Oil Base, Inc. v. Continental Cas. Co.

• Citation: 271 Cal.App.2d 378,76 Cal.Rptr. 594
• Court: California Court of Appeals Court of Appeals
• Decision Date: 02 April 1969
• Parties: OIL BASE, INC., a corporation, Plaintiff and Appellant, v. CONTINENTAL CASUALTY COMPANY, a corporation and Carl H. Beahm, Defendant and Respondent. Civ. 32907.

Page 594

76 Cal.Rptr. 594

271 Cal.App.2d 378

OIL BASE, INC., a corporation, Plaintiff and Appellant, v. CONTINENTAL CASUALTY COMPANY, a corporation and Carl H. Beahm, Defendant and Respondent.

Civ. 32907.

Court of Appeal, Second District, Division 2, California.

April 2, 1969.

Hanna & Morton and John H. Blake, Los Angeles, for appellant.

Betts & Loomis, by John A. Loomis, Los Angeles, for respondent Carl H. Beahm.

Brill, Hunt, DeBuys & Burby, Edward A. DeBuys, and Abe Mutchnik, Los Angeles, for respondent Continental Cas. Co.

ROTH, Presiding Justice.

Appellant, a manufacturer of oil base drilling mud, seeks to recover from respondent Continental Casualty Company (Continental) and respondent Carl H. Beahm, an insurance broker (Beahm), expenses and fees it had reasonably expended in defense of an action brought against it which it claims, should have been defended by Continental.

Effective August 7, 1957, Beahm obtained on behalf of appellant, a general comprehensive liability insurance policy (policy) issued by Continental. It states the risk as follows:

'To pay on behalf of the insured all sums which the insured shall become legaly obligated to pay as damages because of injury to or destruction of property, including the loss of the use thereof, caused by accident * * *.'

Paragraph II stated:

'With respect to such insurance as is afforded by this policy the company shall (a) defend any suit against the insured alleging such injury, sickness, disease or destruction and seeking damages on account thereof, even if such suit is groundless, false or fraudulent; * * *.'

Paragraph IV stated: '* * * This policy applies only to accidents which occur during the policy period within the United States of America, its territories or possessions, or Canada.'

The trial court in Finding XIII found: 'The * * * policy was accepted by plaintiff without actual knowledge of the existence of language relating to the application of the policy to accidents occurring within the United States of America, its territories or possessions, or Canada. Plaintiff accepted said policy with the intention and belief that * * * Continental * * * did thereby obligate itself to insure against all claims and demands resulting from the use of plaintiff's products wherever that use may occur. * * *'

Appellant, during the policy period, sold some bags of its drilling mud to Baritina de Venezuela, S.A. (Baritina) a South American company, and on May 19, 1958, also during the policy period, while the mud was stored in a warehouse belonging to Baritina, in Venezuela, it caught fire, from spontaneous combustion.

Appellant immediately notified Continental. Under date of June 23, 1958, Continental notified appellant in writing 'since the accident occurred in Venezuela, our policy is not applicable.'

In connection with the original issuance of the policy the court in Finding XIV found as true allegation 6. of appellant's second cause of action. Said allegation reads as follows:

'As consideration for said policy * * * Continental * * * did charge and collect * * * a premium which Appellant was served with the summons and complaint filed by Baritina in Superior Court of California in and for the County of Los Angeles in December 1959.

was in part based upon the total cash price received from sales to consumers who intended to and did use the products purchased outside of the continental United States of America, its territories, or possessions, or Canada.'

The trial court in Finding IV found the gravamen of Baratina's complaint to be:

'* * * said complaint * * * alleged that Baritina * * * ordered from plaintiff and plaintiff did manufacture, distribute and sell to Baritina * * * merchandise which was shortly thereafter, and prior to May 19, 1958, delivered by plaintiff to the said Baritina * * *. Said Complaint further alleged that the merchandise so sold and delivered to Baritina * * * was negligently prepared, manufactured and sold by Oil Base, Inc., All in the County of Los Angeles and State of California, and thereafter, on or about May 19, 1958, while said merchandise was stored in the warehouse * * * located at Pamatacualito, Venezuela, the merchandise, as a proximate result of the Negligent preparation, manufacturing, sale and delivery, did spontaneously ignite and set fire to property and did cause damages specified * * * to * * * Baritina * * *.' (Emphasis added.)

On January 5, 1960, appellant made demand on Continental to defend the Baritina action. Continental refused to and did not do so.

Appellant employed counsel, defended the Baritina suit and ultimately recovered a defense judgment which was final on or about January 20, 1965.

In respect of fees and expenses incurred by appellant, the court, in Finding XV, found '* * * that the amount paid by the plaintiff on account of its defense was in the sum of $21,021.05, and that said sum was the reasonable value of services rendered and expenses incurred.'

Appellant brought the within action on January 28, 1965, within eight days after it had prevailed in the Baritina action. However, six and one-half years had elapsed after the Continental letter notifying appellant 'our policy is not applicable' and more than five years had elapsed after January 5, 1960, the date on which Continental refused to defend the Baritina action.

Appellant, in its action had contended that Beahm was acting as agent for Continental. Continental contended that Beahm was the agent of appellant. The trial court found:

'During the period between August, 1957, and August 1958, * * * Carl H. Beahm either acted in the capacity of an insurance agent on behalf of * * * Continental * * * as an insurance agent is defined in Section 31 of the Insurance Code of the State of California, or engaged in the business of an insurance broker as the same is defined in Section 33 of the Insurance Code of the State of California.'

Pertinent to the above, the court, by its Finding X found:

'At all times referred to * * * George Miller * * * President * * * of plaintiff, * * * did rely upon his own employees and upon * * * Beahm to provide plaintiff with sufficient coverage to protect plaintiff in all of its business operations. George Miller did not, prior to May 19, 1958, read the * * * policy * * *. During the months of June and July, 1957, * * * Beahm took some part in an investigation being conducted by plaintiff relating to losses from fires and in which plaintiff's products were involved. Particularly during the months of June and July, 1957, but also earlier and later, George Miller had conversations with * * * Beahm. Because of the circumstances related in this Finding and circumstances related elsewhere in these Findings, George Miller concluded that his Company was covered However, in spite of the above finding and the finding quoted at the outset that the '* * * policy was accepted by * * *' appellant without actual knowledge of the exclusion clause, the court, by its Finding XIX also found:

against losses such as the loss described in Finding IV. * * *.'

'* * * it is not true that plaintiff accepted said policy * * * from * * * Continental * * * with any reasonable belief that said policy insured plaintiff against any claims or damages growing out of the purchase or use of plaintiff's products by any of plaintiff's customers outside the Continental United States.'

The trial court found further that the 'accident' described in Baritina's complaint 'is not one which occurred within the United States of America, its territories or possessions, or Canada, as required by Paragraph IV of the insurance policy.'

Appellant in its complaint to recover the fees and expenses it had paid to defeat Baritina's action, pleaded four alleged causes of action against Continental: breach of contract (of a purported duty to defend); waiver of the exclusion clause; estoppel to assert it, and for reformation of the policy, to strike the exclusion clause. A fifth cause of action was directed exclusively against Beahm, for alleged breach of Beahm's commitment to secure for appellant adequate insurance coverage.

Respondents were permitted to amend their pleadings during the trial to set forth, in addition to defenses already pleaded, applicable statute of limitations. Based on the statute of limitations, the court dismissed the fifth cause of action against Beahm, on the ground that it was barred by Code of Civil Procedure, section 339(1). The trial proceeded against Continental. The trial court held that appellant's claim was not embraced within the policy and that count 4, the reformation action against Continental, was barred by Code of Civil Procedure, section 338(4); and that the first, second and third causes were barred by Code of Civil Procedure, section 337(1). Appellant appeals from the separate judgments entered in favor of each respondent.

From the foregoing resume of facts, it appears that appellant was charged and paid premiums on its gross business, foreign and domestic, and did not know that the exclusion clause was in the contract; the mud was manufactured in Los Angeles County; Baritina's complaint charged appellant with negligent manufacture and sale in Los Angeles County; appellant relied on his own employees and Beahm to protect it in all its business operations and appellant concluded it was covered for all emergencies included in the policy indemnity clause. Ambiguously, the court failed to find specifically, although raised as an issue in the pleadings, whether Beahm was acting as appellant's agent or Continental's agent. ¹ The court did, as part of Finding VI, hold that Beahm was acting as defined in section 31 of the Insurance Code.

Section 31 reads: " 'Insurance agent' means a person authorized by and on behalf of an insurer, to transact insurance."

In the same Finding VI the court found Beahm was engaged in the business of an insurance broker as defined in section 33 of the Insurance...