Mattocks v. Daylin, Inc.

Decision Date17 June 1978
Docket NumberCiv. A. No. 76-147 Erie.
Citation452 F. Supp. 512
PartiesCharlotte MATTOCKS, as parent and natural guardian of Kevin Mattocks and Charlotte Mattocks, in her own right v. DAYLIN, INC. v. SULLCRAFT MANUFACTURING CO., a corporation, t/d/b/a Anson Pajama Co. v. DAN RIVER, INC. v. COMMERCIAL UNION INSURANCE COMPANY v. INSURANCE COMPANY OF NORTH AMERICA.
CourtU.S. District Court — Eastern District of Pennsylvania

Andrew J. Conner, Erie, Pa., for plaintiff.

John M. McLaughlin, Erie, Pa., for Sullcraft and Commercial Union Ins. Co.

William R. Tighe, Pittsburgh, Pa., for Daylin, Inc.

George I. Buckler, Pittsburgh, Pa., for Sullcraft Mfg. Co.

John M. Wolford, Erie, Pa., for Dan River and Ins. Co. of North America.

OPINION AND DECLARATORY JUDGMENT

WEBER, Chief Judge.

A jury trial in the above-entitled action concluded on September 15, 1977, with a finding of no liability against defendant Daylin, Inc. Prior to trial of the action, third party defendant Sullcraft Manufacturing Company (Sullcraft) filed a third party Complaint for Declaratory Judgment against a new third party defendant, Insurance Company of North America (INA).

Sullcraft's Complaint for declaratory relief requested this Court to declare that the claims asserted against Sullcraft were covered by the vendor's endorsement issued by INA in favor of vendors of cotton goods purchased from Dan River, Inc., and that INA was thereby obligated to provide indemnification in the event of a finding of liability against Sullcraft, and, a defense on behalf of Sullcraft.

Because of the jury finding of no liability, we have no need to consider if Sullcraft is entitled to indemnification by INA. However, still pending is Sullcraft's request for a declaration of entitlement to all reasonable costs of defense, including but not limited to attorney fees incurred in defense of the above matter and in prior proceedings arising out of the same claim.1

In its Answer to the Complaint for Declaratory Judgment, INA based its refusal to defend under the "plain and clear meaning of the exclusion" contained in the vendor's endorsement. INA alleges that the clear intent of the exclusive language in the endorsement was to exclude vendors who acquired materials from Dan River, Inc. which became component or integral parts of products manufactured by the vendors. Allegedly, vendors who changed the product as shipped by Dan River or labeled, packaged and re-sold the Dan River material, also were excluded from coverage.

INA has moved to dismiss the Complaint for Declaratory Judgment for failure to state a claim based upon the language of the vendor's endorsement. INA also claims (in its brief in support of the Motion to Dismiss) that proof of the identity or origin of the pajamas was assumed throughout trial but never traced to any of the defendants, particularly Dan River. Because there exists no credible evidence to the contrary, we find that the subject pajamas were part of the materials supplied by Dan River to Sullcraft for sale as boys cotton flannelette pajamas.

INA relies upon the exclusions set forth in paragraphs 1(b)(i) and (iv) of the vendor's endorsement to support its contention that no defense was owed Sullcraft. Those sections of the endorsement read:

1. The insurance with respect to the vendor does not apply to:
. . . . .
(b) bodily injury or property damage arising out of:
(i) any physical or chemical change in the form of the product made intentionally by the vendor.
. . . . .
(iv) products which after distribution or sale by the Named Insured have been labeled or relabeled or reused as a container, part or ingredient of any other thing or substance by or for the vendor.

We assume a provision for defense of insured vendors is contained in the products hazard insurance policy that controls this action. The typical insurer agrees to defend the insured against any suits arising under the policy. Here, no party has specifically referred to such a defense provision. Rather, attention has been focused solely on the vendor's endorsement modifying the original insurance policy. INA has not raised the absence of such a proviso as a defense to any duty to defend. A defense based on an exclusion in an insurance policy is an affirmative one, and the burden is on the insurer to establish it. Miller v. Boston Ins. Co., 420 Pa. 566, 218 A.2d 275 (1966).

When an insurer so agrees, there exists an obligation to defend the insured against any suits arising under the insurance policy even if such suit is groundless, false or fraudulent. Gedeon v. State Farm Mutual, 410 Pa. 55, 188 A.2d 320 (1963). The obligation to defend arises whenever the complaint filed by the injured party may potentially come within the coverage of the policy. Cadwallader v. New Amsterdam Cas. Co., 396 Pa. 582, 152 A.2d 484 (1959). The obligation remains until the insurer confines the claim to a recovery the policy does not cover. Only those claims clearly not covered by the policy are excluded from the duty to defend. Cadwallader.

On November 10, 1975, prior to the filing of this action and after receiving a copy of the vendor's endorsement counsel for Sullcraft made a demand on counsel for Dan River (who also was counsel for INA) for the provision of a defense on behalf of Sullcraft with respect to the claims of plaintiff Mattocks. INA refused to provide Sullcraft with a defense alleging that according to the exclusions contained in the vendor's endorsement Sullcraft was not entitled to coverage.

We find that INA had an obligation to defend Sullcraft and, by its refusal to defend, breached that obligation. We do not think the third party plaintiff's claims clearly show no liability on the part of the various third party defendants. As long as the Complaint filed by the plaintiff and thereafter referred to in the Third Party Complaint against Sullcraft covered an injury which "might or might not" fall within the coverage of the...

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    ...flammable property of cotton. It clearly is excluded from Continental's coverage. [Id. at 381, 495 A.2d 152.] Cf. Mattocks v. Daylin, 452 F.Supp. 512, 515 (W.D.Pa.1978) (reasoning that vendor's act, constituting an exclusion under vendor's endorsement, did not void coverage because it did n......
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    ...& Co. v. Pacific Indemnity Co., supra at 60; Fidelity & Casualty Co. of New York v. Riley, 380 F.2d 153, 156 (5th Cir. 1967); Mattocks v. Daylin, Inc., supra at 516; Casualty Co. v. Sammons, 63 Ga.App. 323, 326-27, 11 S.E.2d 89, 91-92 (1940); Glidden v. The Farmers Automobile Insurance Ass'......
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    ... ... corporation entitled " Foerderer Tract Committee, ... Inc." [ 4 ] to conduct their land development ... operations thereon, and further alleges that said ... the insured clearly are not within the coverage of ... the policy, Mattocks v. Daylin, Inc. et al., 452 ... F.Supp. 512 (W.D. Pa. 1978); or in the language of the U.S ... ...
  • Iowa Mut. Ins. Co. v. Davis
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