Owens Pacific Marine, Inc. v. Insurance Co. of North America

• Decision Date: 04 November 1970
• Citation: 12 Cal.App.3d 661,90 Cal.Rptr. 826
• Court: California Court of Appeals Court of Appeals
• Parties: OWENS PACIFIC MARINE, INC., Plaintiff and Respondent, v. INSURANCE COMPANY OF NORTH AMERICA, a corporation, Defendant and Appellant, Home Insurance Company, a corporation, Defendant and Respondent. Civ. 35875.

Page 826

90 Cal.Rptr. 826

12 Cal.App.3d 661

OWENS PACIFIC MARINE, INC., Plaintiff and Respondent, v. INSURANCE COMPANY OF NORTH AMERICA, a corporation, Defendant and Appellant Home Insurance Company, a corporation, Defendant and Respondent.

Civ. 35875.

Court of Appeal, Second District, Division 1, California.

Nov. 4, 1970.

Rehearing Denied Nov. 30, 1970.

Hearing Denied Dec. 30, 1970.

Haight, Lyon & Smith, Charles B. Smith and Henry F. Walker, Los Angeles, for Insurance Co. of North America, defendant and appellant.

Orville L. Marlett, Monterey Park, for plaintiff and respondent.

Dryden, Harrington & Swartz, Raphael Cotkin and Ellis J. Horvitz, Los Angeles, for Home Insurance Co., defendant and respondent.

GUSTAFSON, Associate Justice.

Plaintiff Owens Pacific Marine, Inc. (hereinafter referred to as the insured), was engaged in the business of selling and repairing boats, principally pleasure boats. When a purchaser contracted to buy a boat, the insured would spend anywhere from the next one to four weeks readying the boat for delivery to the purchaser. Often this procedure would include alterations or additions to the boat to satisfy the requirements of the particular purchaser.

On April 26, 1965, Robert Millspaugh contracted to purchase from the insured a new boat which he named the 'Silver Dollar.' The boat did not contain a hot water heater and Mr. Millspaugh requested that one be installed. The insured did so between April 27, 1965, and May 6, 1965, the installation requiring alterations to the interior of the boat to accommodate the electric hot water heater. On May 7, 1965, the boat was delivered to the purchaser and about one week later that boat was completely destroyed from the explosion of the electric hot water heater. Millspaugh sued the insured and recovered judgment. The insured incurred costs of $2,857.72 in defending the suit and suffered a loss of $15,922.11 in the payment of damages to Millspaugh for the value of the boat (but not including the value of the hot water heater). The record does not disclose the legal basis on which the insured was held liable to Millspaugh.

At the time of the loss of the boat and since January 1, 1965, the insured held a 'Comprehensive Multiple Liability Policy' issued by defendant Insurance Company of North America (hereinafter INA) and a 'Ship Repairers Liability Policy' issued by defendant Home Insurance Company (hereinafter Home). The policies were purchased by the insured as a result of efforts by insurance brokers George Dicks and Mackay & Dicks who in December 1964 analyzed the insured's then existing insurance program, recommended that existing insurance be terminated and recommended that the above mentioned policies be purchased from defendants INA and Home (for whom the brokers were agents).

When the insured was sued by Millspaugh, INA and Home disclaimed liability and refused to defend the lawsuit. The insured provided its own defense and after judgment against to brought this lawsuit for declaratory relief to determine whether INA or Home or both were liable to the insured and if not whether the insurance brokers should be liable to the insured because of their representations concerning the extent of coverage. The judgment below was that the policies of both INA and Home covered the loss, but that Home had no obligation to the insured except for any loss in excess of the amount of insurance provided by INA, and that the insurance brokers are not liable to the insured because there is coverage. Defendant INA appeals.

Scope of the Exclusion Clause

The policy of INA undertook '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.' INA also undertook to defend any suit against the insured seeking to impose liability for which the policy afforded coverage. INA does not assert that liability for the destruction of the 'Silver Dollar' and for expenses incurred in defending the lawsuit brought by Millspaugh are not, except for the exclusion clause, covered by the insurance policy.

Although the INA policy contains many exclusions, only one exclusion clause is pertinent to this case. In the printed policy it is the clause which makes the policy inapplicable under the property damage coverage quoted above 'to injury to or destruction of * * * any goods (or) products * * * sold, handled or distributed * * * by the named insured, or work completed by or for the named insured, out of which the accident arises.' The insurance brokers, the trial court found, were informed by the insured of its concern that the proposed INA and Home policies would cover 'the hazard of a loss to a vessel sold by the insured, from a cause arising in the insured's work or addition of equipment in the preparation of the vessel for sale or delivery * * *. It was the intention of the (insured) that such hazard be insured; such intention was communicated to (INA and Home)'. One of the brokers, who was also an agent for INA, testified that by typewritten endorsement to the policy the printed exclusion clause was deleted and a typewritten exclusion clause was substituted therefor as 'part of broadening this contract to take care of this problem.'

The typewritten endorsement is entitled 'BROAD FORM PROPERTY DAMAGE COVERAGE.' But with respect to the only problem with which the insured was concerned and the only exclusion clause here pertinent, the typewritten endorsement made the property damage coverage inapplicable 'to injury to or destruction of any goods (or) products * * * sold, handled or distributed * * * by the named insured, or work completed by or for the named insured, out of which the occurrence arises.' Except for the substitution of the word 'occurrence' for the word 'accident,' which has no significance (Farbstein and Stillman, Insurance for the Commission of Intentional Torts (1969) 20 Hastings L.J. 1219), the exclusion clause in the typewritten form is identical to the exclusion clause in the printed policy. Despite the fact that there was no 'broadening' of the coverage by the typewritten endorsement, the insured did not seek to reform the policy or to estop INA from invoking the exclusion clause on the ground that the insured relied upon the policy delivered by INA as being one which would cover the insured for the type of liability incurred to Millspaugh--a liability which INA knew that the insured intended be covered. Instead, we are faced, as was the trial court, with the questions of whether the exclusion clause is susceptible of the construction contended for by the insured and, if so, whether both the insured and INA intended that construction.

It is the contention of INA that the 'Silver Dollar' was the product 'sold, handled or distributed' by the insured. Thus INA argues that the 'Silver Dollar' was excluded from property damage coverage. Unquestionably this is one construction of the exclusion clause. INA claims that it is the Only construction of which the clause is susceptible. The insured, on the other hand, claims that the product 'sold, handled or distributed' out of which the occurrence arose was the electric hot water heater and that only the electric hot water heater, but not the rest of the 'Silver Dollar,' is excluded from property damage coverage.

The position of INA that the exclusion clause is unambiguous and admits only of the construction that the product excluded consists of everything which the insured 'manufactured, sold, handled or distributed' even though only an identifiable part of the entire product causes the damage is supported by out of state cases. (Home Indemnity Company v. Miller (8 Cir. 1968) 399 F.2d 78 (Improper placement of footings and improper installation of the roof caused extensive damage to the house, but the product which was excluded from coverage was 'the completed home.'); Vobill Homes, Inc. v. Hartford Acc. & Indemnity Co. (La.App.1965) 179 So.2d 496, writ of review refused (1966) 248 La. 698, 181 So.2d 398 (The entire house was the product excluded from coverage.); Kendall Plumbing, Inc. v. Saint Paul Mercury Insurance Co. (1962) 189 Kan. 528, 370 P.2d 396 (A refrigerator unit and a 'starter' were installed by the insured to heat and air condition a building. The 'starter'...