Parma Seed, Inc. v. General Ins. Co. of America, 10387

• Decision Date: 17 April 1972
• Docket Number: No. 10387,10387
• Citation: 94 Idaho 658,496 P.2d 281
• Parties: PARMA SEED, INC., Plaintiff-Respondent, v. GENERAL INSURANCE COMPANY OF AMERICA, Defendant-Appellant.
• Court: Idaho Supreme Court

Page 281

496 P.2d 281

94 Idaho 658

PARMA SEED, INC., Plaintiff-Respondent, v. GENERAL INSURANCE COMPANY OF AMERICA, Defendant-Appellant.

No. 10387.

Supreme Court of Idaho.

April 17, 1972.

Elam, Burke, Jeppesen, Evans & Boyd, Boise, for defendant-appellant.

Schiller, Young & Williams, Nampa and Moffatt, Thomas, Barrett & Blanton, Boise, for plaintiff-respondent.

McQUADE, Chief Justice.

The facts giving rise to this litigation are neither complex nor in dispute. It appears that respondent Parma Seed, Inc. purchased a blanket liability insurance policy from appellant General Insurance Company of America. Appellant's agent suggested that respondent purchase 'products coverage,' but respondent declined this additional coverage. During the period when the blanket liability policy was in effect, respondent received orders for a certain weedkilling chemical. Respondent's supplier delivered the wrong product to respondent's premises, and respondent's agents passed this more potent product on to respondent's customers. The result was the destruction of several field crops upon application of the product.

Claims were made against respondent and its supplier by respondent's customers, and respondent made demand upon appellant to adjust these claims. Appellant refused, maintaining that these claims were exempted from coverage under the insurance contract. Respondent thereafter filed its complaint initiating the case now before us.

The insuring agreement provided that appellant agreed

'To pay, * * * on behalf of the insured, all sums which the insured shall become legally obligated to pay as damages because of an occurrence which causes bodily injury * * * or injury to or dstruction of property * * *; further, to defend any suit against the insured in which damages are sought.'

The insurance contract provided further, in an endorsement prominently entitled 'Products and Completed Operations Exclusion,'

'In consideration of the premium at which this policy is written it is agreed this policy does not apply to liability, claims or expense arising out of products or completed operations as defined below:

(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; 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; or on premises owned, rented or controlled by the insured, if used in connection with or consumed in any of the following types of enterprises:

(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) pickup or delivery, execute from or onto a railorad 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 unsued materials. The word 'operations' includes any act or omission in connection with operations performed by or on behalf of the named insured on the premises or elsewhere, whether or not goods or products are involved in such operations.'

The insurance contract also provided, in endorsement 'L-144,' that

'In consideration of the premium charged, it is agreed that such coverage as is afforded by the policy does not apply as respects:

1. Erroneous delivery of seeds, meaning wrongful filling of orders whereby the seed genus or species delivered differs that thet ordered by the customer.

2. Any claim for loss of crop due to nongermination, cross pollination, diseased and/or poisoned seed.'

Upon trial of the case to the district court, it was held that coverage for the liability incurred by respondent was afforded by the policy. Neither the 'products' nor the 'completed operations' exclusionary clauses, supra, were found by the district court to exclude coverage. Appeal from the district court decision was had to his Court, and we issued a unanimous opinion November 30, 1970, reversing the judgment of the district court. Petition for rehearing was filed by respondent on December 18, 1970, and granted on February 4, 1971. The case was reargued in March, 1971 and January, 1972. It is the conclusion of this Court that the opinion of November 30, 1970, in this case, should be and is hereby withdrawn, and this opinion is substituted therefor.

The focus of this litigation is upon the 'products and completed operations' exclusionary clause of the contract of insurance. To decide whether coverage for the liability giving rise to this litigation was excluded under the 'products' portion of the exclusionary clause, as is contended by appellant, we must determine whether the liability is one 'arising out of products' as defined in the policy, quoted supra. We read this exclusionary clause to exclude coverage if the liability for which respondent is seeking indemnification arose out of products manufactured, sold, handled, or distributed by respondent, if the accident giving rise to the liability occurred after possession of the goods has been relinqushed to others, and if the accident occurred away from respondent's premises. Indeed, it would be difficult to phrase the exclusion any more succinctly than it is phrased in the policy exclusionary clause. We think it is clear that when liability results from the functioning or malfunctioning of a product sold by respondent, and the event establishing liability (i. e., the accident) occurs after relinquishment of possession of the product by respondent, and occurs away from respondent's premises, coverage is excluded. That is precisely the situation in this case.

Respondent strongly argues that liability does not 'arise out of' a product sold by respondent unless the product was inherently defective, or at least malfunctions. It is contended that liability arose in this instance out of respondent's 'on premises' negligence in failing to detect that the wrong product had been received from the supplier, and not out of the product itself. Closely related is the contention that the 'accident' in this instance was the misdelivery of the product on respondent's premises.

Respondent cites a number of cases and authorities in support of its contentions as to the scope of the phrase 'liability arising out of products.' However, in Employers' Liability Assurance Corp. v. Youghiogheny & Ohio Coal Co., ¹ cited by respondent, the Court clearly stated that the injury involved resulted from a defective freight car, and not the insured's coal, and therefore the products exclusion was inapplicable. So also, in Lessak v. Metropolitan Casualty Ins. Co. of New York, ² the facts distinguish the Court's decision that the products exclusionary clause is inapplicable. The Court there observed that liability for the sale of air-gun pellets to a minor (with resulting injury to another) arises from the minority of the child, and not from the product. The decision, furthermore, turned upon the phrasing of a clause in the contract granting coverage.

In support of its reading of the scope of the clause in issue, respondent also relies upon several works on insurance law. Respondent quotes Appleman, Insurance Law and Practice, as stating:

"(I)f the operation has been completed, and liability results thereafter either by reason of a defect in merchandise or improper workmanship, that is called products liability or completed operations, the protection of which can be purchased for a premium." (Respondent's emphasis). ³

However, the language in the same paragraph which precedes the quoted sentence is significant. The first part of the paragraph states:

'It is apparent that liability under what we ordinarily term 'public liability' coverages can arise fundamentally in three distinct ways. An injury or a loss may result while an activity is in progress, and prior to the completion thereof, either as a result of an act of negligence or an omission. That is what is embraced within the ordinary liability aspect of a public liability policy.' ⁴

Then follows the sentence quoted by respondent. The third way liability arises, as categorized by Appleman, is through damage to the product itself e. g. shipping losses. It may readily be seen that the Appleman statement, viewed in context, lends little support to respondent's contention that the products exclusion in this contract does not apply if the product is not inherently defective or if liability results from delivery of the wrong product. The same infirmity is encountered in the statements quoted from other works. These general statements simply do not establish that the products exclusion here in issue is as narrow as respondent contends.

Respondent cites Atkins v. Hartford Accident & Indemnity Co.; ⁵ Brant v. Citizens Mutual Automobile Ins. Co.; ⁶ Stevens Industries, Inc. v. Maryland Casualty Co.; ⁷ Thibodeaux v. Parks Equipment Company, ⁸ and St. Paul Fire and Marine Ins. Co. v. Coleman ⁹ for the proposition that liability arising from delivery of the wrong product, as opposed to delivery of the correct product which turns out to be defective or otherwise gives rise to liability, is not excluded by the products exclusion clause before us. We do not find these cases persuasive. The Atkins and Brant cases turned upon the courts' conclusions as to the place...