Southwest Forest Industries, Inc. v. Pole Buildings, Inc.

• Decision Date: 25 June 1973
• Docket Number: No. 71-1816.,71-1816.
• Citation: 478 F.2d 185
• Parties: SOUTHWEST FOREST INDUSTRIES, INC., Appellant, v. POLE BUILDINGS, INC. and Hartford Accident & Indemnity Co., Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

478 F.2d 185 (1973)

SOUTHWEST FOREST INDUSTRIES, INC., Appellant, v. POLE BUILDINGS, INC. and Hartford Accident & Indemnity Co., Appellees.

No. 71-1816.

United States Court of Appeals, Ninth Circuit.

May 7, 1973.

Rehearing Denied June 25, 1973.

Calvin H. Udall (argued), Stephen S. Case, Fennemore, Craig, Von Ammon & Udall, Phoenix, Ariz., for appellant.

Warren E. Platt (argued), Snell & Wilmer, Phoenix, Ariz., for appellees.

Before HUFSTEDLER and WALLACE, Circuit Judges, and GRAY,^* District Judge.

WILLIAM P. GRAY, District Judge :

This is an appeal from the granting of summary judgment in favor of Hartford Insurance Company, a defendant in the action below. The sole question before this court is whether the claimed damage falls within one or more of the standard form exclusion clauses of the liability insurance policy issued by Hartford. We agree with the trial court that it does, and accordingly affirm.

In 1966, the appellant, Southwest Forest Industries (Southwest), contracted with Pole Buildings, Inc. to construct an industrial building on property owned by Southwest at McNary, Arizona. Pole agreed to obtain an insurance policy "insuring against the risks of injuries to persons and property arising out of the performance of this contract." Pursuant to such agreement, Pole purchased the subject insurance policy from Hartford.

In the fall of 1966, the building was completed and Southwest took possession. In December 1967, the roof collapsed due to a heavy snow load, and Pole repaired the damage. On December 26, 1968, the roof collapsed again after a heavy snowfall. Southwest brought suit against Pole and Hartford in the Arizona state court, alleging breach of warranty and negligent construction by Pole. It claimed as damages only the cost of reconstructing the building. The action was removed to the United States District Court on the basis of the parties' diverse citizenship, and that court granted summary judgment in favor of Hartford on the ground that its insurance contract with Pole did not cover the latter's liability to Southwest.

The policy of insurance provided, in part, that "the company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury or property damage to which this insurance applies . . ." and "all sums which the insured, by reason of contractual liability assumed by him under any written contract . . . shall become legally obligated to pay as damages because of bodily injury or property damage to which this insurance applies. . . ."¹ For purposes of the summary judgment motion, and in oral argument before this court, the parties assumed that the building collapse would be covered under the policy unless that risk was excluded by one or both of the following clauses :

"This insurance does not apply :

* * * * * *

(l) to property damage to the named insured\'s products arising out of such products or any part of such products ;

(m) to property damage to work performed by or on behalf of the named insured arising out of the work or any portion thereof, or out of materials, parts of equipment furnished in connection therewith ;"

With respect to exclusion (m), Hartford claims that this clause denies coverage for damage to the insured's work product, whether completed or unfinished, where such damage results from a defect in the item constructed by the insured. In contrast, the appellant reads exclusion (m) to except from coverage damage to the building incurred during construction, but not damage to the building occurring after completion of the structure. The appellant achieves this result by interpreting the second use of the word "work" in the phrase "property damage to work performed . . . arising out of the work" to denote the activity of construction rather than the resulting structure. It contends that under its interpretation the clause is unambiguous and does not vitiate coverage for damage to its building ; that under Hartford's construction the clause is ambiguous when compared with other policy provisions ; and that in the event of ambiguity, the questionable provision is to be construed in favor of the insured.²

We cannot agree with the appellant's reading of exclusion (m). When considered in context, the word "work" should be read as a noun, referring back to, and having the same meaning as, the phrase "work performed." The section should thus operate to withdraw coverage for damage to the insured's work product resulting from an inherent defect, even though construction is complete and the contractor has relinquished control. This interpretation is consistent with the construction accorded similar exclusion clauses in numerous other cases. See, e. g., Haugan v. Home Indemnity Co., 197 N.W.2d 18 (S.D...