provision constitutes extra coverage in return for the additional premium which it requires. Hence if the insured did not purchase it and the loss falls under the risks specified within it, the insurer is not liable. By the same token the insurer is liable for a loss that falls outside the language of the clause and lies within the general coverage of the policy. We shall point out that the fatality in this case, which lies within the general coverage of the policy, is not one of the risks specified by the products hazard condition.

I.

The products hazard provision contains two parts, part (1) dealing with 'goods or products manufactured, sold, handled or distributed by the named insured,' defined not to include 'any property * * * rented to or located for use of others but not sold,' and part (2) dealing with 'operations.' We analyze the present issue in the light of the two-pronged provision of the exclusion, one relating to 'products' and the other relating to 'operations.' We explain that the language of non-application of the exclusion as to rented products applies to both aspects of the provision.

The testimony at the trial of this case showed that defects in the product, the Nion generator, could possibly have caused the electrocution of Kevin Thompson. If the compressor in the machine failed to operate, water could back up into a sealed grid, cause a short circuit, and conduct electricity into the swimming pool. If the Nion generator were the cause of the electrocution, the products hazard exclusion, which provides that it does not apply to Rented products, would be inapplicable. Since, as we have pointed out, Electronic leased the Nion generator to the Puccinellis, the exclusion would not apply, and the loss would be covered by the policy.

The insurer argues, however, that the exclusion of rented products from the products hazard provision contemplated an absolute exclusion from any coverage whatsoever under the policy, and that additional protection must be purchased to insure a risk of liability related to rented goods. The policy, however, contains no provision to that effect; to the contrary, the policy is a comprehensive multiple liability policy stating that the insurer agress 'to pay * * * all sums which the insured shall become obligated to pay as damages because of bodily injury.' The exception of an item from an exclusion leaves it under the general coverage, unless it is elsewhere generally excluded. Among the myriad provisions of the policy we find none specifically relating to rented products. We conclude that since rented products are...