Olympic S.S. Co., Inc. v. Centennial Ins. Co.

Decision Date23 May 1991
Docket NumberNo. 57167-8,57167-8
Citation811 P.2d 673,117 Wn.2d 37
PartiesOLYMPIC STEAMSHIP COMPANY, INC., Petitioner, v. CENTENNIAL INSURANCE COMPANY and Atlantic Mutual Insurance Company, Respondents, and New York Marine and General Insurance Company and Marsh and McLennan, Inc., Defendants.
CourtWashington Supreme Court

Skeel, Henke, Evenson & Roberts, Eric Richter, Seattle, for petitioner.

Lane, Powell, Spears & Lubersky, Robert L. Israel, Barry N. Mesher, Linda E. Blohm, Seattle, for respondents.

DORE, Chief Justice.

Olympic Steamship Company appeals a Court of Appeals decision that the "sistership clause" in its insurance policy excluded coverage of the cost Olympic incurred when it paid its customers for the expense they suffered recalling their product from the market. 57 Wash.App. 517, 789 P.2d 309.

We hold that the sistership exclusion does not apply when a third party withdraws the insured's product from the market and that Olympic's defective packaging did not make the packers' canned salmon Olympic's product, for purposes of insurance coverage.

We affirm the trial court.

FACTS

Olympic Steamship Company operated Salmon Terminals, a warehouse for salmon packers. Olympic received unlabeled cans of salmon from the packers during the fishing season and stored the canned salmon until the end of the season, when the salmon packers executed purchase contracts with their customers. Once the packers executed contracts, they instructed Olympic to label, case, and ship the salmon. The packers provided the can labels and the shipping cartons. Olympic affixed the packers' labels onto the cans and boxed the cans using its own casing equipment.

On May 6, 1985, Olympic discovered that its casing equipment was defective and was crimping .015 percent of the packers' cans of salmon, breaking the seams on the cans. Olympic believed that all of the one-half pound cans of salmon that passed through the caser from the date of its installation, December 6, 1984, through the date Olympic discovered the crimped cans, May 6, 1985, were tainted because of the threat of botulism that the defective cans of salmon presented.

Olympic notified the salmon packers and the National Food Processors Association, which oversees the interests of the salmon industry, of the casing defect. The Association contacted the Food and Drug Administration (FDA) and summarized the results of Olympic's investigation. The FDA collected samples of the canned salmon. The Association and the FDA tested the sample cans at their laboratories and, based on test results, the FDA ordered a product recall. The FDA required that the packers either destroy tainted cans of salmon or, if the packers had already shipped the salmon to their customers, that they recall the tainted product, unpack and inspect the cans, and then repack and reship undamaged cans.

Some of the packers and their customers threatened to send their canned salmon back to Olympic. Ultimately, the parties agreed that it would be less expensive if the inspection were conducted in the field. The Association and the packers, jointly, conducted a physical inspection of the canned salmon. Olympic did not participate in the field examination of the packers' salmon because "[i]t's not our business." Clerk's Papers, at 118.

After the packers inspected the canned salmon, they demanded that Olympic pay the expenses that they incurred in the recall process. Olympic notified its insurers, including Centennial, of the recall and of the packers' claims, believing that the costs incurred fell within the "completed operations" provision of the comprehensive general liability insurance policy it purchased from Centennial. 1 The insurers, including Centennial, denied coverage of the claims. Olympic paid the packers for the costs they incurred conducting the recall in December 1985.

Olympic filed suit against its insurers, including Centennial, on September 16, 1987. Brief of Appellant app. A. It sought damages representing the cost that salmon packers incurred "uncasing, inspecting, and recasing" thecans of salmon that Olympic labeled between December 6, 1984 and May 3, 1985, and because the packers lost the use of the undamaged cans of salmon until all cans of salmon exposed to the caser had been inspected. Brief of Appellant app. A. Complaint of Olympic. Centennial alleged that exclusion "O", the "sistership clause" in Olympic's policy, excluded coverage for Olympic's claims. 2

Both Olympic and Centennial moved for summary judgment. The trial court granted summary judgment in favor of Olympic. It also awarded Olympic attorney fees that Olympic incurred settling the packers' claims, settling a claim against the manufacturer of the caser, and obtaining the coverage judgment.

The Court of Appeals in Olympic S.S. Co. v. Centennial Ins. Co., 57 Wash.App. 517, 520-21, 789 P.2d 309, review granted, 115 Wash.2d 1001, 795 P.2d 1156 (1990), reversed and granted summary judgment in favor of Centennial. It found that "[n]othing in the language of the [sistership] exclusion suggests that coverage depends on the source of the withdrawal decision" 57 Wash.App. at 520-21, 789 P.2d 309 and that the exclusion, therefore, applied whether Olympic, the insured, or the FDA, a third party, ordered withdrawal of the canned salmon. It also found that, for purposes of the sistership exclusion, the canned salmon was Olympic's "product" and that the salmon was "work completed by ... [Olympic] the named insured". 57 Wash.App. at 525, 789 P.2d 309. Olympic appeals here.

ANALYSIS

A summary judgment motion can be granted only when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Wilson v Steinbach, 98 Wash.2d 434, 437, 656 P.2d 1030 (1982). In this case, the material facts are not disputed, but each party contends that, based on the sistership clause in Olympic's policy, it is entitled to summary judgment as a matter of law.

"SISTERSHIP" EXCLUSIONS AND THIRD PARTY PRODUCT WITHDRAWAL

The Comprehensive General Liability policy that Olympic purchased from Centennial provides, in part, that:

This Company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of

A. personal injury or

B. property damage

to which this insurance applies, caused by an occurrence and the Company shall have the right and duty to defend any suit against the insured seeking damages on account of such personal injury or property damage,....

Exclusions

This insurance does not apply:

....

O. to damages claimed for the withdrawal, inspection, ... or loss of use of the named insured's products or work completed by ... the named insured or of any property of which such products or work form a part, if such products, work or property are withdrawn from the market or from use because of any known or suspected defect or deficiency therein;

....

Glossary

....

"named insured's products" means goods or products manufactured, sold, handled or distributed by the named insured or by others trading under his name, including any container thereof....

Clerk's Papers, at 18, 20, 33. Exclusion "O" is the "sistership" clause disputed in this case. The term "sistership" derives from a practice observed in the aircraft industry. Yakima Cement Prods. Co. v. Great Am. Ins. Co., 22 Wash.App. 536, 541, 590 P.2d 371 (1979), rev'd on other grounds, 93 Wash.2d 210, 608 P.2d 254 (1980).

When a defect is suspected to be responsible for an aircraft accident, all other aircraft of that type are grounded pending investigation. The potential damages arising from the loss of use of the sisterships are enormous. The exclusion was originally designed to exclude coverage for damages arising from the defect, other than those arising from the defect in the aircraft that was involved in the accident.

Charles E. Brohawn & Bros., Inc. v. Employers Comm'l Union Ins. Co., 409 A.2d 1055, 1057 n. 3 (Del.1979). The intent of the sistership exclusion is that:

while the insurance covers damages for bodily injuries and property damage caused by the product that was defective or failed, it was never intended that the insurer would be saddled with the cost of preventing such defects or failures any more than it was intended that the insurer would pay the cost of avoiding the defect in the first place or preventing the first failure if the product had been discovered to be in a defective or dangerous condition before the occurrence.

2 R. Long, Liability Insurance § 11.09, at 11-99 (1990). The insurer, thus, is not liable for the cost of preventative or curative action taken by its insured. 22 Wash.App. at 542, 590 P.2d 371.

Olympic argues that the sistership exclusion does not preclude coverage because, even assuming that the canned salmon is its product, the sistership exclusion does not apply when a third party, other than the insured, withdraws a product of the insured's from the market. Centennial contends that the language of the sistership clause does not expressly limit its application to instances where the insured withdraws its product, therefore, the clause applies whether the insured or a third party withdraws the insured's product from the market.

Although the case law that Centennial cites supports its argument that under the sistership clause in Olympic's policy "it is immaterial that the withdrawal was not by the insured", Commercial Union Assur. Co. v. Glass Lined Pipe Co., 372 So.2d 1305, 1309 (Ala.1979) (italics omitted) (quoting Hamilton Die Cast, Inc. v. United States Fid. & Guar. Co., 508 F.2d 417, 420 (7th Cir.1975)), only a minority of jurisdictions, the two cited, embrace this position. The weight of authority from other state and federal courts that have considered the "third party withdrawal" issue supports Olympic's claim that a sistership clause, like the one in Olympic's...

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