McNally v. American States Insurance Company

• Citation: 308 F.2d 438
• Decision Date: 28 September 1962
• Docket Number: No. 14762.,14762.
• Parties: John P. McNALLY and Tom McNally, d/b/a McNally Elevator Service Company, Plaintiffs-Appellees, v. AMERICAN STATES INSURANCE COMPANY, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

308 F.2d 438 (1962)

John P. McNALLY and Tom McNally, d/b/a McNally Elevator Service Company, Plaintiffs-Appellees, v. AMERICAN STATES INSURANCE COMPANY, Defendant-Appellant.

No. 14762.

United States Court of Appeals Sixth Circuit.

September 28, 1962.

Robert E. Sullivan, Detroit, Mich., Hand, Sullivan, Kiefer & Allen, Robert E. Sullivan, Detroit, Mich., on the brief, for appellant.

William L. Fisher, St. Clair Shores, Mich., William L. Fisher, St. Clair Shores, Mich., on the brief, for appellee.

Before WEICK and O'SULLIVAN, Circuit Judges, and DARR, Senior District Judge.

O'SULLIVAN, Circuit Judge.

Defendant-Appellant, American States Insurance Company, appeals from a judgment declaring that its policy of liability insurance in which Plaintiffs-Appellees, John P. McNally and Tom McNally, d/b/a McNally Elevator Service Company, (referred to herein as the McNallys) are the named insureds, covered the liability charged against the McNallys in a suit against them in the Circuit Court of Kalamazoo County, Michigan. On February 13, 1957, while the policy was in force, plaintiff in the Kalamazoo County action was injured when an elevator in the Burdick Hotel at Kalamazoo Michigan, in which he was a passenger, fell. His declaration charged, inter alia, that the elevator fell as a consequence of the negligent failure of the McNallys to properly inspect and maintain such elevator in a safe working condition, as they were required to do under an inspection and maintenance contract between the McNallys and the Burdick Hotel Company. At the time of the accident, neither of the McNallys nor any of their employees was on the Burdick Hotel premises. Defendant's position is that its policy covered only such accidents as might occur while one of the McNallys or their employees was physically present at the place of, and engaged in the performance of work on, such elevator. The cause was tried to the District Judge without a jury.

On October 21, 1955, the McNallys entered into a contract with the Burdick Hotel Company to furnish that concern with what was called "McNally Maintenance" of elevators located in the hotel. By this contract, the McNallys were under a continuing obligation to use all reasonable care to maintain the elevator equipment in the Burdick Hotel in proper and safe working condition. They were required to regularly and systematically examine, adjust and lubricate as required, and where conditions warranted, repair and replace the machine, motor, generator and controller parts. Periodic examinations of all safety devices were required. It was testified that performance of the contract required not less than weekly visits to the elevator premises, and the McNallys were to respond to emergency calls, if needed. The McNallys had established a system whereby they would inspect part of the elevator equipment one week and another part on the following week; one week they would go over the controls, the machine, the brakes and everything up in the penthouse; the following week they would go down the elevator's hatch and go over the locks, the limit switches, slack cable devices, car shoe gibs and inspect the safety situation under the car. Some time prior to the accident, the McNallys were experiencing trouble with the rotor in the elevator in question. Temporary repairs were made to it while the McNallys were in the process of locating another rotor to replace it. The Burdick Hotel elevators were fifty-one years old, and replacement parts were not readily available. The McNally contract with the hotel was a yearly one with an automatic renewal provision and was in force on the day of the accident.

Notified of the accident and the suit brought thereon, defendant American States Insurance Company refused to defend. The question before the District Court was whether the McNallys' liability, if any, to the person injured by the fall of the elevator was a hazard coming within the clear meaning of that part of defendant's policy entitled "Products — Completed Operations." The McNallys did not buy such coverage, and such coverage was excluded from that part of the policy entitled "Premises — Operations" which the McNallys did buy. We think it fair to say that defendant concedes that the coverage "Premises — Operations" would, but for defendant's claim of exclusion, cover the liability charged against the McNallys by the injured elevator passenger.

The McNallys, father and son, formed their elevator service company in 1955. They operated out of the father's home in Kalamazoo. Their business is to inspect, service and maintain elevators under written contracts with the owners thereof. They maintain no inventory of parts, but acquire parts as they are needed. In October of 1956 one of the McNallys talked to the Kalamazoo representative of defendant insurance company concerning their desire for liability coverage appropriate to their operation. Their method of doing business was made known to the agent. The agent was told that the McNallys wanted coverage "so that they would be covered if sued for anything that might happen, and that they wanted all the protection they could get for the least money." There was discussion of "products liability" coverage, but the McNallys informed defendant's agent that they did not manufacture any products, and defendant's agent told them that they did not need products insurance. The policy involved was written as a result of such negotiations, and unless limited as claimed by defendant, insured the McNallys against liability for accidents arising from their "ownership, maintenance or use of premises and all operations."

The front page of the policy identifies plaintiffs as "John P. and Tom McNally DBA McNally Elevator Service." Their business is described as "elevator service." In Item 3, the limits of liability of coverages A (Bodily Injury Liability) and B (Property Damage Liability) are set forth. Item 3 also says that "the insurance afforded is only with respect to such and so many of the following coverages and divisions thereunder as are indicated by specific premium charge or charges." Item 4, is entitled in bold type "Description of Hazards." Beneath this and also as part of Item 4 is another bold type heading, "Division 1. Premises-Operations," followed in smaller type by the words, "Purposes of Use — Classification and Code." Then follows specific identification (typewriting) of McNallys' operation as "Elevator Inspecting No. 2475" and "Elevator erection or repair including incidental operation of elevators for testing purposes No. 5160." The premium charged for each coverage is typed opposite the described coverage.

We are persuaded that from the above contents of the first page, it would be a reasonable conclusion that the McNallys had purchased insurance protecting them from all liability arising out of work done in the performance of their contract to inspect and maintain the elevators in the Kalamazoo Hotel. For its contention that the only coverage provided was for events occurring while one of the McNallys or their employees was physically present at the location of, and working on, an elevator, defendant relies upon what is contained in the fine print on the second page of the policy.

At the top of the second page there is a large type heading "Insuring Agreements" followed by a recital that the company agrees to pay all sums that the insured may become liable to pay for bodily injury or property damage caused by accident "arising out of the hazards hereinafter defined." The "Definition of Hazards" section includes the following:

"Division 1 — Premises — Operations. The ownership, maintenance or use of premises, and all operations." (Last italics provided.)

Since this is the hazard against which the McNallys sought to be insured, and inasmuch as their operations were, on the first page, described as elevator inspection and repair, the McNallys would be justified in assuming that they had purchased their needed protection. Defendant seems not to question this. It says, however, that Division 1 must be read in connection with Division 4 of the Definitions of Hazards, which by its title covered "Products — Completed Operations," (a hazard which the McNallys didn't buy). The following is the full style and context of Division 4:

"Division 4 — Products — Completed Operations. (1) Goods or products manufactured, sold, handled, or distributed by the named insured or by others trading under his name, if the accident occurs after possession of such goods or products has been relinquished to others by the named insured or by others trading under his name and if such accident occurs away from premises owned, rented or controlled by the named insured or on premises for which the classification stated in division 1 of item 4 of the declarations excludes any part of the foregoing; provided, such goods or products shall be deemed to include any container thereof, other than a vehicle, but shall not include any vending machine or any property, other than such container, rented to or located for use of others but not sold;

"(2) operations, if the accident occurs after such operations have been completed or abandoned and occurs away from premises owned, rented or controlled by the named insured; provided, operations shall not be deemed incomplete because improperly or defectively performed or because further operations may be required pursuant to an agreement; provided further, the following shall not be deemed to be `operations\' within the meaning of this paragraph; (a) pick-up or delivery, except from or onto a railroad car, (b) the maintenance of vehicles owned or used by or in behalf of the insured; (c) the existence of tools, uninstalled equipment and abandoned or unused materials and (d) operations for which the classification stated in division 1 of item 4 of the declaration specifically includes completed operations."

Defendant asserts that had the McNallys read...