Liberty Bldg. Co. v. Royal Indem. Co.
| Decision Date | 01 February 1960 |
| Docket Number | No. 23707,23707 |
| Citation | 2 Cal.Rptr. 329,177 Cal.App.2d 583 |
| Court | California Court of Appeals Court of Appeals |
| Parties | LIBERTY BUILDING CO., a corporation, Plaintiff and Appellant, v. ROYAL INDEMNITY CO., a copporation, Defendant and Respondent. Civ. |
Samuel A. Miller and David M. Turner, Los Angeles, for appellant.
Dryden, Harrington, Horgan & Swartz, Vernon G. Foster, Los Angeles, for respondent.
Plaintiff seeks to recover on a products liability insurance policy. A general demurrer was sustained with leave to amend, to each cause of action in plaintiff's amended complaint but plaintiff declined to further amend. As a consequence, a judgment of dismissal was duly entered from which plaintiff appeals.
Plaintiff is a subdivider and building contractor. At all times relevant to this action, plaintiff was covered by a products liability insurance policy issued by defendant Royal Indemnity Company. Plaintiff constructed a large number of dwelling houses upon its own property, which were sold prior to completion. After the buyers took possession, many of the houses developed defects in the outside stucco walls. The buyers then brought suit (or made claims) against plaintiff alleging breach of warranty, and plaintiff gave notice to defendant to defend the suits. Defendant refused to defend and plaintiff settled the claims out of court. Plaintiff thereupon brought this action to recover the costs of defense and compromise and also to recover the amounts paid in settlement of the buyers' claims.
Plaintiff's amended complaint is framed in two separate causes of action. After pleading the policy of insurance, the first cause of action is in substance as follows:
That the plaintiff constructed and sold the subject dwellings and that after completion, the outer stucco covering became cracked, discolored and flaked away; that the property owners brought suit or lodged claims against plaintiff; that defendant refused to defend the suits; that plaintiff settled the claims upon advice of counsel that the claimants had substantial evidence that the defects in the stucco were due to an improper mixture which allowed water absorption into the stucco; that plaintiff was therefore justified in settling; and, that defendant refused to pay the amounts incurred in settlement and defense of the claims.
The crux of the purchasers' claims against plaintiff is found in paragraph XII of its first cause of action which reads, in part, as follows: 'That the third cause of action alleged in said Complaint so filed and maintained against plaintiff herein was founded upon the grounds: that plaintiff had, as a matter of law, impliedly warranted to said 'Suing Purchasers', and each of them that, among other things, upon the completion of the Dwelling Unit purchased by each said 'Suing Purchaser', the exterior stucco thereof would and did conform, as to mix and application, to the standards and requirements provided by law, and that such Dwelling Unit had been and would be constructed in conformity with good building practices as practiced within the County of Los Angeles and were of good quality; and that plaintiff had breached its said implied warranties.'
The second cause of action alleges all the material parts of the first cause but added that the damage to the stucco was caused by a high concentration of salt in the soil which was dissolved by water and absorbed into the stucco by capillary action.
The pertinent provisions of the insurance policy are as follows: Defendant is obligated under Coverage C 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 includes liability arising out of the 'products hazard' which is defined under Conditions 3(f), (1) as 'the handling or use of, the existence of any condition in or warranty of goods or products manufactured, sold, handled or distributed by the named insured * * * if the accident occurs after the insured has relinquished possession thereof to others and away from premises owned, rented or controlled by the insured * * *.' However, the above coverage is limited by the exclusion. Exclusion (f) reads: 'This policy does not apply: (f) under coverage C, to injury to or destruction of * * * (3) any goods or products manufactured, sold, handled or distributed or premises alienated by the named insured, or work completed by or for the named insured, out of which the accident arises.' (Emphasis added.) The insurer is required under paragraph II(a) to 'defend any suit against the insured alleging such injury * * * or destruction and seeking damages on account thereof, even if such suit is groundless, false or fraudulent; * * *.' (Emphasis added.)
Plaintiff urges on appeal (1) that the complaints filed in the prior actions stated a claim of liability covered by the policy under Coverage C and that therefore defendant was bound to defend the suits, and (2) that the damage to the stucco was not excluded under Exclusion (f) since the cause of the damage was not a defect in the stucco, but rather was a defect in the soil upon which the buildings were built.
We have concluded that defendant's general demurrer was properly sustained as to each cause of action. In arriving at this conclusion, we have examined the amended complaint both as to its claim for damages for refusal to defend the prior suits and as to its claim that defendant is liable under the policy for the amounts paid in settlement.
It is true that defendant was bound to defend actions brought against plaintiff alleging liability under Coverage C even if the suits be 'groundless, false or fraudulent.' However, if the liability alleged by the complaints was excluded under Exclusion (f), defendant had no duty to defend. Thus the obligation to defend is measured by comparing the terms of the insurance policy with the pleadings of the claimants who sued plaintiff. Ritchie v. Anchor Casualty Co., 135 Cal.App.2d 245, 250, 286 P.2d 1000; Remmer v. Glens Falls Indemnity Co., 140 Cal.App.2d 84, 90, 295 P.2d 19, 57 A.L.R.2d 1379; Lamb v. Belt Casualty Co., 3 Cal.App.2d 624, 630, 40 P.2d 311. The complaints in the prior actions pleaded a breach of implied warranty in the construction of the buildings in that the stucco was improperly mixed or applied. (See paragraph XII of plaintiff's amended complaint, supra.) This breach was assigned as the cause of the damage to the stucco, and defen...
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