Scarborough v. Northern Assur. Co. of America

Decision Date28 October 1983
Docket NumberNo. 82-3530,82-3530
Citation718 F.2d 130
PartiesWilliam A. SCARBOROUGH, Plaintiff, v. NORTHERN ASSURANCE COMPANY OF AMERICA, et al., Defendants. MISSISSIPPI VALLEY SILICA CO., INC., Defendant-Third-Party-Plaintiff-Appellant, v. COLUMBIA CASUALTY CO., et al., Third-Party-Defendants-Appellees.
CourtU.S. Court of Appeals — Fifth Circuit

McGlinchey, Stafford & Mintz, John E. Galloway, New Orleans, La., for defendant-third-party-plaintiff-appellant.

Drury, Lozes & Curry, Felicien P. Lozes, New Orleans, La., for third-party-defendants-appellees.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before TUTTLE, * POLITZ and GARWOOD, Circuit Judges.

GARWOOD, Circuit Judge:

This is an appeal from a judgment rendered for two insurers, appellees Columbia Casualty Company and Commercial Union Insurance Company (the "Appellees") dismissing a third-party claim asserted against them by their insured, appellant Mississippi Valley Silica Company, Inc. ("Mississippi Valley"), a supplier of sand, seeking reimbursement for defense costs incurred by Mississippi Valley in successfully defending a products liability action brought against it, in the main suit below, under the Jones Act, 46 U.S.C. Sec. 688, and the general maritime law, by William A. Scarborough, an employee of one of Mississippi Valley's customers, who contracted silicosis as a result of his employment as a sandblaster. After a nonjury trial, the district court held that Appellees had no duty to defend Mississippi Valley against Scarborough's claims, since their policies excluded coverage of claims arising out of Mississippi Valley's products. The question before us is whether Scarborough's complaint, which alleged, among other things, that Mississippi Valley had furnished his employers sandblasting material (sand) "without proper instructions for its use," alleged a ground of liability against Mississippi Valley that was not excluded by the exclusion provisions of Appellees' policies. Construing Scarborough's complaint against Mississippi Valley liberally, and, bound as we are by the Louisiana jurisprudence on this question, we hold that the complaint alleged a theory of liability, based on Mississippi Valley's asserted negligent failure to warn Scarborough (or his employer) of the dangers involved in the use of its product, that was not excluded by the particular wording of the "Products Hazard" or other exclusion clause of Appellees' policies. We therefore reverse the district court's judgment.

I.

From 1958 until 1967, Scarborough worked as a sandblaster on offshore drilling platforms for Coating Specialists, Inc. and Land & Marine Applicators, Inc. During this period, Mississippi Valley, which was engaged in the business of mining, bagging, and selling sand, supplied the sand that was used in the sandblasting operations of Scarborough's employers.

Scarborough's employment as a sandblaster ended in May 1967, and, over ten years later, Scarborough discovered that he had contracted silicosis, allegedly as a result of his exposure to siliceous particles during his work as a sandblaster. On August 15, 1977, Scarborough filed suit under the Jones Act and the general maritime law against his former employers, the owners of the offshore platforms on which he had worked as a sandblaster, and against the suppliers of equipment and materials used in his sandblasting operations, including Mississippi Valley.

Paragraph VI of Scarborough's complaint made the following allegations:

"On information and belief, defendants, Mississippi Valley Silica Company, Inc., Jahncke Services, Inc., Stan-Blast Abrasives, a division of Standard Paint & Varnish Company, Pulmosan Safety Equipment Company, Clemco Industries, a/k/a Clemco Clementina, Ltd., Lone Star Industries, Inc. and Mayronne Drilling Mud & Chemical Company, at various times between 1958 and 1967 furnished defendants, Coating Specialists, Inc. and Land & Marine Applicators, Inc., with equipment and materials to be used in sandblasting operations which are inherently defective and/or negligently manufactured and/or which were provided by those corporations to those defendants, and to the plaintiff, without proper instructions for its use."

Paragraph XIV of the complaint alleged that:

"As a result of his employment with defendants, Coating Specialists, Inc. and Land & Marine Applicators, Inc., and as a result of the improper and/or unsafe equipment furnished by defendants, Mississippi Valley Silica Company, Inc., Jahncke Services, Inc., Stan-Blast Abrasives, a division of Standard Paint & Varnish Company, Pulmosan Safety Equipment Company, Clemco Industries, a/k/a Clemco-Clementina, Ltd., Lone Star Industries, Inc. and Mayronne Drilling Mud & Chemical Company, and as a result of the negligence of said corporations, a lung condition known as silicosis was caused and/or aggravated with respect to the plaintiff's periods of employment ...."

On March 28, 1980, Mississippi Valley filed a third-party complaint against the various insurance companies which had provided liability coverage to it from 1958 through 1978. The third-party complaint alleged that these insurers had a duty to indemnify Mississippi Valley from and against the allegations of Scarborough's complaint and from and against any cross-claims arising therefrom. Among the insurers made third-party defendants by Mississippi Valley, were the Appellees, who provided comprehensive general liability coverage to Mississippi Valley from 1958 through 1967. 1 The insurance policies issued by Appellees to Mississippi Valley could not be found. However, the parties stipulated to the terms of these policies, 2 which provided, in part, as follows:

"The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of

"(A) bodily injury ...

"to which this insurance applies caused by an occurrence ....

"The company [Appellees] shall have the right and duty to defend any suit against the insured [Mississippi Valley] seeking damages on account of such bodily injury ... even if any of the allegations of the suit are groundless, false, or fraudulent ...."

The policies contained the following exclusion:

"This insurance does not apply:

"....

"(k) to bodily injury or property damage resulting from the failure of the named insured's products or work completed by or for the named insured to perform the function or serve the purpose intended by the named insured, if such failure is due to a mistake or deficiency in any design, formula, plan, specifications, advertising material or printed instructions prepared or developed by any insured; but this exclusion does not apply to bodily injury or property damage resulting from the active malfunctioning of such products or work ...."

The policies also did not cover "Products Hazard," which was defined as follows:

" '[P]roducts hazard' includes bodily injury and property damage arising out of the named insured's products or reliance upon a representation or warranty made at any time with respect thereto, but only if the bodily injury or property damage occurs away from the premises owned by or rented to the named insured and after physical possession of such products has been relinquished to others ...."

The Appellees denied coverage and refused to defend Mississippi Valley against the claims made against it by Scarborough, relying on the above-quoted "Products Hazard" exclusion. Mississippi Valley itself, therefore, incurred the costs of defending Scarborough's suit, which proceeded to trial, and where, at the conclusion of Scarborough's case in chief, the district court granted an instructed verdict in favor of Mississippi Valley which thereafter became final.

Mississippi Valley's third-party complaint against Appellees was then tried to the court on a joint stipulation of facts. Mississippi Valley contended that Scarborough's complaint asserted a ground of recovery against it based on its alleged negligence, and that Appellees' policies did not exclude from coverage claims based on negligence. The district court, however, rejected this contention, holding that the "Products Hazard" exclusion was broad enough to exclude claims "arising out of products caused to be defective or faulty by negligence," and that there was "no allegation of a failure or omission to warn" in Scarborough's complaint.

II.

The sole question on appeal is whether, under their policies, Appellees owed Mississippi Valley a defense against the negligence allegations of Scarborough's complaint. We note, at the outset, that there is no contention that Mississippi Valley furnished any equipment or material to Scarborough's employers other than sand. 3

The parties agree that Louisiana law governs this case. Under Louisiana law, whether an insurer has a duty to defend its insured is determined by a comparison of the terms of the policy and of the allegations of plaintiff's petition. Audubon Coin & Stamp Co. v. Alford Safe & Lock Co., 230 So.2d 278, 279 (La.App. 1st Cir.1969). "Or, as some courts have expressed it, the language of the policy and the allegations of complaint must be construed together, to determine the insurer's obligation." 7C Appleman, Insurance Law and Practice (Berdal ed.) Sec. 4683 (1979).

Louisiana decisions require that the terms of an insurance policy clearly and unambiguously exclude from coverage a claim asserted against the insured, West Brothers of DeRidder, Louisiana, Inc. v. Morgan Roofing Co., Inc., 376 So.2d 345, 348 (La.App. 3d Cir.1978), and if the terms are ambiguous, then they are construed against the insurer and in favor of the insured. Albritton v. Fireman's Fund Insurance Co., 224 La. 522, 70 So.2d 111, 113 (1953). In particular, "exclusionary clauses in broad coverage insurance policies must be strictly construed" against the insurer. Cooling v. United States Fidelity & Guaranty Co., 269 So.2d 294, 296 (...

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