Sola Basic Industries, Inc. v. U.S. Fidelity & Guaranty Co.
Decision Date | 29 June 1979 |
Docket Number | No. 76-574,76-574 |
Citation | 90 Wis.2d 641,280 N.W.2d 211 |
Parties | SOLA BASIC INDUSTRIES, INC., Plaintiff-Respondent, v. UNITED STATES FIDELITY & GUARANTY COMPANY, Defendant-Appellant. |
Court | Wisconsin Supreme Court |
John A. Kluwin, Eric J. Van Vugt and Kluwin, Dunphy, Hankin & McNulty, Milwaukee, for defendant-appellant.
Robert A. Christensen and Foley & Lardner, Milwaukee, for plaintiff-respondent.
This case presents a question on the construction of an insurance policy issued by United States Fidelity & Guaranty Company. The insurer appeals from a judgment entered on December 22, 1976 and amended February 1, 1977 by the circuit court for Milwaukee county, awarding the insured, Sola Basic Industries, Inc., $23,121.60. Sola Basic filed a notice of review seeking review of the order for amended judgment, entered February 1, 1977, reducing the judgment from $25,872.43 to $23,121.60.
The questions on appeal are:
1. Is the economic loss suffered by a person other than the insured as the result of negligent repair work by the insured on a product originally sold by the insured excluded from coverage by the standard definitions and exclusions in this comprehensive general liability policy of insurance?
2. Did the parties stipulate to damages so as to preclude Sola Basic from recovering prejudgment interest?
Sola Basic brought this action to recover under a comprehensive general liability insurance policy issued to Sola Basic by United States Fidelity & Guaranty Company (hereafter insurer).
The case arises out of a lawsuit brought by Thunder Bay Manufacturing Corporation against Sola Basic's Hevi-Duty Electric Division. Sola Basic had sold Thunder Bay a transformer for use in its manufacturing process. When Thunder Bay experienced problems with the operation of the transformer, a Sola Basic employee came to Thunder Bay's plant to perform repair work. Thunder Bay's complaint alleged that the repairman negligently repaired the tap changer switch on the transformer by dropping material into the transformer resulting in damage to the windings of the transformer. The damage to the transformer required that it be removed from the plant and be completely rebuilt. This Sola Basic did at its own expense, and it has made no claim upon the insurer for those costs.
Thunder Bay's complaint alleges that while the transformer was out for repairs, it could not use its electric furnaces, and that it sustained damages in that it had to operate by another method. It claimed $60,000 damages against Sola Basic for the cost of additional raw materials, labor, electricity, freight, crane rental, liner bricks and the cost of removing and replacing the transformer.
Sola Basic tendered the defense of Thunder Bay's claim to the insurer which denied coverage and refused to defend. Sola Basic settled with Thunder Bay for $20,000, after notifying the insurer of the proposed settlement, and then brought this suit against the insurer to recover the $20,000 and an additional $5,000 in legal fees.
The insurer filed a motion for summary judgment and supporting affidavit. Sola Basic filed its own motion for summary judgment, which the trial court rejected as untimely. However, the trial court denied the insurer's motion for summary judgment, determining that there was coverage under the insurance policy. The trial court granted Sola Basic's oral motion for summary judgment under sec. 802.08(6), Stats., (1975). 1
QUESTION # 1: IS THE ECONOMIC LOSS SUFFERED BY A PERSON OTHER THAN THE INSURED AS THE RESULT OF NEGLIGENT REPAIR WORK BY THE INSURED ON A PRODUCT ORIGINALLY SOLD BY THE INSURED EXCLUDED FROM COVERAGE BY THE STANDARD DEFINITIONS AND EXCLUSIONS IN THIS COMPREHENSIVE GENERAL LIABILITY POLICY OF INSURANCE?
The sections of the comprehensive general liability insurance policy pertinent to this appeal are the following:
to which this insurance applies, caused by an occurrence, . . . .
The insurer asserts that the only property damage involved in this case was the damage to the transformer itself, and that such property damage was excluded from coverage by either or both exclusions (l) and (m). It argues that in the absence of injury to or destruction of tangible property other than Sola Basic's own product, no property damage liability coverage was afforded. 2
To determine whether an insurer is obligated to assume the defense of a third-party suit, it is necessary to determine whether the complaint alleges facts which, if proven, would give rise to liability covered under the terms and conditions of the policy. Grieb v. Citizens Casualty Company of New York, 33 Wis.2d 552, 557, 148 N.W.2d 103 (1967). Doubts about coverage must be resolved by the insurer in favor of the insured. Capitol Indemnity Corp. v. St. Paul Fire & Marine Ins. Co., 357 F.Supp. 399, 412-13 (W.D.Wis.1972).
Thunder Bay alleged that it was damaged because it incurred additional costs to operate its plant when the removal of the transformer rendered its electric furnaces unusable. Under the policy, damages were defined to include "damages for loss of use of property." The policy obligated the insurer to pay all sums which Sola Basic became obligated to pay as damages because of "property damage to which this insurance applies, caused by an occurrence, . . ." Property damage is defined by the policy as "injury to or destruction of tangible property." The insurer argues that under exclusions (l) and (m), the insurer had no obligation to pay for damage to the transformer itself, and no claim is made for such damage.
Assuming the insurer is correct as to the effect of subsections (l) and (m), the question is whether Thunder Bay suffered injury to or destruction of tangible property other than the Sola Basic transformer.
An analysis of comprehensive general liability insurance policies, standardized by the National Bureau of Casualty Underwriters and the Mutual Insurance Rating Bureau in 1966, made the following comments about the definition of "property damage" in this type of policy:
Obrist, The New Comprehensive General Liability Insurance Policy. A Coverage Analysis. (Defense Research Institute, 1966).
Although decided under a different form of policy, the case of Hauenstein v. St. Paul-Mercury Indemnity Co., 242 Minn. 354, 65 N.W.2d 122 (1954) is frequently cited for its analysis of the concept of injury to property. Under the policy in force, the insurer agreed "to pay any loss by reason of the liability imposed by law or contract upon the insured for damages because of injury to or destruction of property, including the loss of use thereof, caused by accident." The policy excluded liability for "injury to or destruction of . . . any goods or products manufactured, sold, handled or distributed by the Insured . . .."
In Hauenstein, the insured sold plaster to a contractor who used it on a construction job. The plaster shrank and cracked after application, making it necessary for the contractor to remove it and replaster the walls and ceilings. There was no physical injury to any part of the building other than the plaster. While the plaster itself fell within the exclusionary clause of the policy as a product handled, sold and distributed by the insured, the court went on to find injury to the third party's property, stating:
Liberty Building Co. v. Royal Indemnity Co., 177 Cal.App.2d 583, 2 Cal.Rptr. 329 (1960), involved a policy exclusion similar to the one now before the court. In that case, defective stucco material...
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