Space Conditioning, Inc. v. Insurance Company of No. Amer.

• Decision Date: 13 December 1968
• Docket Number: Civ. A. No. 27519.
• Citation: 294 F. Supp. 1290
• Parties: SPACE CONDITIONING, INC., a Maryland Corporation, Plaintiff, v. INSURANCE COMPANY OF NORTH AMERICA, Defendant.
• Court: U.S. District Court — Western District of Michigan

294 F. Supp. 1290

SPACE CONDITIONING, INC., a Maryland Corporation, Plaintiff, v. INSURANCE COMPANY OF NORTH AMERICA, Defendant.

Civ. A. No. 27519.

United States District Court E. D. Michigan, S. D.

December 13, 1968.

Robert E. Sullivan, Sullivan, Sullivan, Hull & Ranger, Detroit, Mich., for plaintiff.

G. Cameron Buchanan, Alexander, Buchanan & Conklin, Detroit, Mich., for defendant.

OPINION

LEVIN, District Judge.

Plaintiff, Space Conditioning (hereinafter referred to as the plaintiff), is a Maryland Corporation engaged in the business of selling heating and air conditioning equipment. It is the successor to Warren Webster & Company. The Insurance Company of North America (hereinafter referred to as defendant) is engaged in the business of selling multiple lines of insurance.

On or about January 7, 1956 Warren Webster entered into a contract of liability insurance with the defendant, entitled "Blanket Liability and Automobile Policy #9LAB6884, Especially Prepared for Warren Webster & Company." The policy provided as follows:

"Bodily Injury Liability"—

"* * * to pay on behalf of the insured all sums which the insured shall become obligated to pay by reason of the liability inposed upon him by law, or assumed under contract, for damages * * * sustained by any person or persons and arising out of * * * all other operations of the insured as defined herein." (emphasis added)

"Property Damage Liability"—

"* * * 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, or assumed under contract, for damages because of injury to or destruction of property, including the loss of use thereof, caused by accident and arising out of * * * all other operations of the insured as defined herein." (emphasis added)

"Operations"—

"* * * the manufacture, distribution, and sale of heating specialties and distribution and sale of air conditioning systems and all operations of the insured related thereto."

"Defense, Settlement, Supplementary Payments"—

"As respects the insurance afforded by the other terms of this policy the company shall: (a) defend any suit against the insured alleging such injury * * * and seeking damages on account thereof, even if such suit is groundless, false, or fraudulent * * *; (c) pay all expenses incurred by the company, all costs taxed against the insured in any such suit and all interests accruing after entry of judgment until the company has paid, tendered or deposited in such part of such judgment as does not exceed the limit of the company's liability thereon * * *"

"Exclusions"—

"* * * this policy does not apply: (c) to injury to or destruction of (1) property owned by, rented or leased to the insured, or (2) except with respect to the use of elevators or escalators or liability assumed under any sidetrack agreement, property in charge of or transported by the insured, or (3) any goods or products manufactured, sold, handled or distributed by the insured, or work completed by or for the insured, out of which the accident arises * * *"

While the policy was in effect Warren Webster sold some of its manufactured products to the High Life Inn in Saginaw, and participated in the installation of this equipment. It is alleged that this equipment leaked and did not work as represented. The High Life Inn later brought suit against Warren Webster, alleging both personal injury and property damage as a result of Warren Webster's acts and omissions.

The complaint, which the High Life Inn filed in the Saginaw County, Michigan, Circuit Court alleged that Warren Webster

"24 * * * did negligently * * * design and/or manufacture the said equipment, and that the same is not fit for the purposes of the Plaintiff, said purposes having been previously disclosed to Webster.

"27 * * * is liable to Plaintiff by virtue of the breach of implied warranty * * *; that the purpose for which said goods and materials were to be used * * * was fully known to Defendant Webster and that Plaintiff * * * relied upon these facts * * * and that as a consequence of said reliance, the Plaintiff did purchase said material and equipment all to his damages * * *

"28 * * * That in addition to the breach of implied warranty by * * * Webster, Defendant Webster did breach its express warranty to this Plaintiff by making the representations heretofore referred to * * * for the purpose of selling said equipment to Plaintiff * * *

"30. That Defendant Webster carelessly, wantonly, and willfully made * * * false representations * * * as to the fitness, suitability, and adequacy of said equipment * * *

"35. That in addition to the said equipment being defective * * *, said equipment could not be installed properly even though the installation procedures outlined by Defendant Webster were followed * * *"

High Life's damages from these claimed acts and omissions of Webster were allegedly that

"35 * * * as a consequence, condensation and leakage formed in and about Plaintiff's place of business, destroying and damaging Plaintiff's building, and interrupting his business and profits.

"36 * * * as a consequence of the said false representations * * * and * * * of said breaches of warranty * * *, the Plaintiff's business was interrupted, Defendants Richter have increased by thousands of dollars the cost of installing a heating and air conditioning system over and above what it was originally estimated the cost would be; the Plaintiff's business has been damaged and interrupted from time to time, the system does not work and never will be able to work in the Plaintiff's place as represented; that it will cost thousands of dollars to alter or rip out said system which has been built in Plaintiff's building." and, finally,

"37. That Plaintiff has suffered in health, that his business has lost revenue, that he has been put to great damage and expense in attempts to repair said systems; and that the Plaintiff has paid thousands of dollars for a heating and air conditioning system which does not work properly; that Plaintiff's business has not reached the potential that it could have reached had the air conditioning system functioned as it should; and that Plaintiff's health has been injured and damaged as a consequence of said breach of warranties and misconduct of the Defendant as heretofore alleged."

Upon receipt of the summons and complaint, Warren Webster turned both over to the defendant asking that a defense be provided under the "duty to defend" provision quoted above. The defendant refused to defend, claiming that there was no coverage under the policy of insurance for the allegations contained in the High Life complaint.

At the trial, High Life presented the following itemization of its damages:

                       "SUMMARY OF ALL DAMAGES
                       Purchase price and cost of removal of old system      $ 48,533.66
                       Loss of profits                                        158,000.00
                       Less settlement from Reichle, $1,500.00                - 1,500.00
                                                                           _____________
                                                     Complete Total:        $205,033.66"
                

The jury returned a verdict against Warren Webster in the amount of $80,000.00 and a judgment was entered thereon. Warren Webster paid $70,000.00 in satisfaction of this judgment, and, in addition, paid $12,046.47 as attorney's fees.

The plaintiff brought this action, alleging that the defendant breached its duty under the contract by refusing to defend the suit brought against Warren Webster, and by refusing to contribute to, indemnify, or otherwise reimburse Warren Webster for the expenses incurred in the defense of the suit and in the payment of the judgment rendered against it. The facts are stipulated and the Court has before it motions for summary judgment submitted by both parties.

The insurer's duty to defend under an insurance contract is measured by the allegations in the pleadings of the person who is suing the insured, Guerdon Industries, Inc. v. Fidelity & Casualty Co., 371 Mich. 12, 123 N.W.2d 143 (1963); American States Insurance Co. v. Stachowski, 249 F.Supp. 189 (E.D. Mich.1965); 29A Am.Jur., Insurance, § 1452, and is not dependent on the insurer's ultimate liability to pay. Guerdon Industries v. Fidelity, supra; City Poultry & Egg Co. v. Hawkeye Casualty Co., 297 Mich. 509, 298 N.W. 114 (1941); St. Paul Mercury Insurance Co. v. Huitt, 336 F.2d 37, 44 (6th Cir. 1964). The insurer's duty to defend is not limited to meritorious suits, Burton v. State Farm Mutual Auto Ins. Co., 335 F.2d 317 (5th Cir. 1964), and may even extend to actions which are groundless, false, or fraudulent, 29A Am.Jur., Insurance, § 1448, Hoosier Casualty Co. v. Chimes, Inc., 95 F.Supp. 879 (E.D.Mich.1951), so long as the allegations in the action against the insured even arguably come within the policy coverage. Hoosier Casualty v. Chimes, supra; American Indemnity v. Sears, Roebuck & Co., 195 F. 2d 353 (6th Cir. 1952); 7A Appleman, Insurance Law & Practice § 4683. The insurer is under a duty to defend if the complaint alleges facts constituting a cause of action within the insurance coverage, even if other facts constituting causes of action not covered by the policy are also alleged. 7A Appleman, supra, § 4683; Couch on Insurance (2d Ed.), § 51:50.

The High Life Inn plaintiffs claim both personal and property damage injuries against Warren Webster, alleging damage to their place of business, interruption of their business (which must be considered property damage), and damage to their health due to Warren Webster's acts. The High Life plaintiffs also asserted as an item of their damages the claim that the Warren Webster equipment would never be able to work as represented, and hence would have to be removed from their building and replaced, at great expense to them.

There appear to be three basic items of damages which the plaintiffs in the High Life Inn case asserted in...