Kansas City Insulation Co. v. American Mut. Liability Ins. Co.
| Decision Date | 06 January 1969 |
| Docket Number | No. 19098.,19098. |
| Parties | KANSAS CITY INSULATION COMPANY, Appellant, v. AMERICAN MUTUAL LIABILITY INSURANCE COMPANY, Appellee. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Glenn E. McCann, of Knipmeyer, McCann & Millett, Kansas City, Mo., for appellant.
Donald K. Hoel, of Shook, Hardy, Ottman, Mitchell & Bacon, Kansas City, Mo., for appellee; William G. Zimmerman, Kansas City, Mo., with him on brief.
Before VAN OOSTERHOUT, Chief Judge, and GIBSON and BRIGHT, Circuit Judges.
On this appeal, we are called upon to determine whether a comprehensive general liability insurance policy affords coverage for a property damage claim in favor of Kansas City Insulation Company ("Kansas City"), appellant here and garnishing judgment creditor below. Jurisdiction is established by diversity of citizenship between the contending parties and an adequate amount in controversy. Prior to the proceedings below, Kansas City brought a civil action against T. F. Scholes of Arkansas, Inc. ("Scholes") in the United States District Court for the District of Colorado. During that litigation, Scholes, as an insured, requested defense of that suit from its comprehensive general insurer, American Mutual Liability Insurance Company ("insurer"), pursuant to the policy in question here. The insurer declined coverage on the basis that the claim was not within the designated policy risk. Thereafter, in early 1963, Kansas City obtained judgment by default against Scholes for the sum of $13,081.17 and now has brought a garnishment proceeding in aid of execution against the insurer. The court below determined that the insurer's policy did not cover Kansas City's claim. Kansas City appeals from that determination. We affirm.
The policy of insurance had been written and issued by the insurer to Scholes in Reading, Pennsylvania. The insurer and Kansas City agreed that Pennsylvania law would apply to the present controversy.
Scholes was a general contractor and had been engaged in the construction of an underground potable-water system for the United States Air Force Academy at Colorado Springs, Colorado. Scholes had commenced work on the project in July of 1957 and had completed the work during April of 1958. In the latter month, final acceptance inspections were made by Academy construction representatives and by April 14, 1958, Scholes had no men, equipment or offices in the State of Colorado and did no further work under the Air Force Academy contract.
After Scholes had finished in Colorado, it purchased from the insurer the comprehensive liability insurance policy described below. During the Colorado operations, Scholes had been insured under a similar policy, issued by the United States Fidelity and Guaranty Company, which terminated on April 25, 1958, the day after the commencement date of the policy here in question. On June 15, 1958, about two months after Scholes had completed construction, a water main on the Academy potable-water system ruptured. Subsequent investigation revealed that the break was due to an improper installation of a gate valve at an intersection of water pipes causing the valve to "blow off" under pressure. That incident caused water damage to insulating material stored by Kansas City in a nearby building. The alleged negligence of Scholes and the consequent damage to Kansas City's property formed the basis of the Colorado judgment in favor of Kansas City.
The insurance policy in question is complex. The insurer agreed with the named insured, Scholes,1 subject to the limitations of liability, exclusions, conditions and other terms of the policy, to protect the insured against claims for bodily injury and property damage, viz.:
" _______________________________________ Coverage B — PROPERTY DAMAGE LIABILITY2 TO PAY on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of injury to or destruction of property, including the loss of use thereof, caused by accident." " _________________________________________
The policy period extended for one year following April 24, 1958. The front page of the contract further recited:
The various hazards included and excluded in the policy are listed as follows:
"DESCRIPTION OF HAZARDS
_________________________________________________________________________________________
The rating classifications under the Description | | | Advance Premiums
of Hazards do not modify the exclusions | *** | *** | Coverage Coverage
or other terms of this policy. | | | A B
__________________________________________________|______|______|________________________
(a) Premises-Operations | | |
SEE SCHEDULE ATTACHED | | | 423.70 448.16
__________________________________________________|______|______|________________________
(b) Elevators Type | | |
TO BE DETERMINED ON AUDIT | | |
__________________________________________________|______|______|________________________
(c) Independent Contractors | | |
TO BE DETERMINED ON AUDIT | | |
__________________________________________________|______|______|________________________
(d) Products (Including Completed | | |
Operations) | | |
EXCLUDED SEE END. 1 (F 1928) | | |
__________________________________________________|______|______|________________________
(e)Contracts as Defined in Condition 3 | | | 38.50 19.15"
SEE ENDS. 5, 6 AND 7 | | |
__________________________________________________|______|______|________________________
Endorsement No. 1 attached to the policy recited:
"It is agreed that the policy does not apply to the products hazard as defined therein."
Thus, it seems from the enumeration of coverages and the applicable endorsements that the hazards for premises-operations, elevators, independent contractors and contracts were included in the coverage and a premium was charged or to be charged therefor, while the hazard under the title "Products (Including Completed Operations)" was excluded.
The excluded hazard, i. e. the product hazard, is specifically defined in the policy in the following pertinent language:
This type of policy has been before the courts on many occasions and its structuring is noted in Ocean Accident & Guar. Corp. v. Aconomy Erectors, Inc., 224 F.2d 242 (7th Cir. 1955); Standard Accident Ins. Co. v. Roberts, 132 F.2d 794 (8th Cir. 1942).
Appellant Kansas City contends that its judgment is covered under the provisions of the American Mutual liability policy on the following analysis:
(1) Notwithstanding that the policy was not in effect at the time the work was performed by Scholes, the water damage nevertheless occurred during the policy period.
(2) The "premises-operations" hazard refers to a schedule attached to the policy. Such schedule lists "Code No. 3499: SEWER CONSTRUCTION-ALL OPERATIONS-". Appellant submits that the language of the schedule specifically covers all operations involved in sewer construction.3 The exclusion for the products hazard, including completed operations, is ambiguous, according to appel...
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