Spring Vegetable Co. v. Hartford Cas. Ins. Co., Civ. No. 90-1319-FR.

• Decision Date: 31 July 1992
• Docket Number: Civ. No. 90-1319-FR.
• Parties: SPRING VEGETABLE COMPANY (formerly known as SPADA Distributing Company, Inc.), an Oregon corporation; and George Spada, Plaintiffs, v. HARTFORD CASUALTY INSURANCE COMPANY, a Connecticut corporation; and Hartford Accident and Indemnity Company, a Connecticut corporation, Defendants.
• Court: U.S. District Court — District of Oregon

801 F. Supp. 385

SPRING VEGETABLE COMPANY (formerly known as SPADA Distributing Company, Inc.), an Oregon corporation; and George Spada, Plaintiffs, v. HARTFORD CASUALTY INSURANCE COMPANY, a Connecticut corporation; and Hartford Accident and Indemnity Company, a Connecticut corporation, Defendants.

Civ. No. 90-1319-FR.

United States District Court, D. Oregon.

July 31, 1992.

COPYRIGHT MATERIAL OMITTED

Mark C. McClanahan, Miller, Nash, Wiener, Hager & Carlsen, Portland, Or., for plaintiffs.

Richard A. Lee, Bodyfelt Mount Stroup & Chamberlain, Portland, Or., for defendants.

AMENDED OPINION

FRYE, Judge:

The matter before the court is plaintiffs' request for modification (# 78). That motion is granted in part. The opinion and order of the court filed April 30, 1992 granting in part and denying in part defendants' motion for summary judgment (# 21) are vacated. The opinion is modified as follows.

This is an action for declaratory relief brought by plaintiffs, Spring Vegetable Company and George Spada, against defendants, Hartford Casualty Insurance Company (Hartford Casualty) and Hartford Accident and Indemnity Company (Hartford Accident). Spring Vegetable Company and Spada seek a declaration that Hartford Casualty and Hartford Accident were required to defend them in a civil action filed against them in the State of Washington. Spring Vegetable Company also seeks a declaration that Hartford Casualty and Hartford Accident are required to indemnify it in the judgment resulting from this action.

UNDISPUTED FACTS

Spring Vegetable Company, formerly known as Spada Distributing Company,¹ is an Oregon corporation. Until the spring of 1987, Spring Vegetable Company operated a potato processing plant in Pasco, Washington, where it acted as a commission merchant for vegetable growers. As a commission merchant, Spring Vegetable Company received, cleaned, packed, sold and shipped potatoes on behalf of growers. When the potatoes were sold, the growers would pay to Spring Vegetable Company a fee or commission. Spring Vegetable Company also purchased potatoes directly from growers for resale. Spada served as an officer, president and director of Spring Vegetable Company.

Hartford Casualty and Hartford Accident are Connecticut corporations engaged in the business of providing insurance coverage. During all times relevant to this litigation, Hartford Casualty issued insurance policies to Spring Vegetable Company providing "primary" comprehensive general liability insurance coverage and "umbrella" or excess insurance coverage (collectively, the Hartford policies). The Hartford policies were issued to Spring Vegetable Company through Alexander & Alexander, Inc., an authorized agent of Hartford Casualty and Hartford Accident.

In September, 1986, Spring Vegetable Company entered into a contract with Don Watts to market potatoes grown by Watts. After Spring Vegetable Company took possession of the potatoes, it received complaints about the quality and condition of the potatoes. Spring Vegetable Company determined that some of the potatoes were of a grade lower than the parties originally contemplated, and that others were not marketable at all. Spring Vegetable Company offered Watts approximately $28 per ton for the potatoes which was a price that reflected the quality and condition of the potatoes. Watts rejected this offer on the grounds that Spring Vegetable Company had guaranteed to pay him $65 per ton for the potatoes.

The parties could not reach an agreement, and in January, 1987, Watts filed an action against Spring Vegetable Company in the Franklin County Superior Court in the State of Washington alleging that Spring Vegetable Company had guaranteed a return of $65 per ton for the potatoes, and that, as a result, he was owed $160,465. Watts did not allege that the potatoes were defective. Watts also sought attorneys fees and treble damages under the Washington Consumer Protection Act. In June 1987, Spada held a series of discussions with a representative of Alexander & Alexander, Inc. regarding possible insurance coverage for the dispute over Watts' potatoes. On December 2, 1987, Watts filed an amended complaint. In the amended complaint, Watts joined George Spada and Travelers Indemnity Company as defendants. In the amended complaint, Watts did not allege that the potatoes were defective.

In their answers to the amended complaint, Spring Vegetable Company and Spada alleged that the potatoes they had purchased had developed a condition known as "soft rot" while they were in storage awaiting delivery to third-party purchasers, and this was one reason why they could not fulfill their guarantee of $65 per ton for the potatoes.

Spring Vegetable Company and Spada notified Alexander & Alexander, Inc. orally on July 5, 1988 of the underlying action as well as the contention of Spada that Watts' potatoes were defective because of the way in which they had been grown by Watts.

The action was removed to federal court and assigned to the Honorable Alan A. McDonald, United States District Judge. Trial commenced in the underlying action on May 1, 1989. At the close of trial on May 4, 1989, Judge McDonald ruled orally in favor of Watts and against Spring Vegetable Company and Spada.

On May 17, 1989, Spada notified Alexander & Alexander, Inc. in a letter sent via facsimile transmission that both he and Spring Vegetable Company had been found negligent in the running of Watts' potatoes in the underlying action.

On June 6, 1989, trial counsel for Spring Vegetable Company and Spada sent a letter to Alexander & Alexander, Inc., which contained a copy of the amended complaint in the underlying action. Thereafter, the attorney for Spring Vegetable Company and Spada provided oral descriptions of the underlying action to Alexander & Alexander, Inc.

On July 6, 1989, a claim supervisor for Hartford Casualty and Hartford Accident telephoned the attorney for Spring Vegetable Company and Spada to discuss the underlying action.

On August 23, 1989, Judge McDonald entered Findings of Fact and Conclusions of Law. Judge McDonald found:

The digging, hauling, handling, storage and transporting of plaintiff's potatoes was the corporate act of Spada Distributing Company, Inc. and its agents.

....

Plaintiff's potatoes were not inherently defective, but were negligently handled by Spada or its agents. Accordingly, the risk of loss associated with the claimed defects rests solely with the defendant Spada.

Watts v. Spada Distrib. Co., No. C-88-006-AAM, p. 11 (E.D.Wash. Aug 23, 1989) (Findings of Fact and Conclusions of Law).

An amended judgment was entered on March 27, 1990. In the amended judgment, the court found in favor of Watts and against Spring Vegetable Company and Spada in the sum of $109,805.40. Spring Vegetable Company and Spada appealed to the United States Court of Appeals for the Ninth Circuit. Watts cross-appealed the denial of his claim for attorneys fees and treble damages under the Washington Consumer Protection Act.

On December 19, 1989, the attorney for Spring Vegetable Company and Spada provided several documents regarding the underlying action at the request of the claim supervisor for Hartford Casualty and Hartford Accident.

On June 17, 1991, the Court of Appeals (1) affirmed the judgment against Spring Vegetable Company, (2) reversed the judgment against Spada, and (3) rejected the appeal of Watts for attorneys fees and treble damages under the Washington Consumer Protection Act. Watts v. Spada Distrib. Co., 935 F.2d 277 (9th Cir.1991) (memorandum decision).

On August 30, 1990, following further correspondence, Hartford Casualty and Hartford Accident denied coverage for Spring Vegetable Company and Spada through a letter from its attorney.

On December 14, 1990, Spring Vegetable Company and Spada filed the complaint in this action for declaratory relief.

CONTENTIONS OF THE PARTIES

Hartford Casualty and Hartford Accident (hereinafter, Hartford) move the court for summary judgment on the grounds (1) that it had no duty to defend Spring Vegetable Company and Spada against the claims made in the complaint and the amended complaint; (2) that, at the earliest, it had a duty to defend Spring Vegetable Company and Spada beginning on December 19, 1989 when it received the pretrial order in the underlying action; (3) that it had no duty to defend Spring Vegetable Company and Spada from claims made in the pretrial order; and (4) that it has no obligation to indemnify Spring Vegetable Company for the judgment entered against it.

Spring Vegetable Company and Spada contend (1) that Hartford had a duty to defend them immediately upon receipt of notice of the underlying action; (2) that, at the latest, Hartford had a duty to defend them on May 17, 1989 when Hartford received notice that Spring Vegetable Company and Spada had been found negligent in causing damage to Watts' potatoes; (3) that Hartford has waived or is estopped from invoking certain exclusions to the Hartford policies; and (4) that, even if Hartford has not waived these exclusions, they are not applicable here.

APPLICABLE STANDARD

Summary judgment will be entered where "there is no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The initial burden is on the moving party to point out the absence of any genuine issue of material fact. Once the initial burden is satisfied, the burden shifts to the opponent to demonstrate through the production of probative evidence that there remains an issue of fact to be tried. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986).

"Construction of an insurance policy and interpretation of unambiguous language in the policy are questions of law." Hoffman Constr. Co. v. Fred S. James & Co., 106 Or.App. 329, 332, 807 P.2d 808, 810, rev. granted, 311 Or. 643, 815 P.2d 1273 (1991). "When `an insurance contract is...