St. Paul Fire and Marine Insurance Co. v. Northern Grain Co.

• Decision Date: 17 August 1966
• Docket Number: No. 18295.,18295.
• Citation: 365 F.2d 361
• Parties: ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Appellant, v. NORTHERN GRAIN COMPANY et al., Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

365 F.2d 361 (1966)

ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Appellant, v. NORTHERN GRAIN COMPANY et al., Appellee.

No. 18295.

United States Court of Appeals Eighth Circuit.

August 17, 1966.

Holton Davenport, of Davenport, Evans, Hurwitz & Smith, Sioux Falls, S. D., for appellant. Lyle J. Wirt and Deming Smith of the same firm, Sioux Falls, S. D., were with him on the brief.

Francis M. Smith, of Woods, Fuller, Shultz & Smith, Sioux Falls, S. D., for appellee, Northern Grain Co. Melvin T. Woods, Howell L. Fuller and John B. Shultz of the same firm, Sioux Falls, S. D., were with him on the brief.

Before VOGEL, Chief Judge, and MATTHES and MEHAFFY, Circuit Judges.

MATTHES, Circuit Judge.

This declaratory judgment action was instituted by Northern Grain Company, a corporation organized under the laws of South Dakota, against St. Paul Fire and Marine Insurance Company, a Minnesota corporation.¹ Plaintiff, hereinafter referred to as Northern, prayed for a judgment declaring that it was insured under two insurance policies issued by defendant, hereinafter designated as St. Paul or appellant, against the legal liability of Northern growing out of the sale of the wrong type of seed wheat to third parties during the months of April and May, 1962, that St. Paul be required to defend Northern in any actions which may be instituted by third parties, and be required to pay any and all judgments recovered by third parties.

The facts were undisputed and appear from the stipulation on which the cause was submitted.

Northern was engaged in the business of buying, selling and storing grain. St. Paul issued a Comprehensive General Liability Policy effective from May 15, 1961 to May 15, 1962, hereinafter referred to as Policy A, and a similar policy effective from May 15, 1962 to May 15, 1963, hereinafter referred to as Policy B.

Each policy insured Northern against liability arising out of Northern's operation of a grain elevator, with express coverage of liability hazards of products and completed operations. Under the insuring agreement of the policies St. Paul agreed:

"To pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of injury to or destruction of property, * * *, caused by accident."

Under "Conditions" relating to "Limits of Liability — Aggregate Products," Policy A provided:

"The limits of * * * property damage liability stated in the declarations $50,000.00 as `aggregate products\' are * * * the total limits of the Company\'s liability for all damages arising out of the handling or use of or the existence of any condition in goods or products manufactured, sold, handled or distributed by the Insured * * * when the occurrence or accident takes place away from premises owned, rented or controlled by the Insured and after the Insured has relinquished possession of such goods or products to others * * *."

Policy B under "Conditions" provided that "The term `products hazard' means:

"(1) goods or products manufactured, sold, handled or distributed by the named Insured * * *, if the accident or occurrence occurs after possession of such goods or products has been relinquished to others by the named Insured * * * and if such accident or occurrence occurs away from premises owned, rented or controlled by the named Insured * * *."

Both A and B excluded coverage

"to injury to or destruction of * * * (3) any goods, products or containers thereof manufactured, sold, handled or distributed by the Insured, * * * out of which the occurrence or accident arises * * *."

On or about April 1, 1962, Northern accepted for storage in its elevator about 3,000 bushels of wheat, described by the producer as Selkirk wheat. During April and May, 1962, Northern sold and delivered to its customers 2,222 bushels of what was believed to be Selkirk seed wheat. In fact, the seed wheat acquired and sold by Northern was Conley wheat. A germination test by Northern failed to reveal the variety of wheat which it had acquired and sold. A distinguishing factor between the two types of wheat is that Conley has "bearded" heads while Selkirk does not. This characteristic of Conley wheat is not detectable until the wheat heads appear. Thus discovery of the type of wheat actually sold by Northern was not made until the latter part of June, 1962.

Claims were made upon Northern by the purchasers of the seed wheat on the theory that Conley wheat is less productive than Selkirk wheat to the extent of seven or eight bushels per acre, and that as a consequence, they suffered damages of diminution in the value of their wheat crop. The claims totaled $33,000.00. Some of these claims, amounting to over $12,000.00, were tendered to St. Paul, who took the position that the claimed losses were not covered by the policies.

Subsequent to the filing of the stipulation, on motion of St. Paul, the prospective claimants, twenty-five in number and all citizens of South Dakota, were added as parties and aligned as plaintiffs. They were duly summoned, appeared by counsel, participated in the proceedings, and with Northern, are appellees here.

In its "Notice of Decision" the district court found, principally on the authority of Dakota Block Company v. Western Casualty & Surety Company, 132 N.W.2d 826 (S.D.1965) and Hauenstein v. Saint Paul-Mercury Indem. Co., 242 Minn. 354, 65 N.W.2d 122 (1954), that Northern and the added parties were entitled to a judgment declaring that the liability of Northern to the added parties was covered by the policies.

The court made additional findings of fact to the effect that if loss was suffered by the added parties, it was an unexpected and unforeseen happening and was an "accident" within the meaning of that term as used within the insuring agreement of the policies; that if any loss was sustained by an added party, the accident occurred at a place other than "premises owned, rented or controlled" by Northern, and after Northern had "relinquished possession" of the seed wheat; that if any loss was sustained by an added party, it was damage to the wheat crop rather than to the seed wheat, and in consequence, insurance coverage was not excluded under the clause excluding coverage for damages to "any goods, products or containers thereof manufactured, sold, handled or distributed by the Insured * * *." The court expressly refrained from determining whether the damages claimed by the added parties were in fact sustained. The judgment, from which St. Paul has appealed, merely adjudged that the policies insured Northern against its legal liability to the added parties for damages they may have sustained as a result of the purchase of Conley seed wheat under the facts and circumstances set forth in the court's findings. The judgment also required St. Paul to defend Northern in any suits instituted by added parties and to pay any judgment rendered against Northern within the applicable limits of coverage set forth in the policies.

The numerous points advanced by appellant in support of its broad assertion of no coverage are reduced, for purposes of this opinion, to these basic contentions: one, there was no "accident" within the meaning of that term as it is used in the policy; two, the damages, if any, sustained by added parties are not the consequence of an "injury to or destruction of property" as that clause is used in the insuring agreement.

The cases do not support the claim of no accident; indeed a wealth of authority sustains the conclusion that an accident occurred. This court has recognized that the word "accident" has never acquired any technical signification in law, and when used in insurance contracts, it is to be construed and considered according to the ordinary understanding and common usage of people generally. American Cas. Co. of Reading, Pa. v. Minnesota F. B. S. Co., 270 F. 2d 686, 690-691 (8th Cir. 1959), where we quoted at length from 29 Am.Jur., Insurance, § 931 (1940) (now 29A Am. Jur. § 1164) (1960). The same authority announces further "* * * the courts are practically agreed that the words `accident' and `accidental' mean that which happens by chance or fortuitously, without intention or design, and which is unexpected, unusual and unforeseen." 29A Am.Jur., Insurance, § 1164 (1960). 7A Appleman, Insurance Law and Practice, § 4492 states: "When used without restriction or qualification in insurance contracts, the term `accident' has been held broader than the restricted definition of an event happening suddenly and violently." Reference to a relatively limited number of cases will suffice to demonstrate that courts have interpreted and applied the term "accident," as used in general liability insurance policies, broadly, and have declined to limit its meaning to an event which happened suddenly and violently. See, e. g., Koehring Company v. American Automobile Insurance Co., 353 F.2d 993 (7th Cir. 1965), breakdown of hydraulic cylinders of cement mixers constituted an accident; Geddes & Smith, Inc. v. Saint Paul-Mercury Indem. Co., 51 Cal. 2d 558, 334 P.2d 881 (1951), defects in aluminum doors which developed after they were installed held to constitute an accident; Ritchie v. Anchor Casualty Company, 135 Cal.App.2d 245, 286 P.2d 1000 (Cal.Ct.App.1955), damages arising from the use of rancid oil held to be caused by accident; Shelby Mutual Ins. Co. v. Ferber Sheet Metal Works, 156 So. 2d 748 (Fla.Ct.App.1963), damage to church organ eight months after completion of roofing and waterproofing work because of deficiencies in such work was an accident; Hauenstein v. Saint Paul-Mercury Indem. Co., 242 Minn. 354, 65 N.W.2d 122 (1954), an oft-cited case, holding that property damage to buildings caused by application of defective plaster was caused by accident; Penley v. Gulf Insurance Co., 414 P.2d 305 (Okl. 1966), damage to motor truck resulting from improper use of gasoline instead of diesel fuel held to constitute accident; Dakota Block Co. v....