Scott v. Potomac Ins. Co. of District of Columbia

• Decision Date: 22 July 1959
• Citation: 341 P.2d 1083,217 Or. 323
• Parties: Gerald G. SCOTT and James G. Payne, co-partners, dba Scott & Payne, Respondents, v. POTOMAC INSURANCE COMPANY OF the DISTRICT OF COLUMBIA, a corporation, Appellant.
• Court: Oregon Supreme Court

Page 1083

341 P.2d 1083

217 Or. 323

Gerald G. SCOTT and James G. Payne, co-partners, dba Scott &

Payne, Respondents, v. POTOMAC INSURANCE COMPANY OF the DISTRICT OF COLUMBIA, a

corporation, Appellant.

Supreme Court of Oregon, Department 2.

Argued and Submitted June 18, 1959.

Decided July 22, 1959.

James, B. O'Hanlon, Portland, argued the cause for appellant, with him on the briefs were Mautz, Souther, Spaulding, Denecke & Kinsey, Portland.

Seymour L. Coblens, Portland, argued the cause for respondents, on the brief were Reinhardt & Coblens, Portland.

Before McALLISTER, C. J., and WARNER, SLOAN and MILLARD, JJ.

SLOAN, Justice.

The trial court awarded plaintiffs a judgment against defendant for amounts expended by plaintiffs to settle a claim against plaintiffs for alleged malpractice on their part as professional architects. Plaintiffs were the named insureds in 'Architect's Professional Liability' policies issued by defendant. This action is founded on these policies. For convenience we will refer to them as 'policy.' Defendant denied any liability within the terms of its policies for the claim made against plaintiffs. Defendant appeals. We will review the facts before mentioning the assignments of error.

During the period of time pertinent to the case, and for some years prior, plaintiffs had been licensed by the state of Oregon to engage in the 'Practice of Architecture.' ORS 671.010 et seq. In 1950 they entered into a contract with the Central Oregon District Hospital, at Redmond, to perform 'The Architect's professional services [to] consist of the necessary conferences, the preparation of preliminary studies, working drawings, specifications, large scale and full-size detail drawings, for architectural, structural, plumbing, heating, electrical, and other mechanical work; assistance in the drafting of forms of proposals and contract; the issuance of certification of payment; the keeping of accounts, the general administration of the business and supervision of the work.' (Italics ours.) This contract was on the familiar 'Standard Form of Agreement Between Owner and Architect' issued by the American Institute of Architects. Plaintiffs did prepare the general plans and specifications. They did, however, employ a firm of heating experts to design the heating system to be installed in the hospital building. The heating engineers were employed at plaintiffs' cost and functioned at the direction of plaintiffs, not at the direction of the hospital district. It is to be noted the contract placed the ultimate responsibility to design a heating system upon plaintiffs. The heating system as designed and subsequently installed presents the problem with which we are involved in this case.

The system was designed to heat the building with hot water flowing through copper pipes imbedded in the concrete floor and within the ceiling of the building, a form of heating commonly known as 'radiant' heating. The plan provided that certain main ducts would carry the hot water from the boiler. From these mains the system was 'broken up' with 'small panels' extending from the mains to heat the individual rooms and groups of rooms. It was intended that about 15 per cent of the total heat would be provided by the coils of pipe or tubing in the floor; the remainder, from the coils installed in the ceiling. There is no contention but that the original design was a standard, adequate heating system.

This type of system, as designed, has been frequently and successfully used, from ancient times. Although it is generally known to be a fine heating system, it must also be evident that when the conductors of the hot water are imbedded in the concrete floor and under the plaster of the ceiling, a poor installation can be extremely costly to repair.

The trouble started when the federal government prohibited the use of copper tubing for this purpose as a result of the Korean War. That was in 1951 and after the hospital was under construction. The governing body of the hospital district did not want to delay construction and requested plaintiffs to try to find a suitable substitute for the copper tubing. Plaintiffs were informed of a tin-plated steel tubing manufactured by General Motors. The manufacturer represented the product to be an equivalent substitute for copper tubing and suitable for use in place of copper. The plaintiffs consulted with the heating experts who designed the system and learned that these experts thought the substitution would be suitable. The board of the hospital district agreed to the change. Accordingly, the steel tubing was installed in lieu of the copper. It is important to note that the plaintiffs made no change in the design of the method or manner of installation of the steel. Accordingly, it was installed in exactly the same manner that was designed for the use of copper tubing. The installation began in November or December of 1951 and continued into 1952. On December 31, 1951, the installation was about one-half completed.

The date of December 31, 1951, is important in this case and presents a basis for a principal defense. The policy period of defendant's policies began on that date. The policy period of insurance terminated on December 31, 1953.

Beginning in the late winter or spring of 1953 the hospital was beset with sporadic leaking of water from the heating system, both from the floor and ceiling installations. The plaintiffs were notified of this difficulty and called upon the contractor who installed it to make repair and correction. The contractor obliged by repairing several leaks until the problem became so acute that it was obvious that there was an inherent failure of the heating system and particular repair of each point of leakage would no longer suffice. It was apparently in about June of 1953 that it was determined that the steel pipe imbedded in the concrete floors had materially dissolved by corrosion. The floor system was, thereby, rendered inoperative. It was possible to continue to use the ceiling system for the remainder of the year 1953 and to the end of the heating season of 1954. During the summer of 1954 the hospital district caused a heating engineer to make a thorough investigation of the system to determine what was needed to correct the obvious failure. The testimony of this engineer was the only evidence presented at the trial of this case in respect to the cause of the failure of the heating system.

He testified that with reference to the ceiling system, steel tubing did not possess the pliability of copper tubing; that provision should have been made to allow for the greater expansion of steel tubing in contrast to copper and that this was not done; that the failure to install 'expansion joints' and sufficient 'anchors' was the principal cause of the failure in the ceiling installation. The leaks occurred at points on the tubing where sufficient provision for expansion was not made. The pipes installed in the concrete floor simply corroded away in a period of a few months.

Following this investigation by a heating engineer the hospital district, by its attorneys, make demand upon plaintiffs for immediate correction of the failure. The cost of correction was estimated at between $40,000 and $50,000. The plaintiffs submitted this demand to defendant and demanded coverage under the liability policies. The defendant responded to this demand by a denial of coverage. The amount of the potential liability caused understandable concern to plaintiffs. As a result of negotiations between the attorneys for the plaintiff and the hospital district a settlement was concluded which required the total payment of $956.66 on the part of plaintiffs. This settlement was so obviously advantageous to plaintiffs that defendant concedes it was a reasonable settlement. Plaintiff was also obliged to pay their attorney $300, so the amount sued for by this action is a total of $1,256.66, plus the attorney's fees resulting from this litigation. During the course of the negotiations for this settlement, and prior to its consummation, the plaintiffs informed defendant and demanded payment of the amount agreed upon. Defendant refused. This action followed.

During the period of negotiation and settlement defendant contended that there was no coverage because there had been no 'accident' within the requirements of the policy. This position was apparently abandoned in the trial court. The defendant then contended that there had been no act, failure or omission of the plaintiff within the policy period, or at any time, as required to come within the policy. The policy required the defendant:

'To pay on behalf of the Insured all sums which the Insured shall become obligated to pay by reason of the liability imposed upon him by law for damages, including damages for care and loss of services, because of bodily injury, sickness or disease, including death at any time resulting therefrom, sustained by any person or persons; and because of injury to or destruction of property, including the loss of use thereof, all in direct consequence of any negligent act, error or omission of the Insured resulting in accident, in the performance of professional services for others in the Insured's profession as architect.'

The case was tried to the court without a jury. The court made findings in favor of plaintiffs and this appeal followed.

Defendant's first assignment complains of the refusal of the trial court to allow its motion for a judgment on the pleadings. The motion was made orally at the start of the trial. It might be observed that the pleadings had been well laundered by that time as a result of extensive motions and demurrers. The motion for judgment was based entirely upon the insufficiency of the complaint. A motion for judgment on the pleadings is not one favored by the courts. It cannot be used as a substitute for demurrer if the complaint was amendable so as to state a good...