St. Paul Mercury Ins. Co. v. Sugarland Industries, Inc., 4091

• Decision Date: 09 September 1966
• Docket Number: No. 4091,4091
• Citation: 406 S.W.2d 778
• Parties: ST. PAUL MERCURY INSURANCE COMPANY, Appellant, v. SUGARLAND INDUSTRIES, INC., Appellee. . Eastland
• Court: Texas Court of Appeals

Page 778

406 S.W.2d 778

ST. PAUL MERCURY INSURANCE COMPANY, Appellant, v.SUGARLAND INDUSTRIES, INC., Appellee.

No. 4091.

Court of Civil Appeals of Texas Eastland.

Sept. 9, 1966.

Rehearing Denied Oct. 7, 1966.

Butler, Binion, Rice, Cook & Knapp, Frank J. Knapp, Houston, George Roane, Rosenberg, for appellant.

Baker, Botts, Shepherd & Coates, Alvin M. Owsley, Jr., and John C. Held, Houston, for appellee.

WALTER, Justice.

J. T. Falco and others purchased cotton seed from Sugarland Industries.Sugarland represented to Falco that the seed had a germination rate of 80%.Falco filed suit against Sugarland for lost profits because the seed did not have a germination rate of 80% .Sugarland called upon St. Paul Insurance Company to defend such suit because, it contended, it was covered by a policy which it had with St. Paul.The insurance company denied coverage and refused to defend.Sugarland provided its own defense and lost the case, which is reported in 360 S.W.2d 806, Sugarland Industries, Inc. v. Falco, (WacoCt.Civ.App. 1962, writ ref. n. r. e.), to which reference is made for a more detailed statement of the facts.

Sugarland filed this suit against St. Paul to recover the amount it paid out on the Falco case contending that its policy covered the hazard involved.In a non-jury trial, it recovered a judgment and St. Paul has appealed.

Appellant states its position as follows:

'Appellant has taken the position from the inception of this controversy that its policy of liability insurance does not afford any coverage for the kind of claim and demand made by Falco and others and subsequently asserted and recovered by them in their suit against Sugarland, and that same is not within the purview of a policy of liability insurance.Broadly stated, Appellant says that the liability fixed against Appellee in the Falco case is an ordinary commercial loss arising out of a sale of goods under a contract of sale in which the purchaser has asserted and recovered lost profits growing out of the failure of the goods to measure up to the quality and character of the goods that were bargained for, and as they were represented to be by the vendor.Appellant denies that the liability claimed and fixed against Sugarland in the Falco action is one 'caused by accident' within the meaning of its liability policy, and denies that the claim and recovery of Falco and others was one for damages 'because of injury to or destruction of property, including the loss of use thereof' within the insuring agreements of such policy.Appellant says that a holding that its policy affords coverage to this type of situation would have the effect of converting a liability policy into an agreement to indemnify the insured against liability for the insured's failure to faithfully perform its contractual obligations and would make the insurer a guarantor of the quality, quantity and satisfactory performance of its insured's products sold by it in ordinary vendor-vendee relationships without regard to the language of the insuring agreements, conditions and exclusions of the policy which are referred to an Appellant's answer.'

Appellee says that the relevant portions of the policy are as follows:

DECLARATIONS

Item 3.Coverages

C. Property Damage Liability--Except Automobile $500,000 aggregate products

Item 4.The declarations are completed on attached schedules designated A, B.

ST. PAUL MERCURY INSURANCE COMPANY * * *

AGREES with the Insured, * * *

INSURING AGREEMENTS

I.Coverage C--Property Damage Liability--Except Automobile

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, including the loss of use thereof, caused by accident.

II.Defense, Settlement, Supplementary Payments

With respect to such insurance as is afforded by this Policy, the Company shall:

(a) defend any suit against the Insured alleging such injury, sickness, disease or destruction and seeking damages on account thereof, even if such suit is groundless, false or fraudulent; but the Company may make such investigation, negotiation and settlement of any claim or suit as it deems expedient;

(b)(1) pay all premiums on bonds to release attachments for an amount not in excess of the applicable limit of liability of this Policy, all premiums on appeal bonds required in any such defended suit, the cost of bail bonds required of the Insured in the event of automobile accident or automobile traffic law violation during the Policy period, not to exceed $100 per bail bond, but without any obligation to apply for or furnish any such bonds;

(2) pay all expenses incurred by the Company, all costs taxed against the Insured in any such suit and all interest accruing after entry of judgment until the Company has paid or tendered or deposited in court such part of such judgment as does not exceed the limit of the Company's liability thereon;

(3) pay expenses incurred by the Insured for such immediate medical and surgical relief to others as shall be imperative at the time of the accident;

(4) reimburse the Insured for all reasonable expenses, other than loss of earnings, incurred at the Company's request;

and the amounts so incurred, except settlements of claims and suits, are payable by the Company in addition to the applicable limit of liability of this Policy.

EXCLUSIONS

This Policy does not apply:

(a) to liability assumed by the Insured under any contract or agreement except under coverages A and C, (1) a contract as defined herein or (2) as respects the insurance which is afforded for the Products Hazard as defined, a warranty of goods or products;

(j) under coverage C, to injury or to destruction of * * * (4) any goods, products or containers thereof manufactured, sold, handled or distributed or premises alienated by the named Insured, or work completed by or for the named Insured, out of which the accident arises; * * *.

CONDITIONS

3.Definitions

(g) Products Hazard.The term 'products hazard' means;

(1) goods or products manufactured, sold, handled or distributed by the named Insured or by others trading under his name, if the accident occurs after possession of such goods or products has been relinquished to others by the named Insured or by others trading under his name and if such accident occurs away from premises owned, rented or controlled by the named Insured * * *; provided, such goods or products shall be deemed to include any container thereof, other than a vehicle, * * *.

13.Action Against Company.No action shall lie against the Company unless, as a condition precedent thereto, the Insured shall have fully complied with all the terms of this Policy, nor until the amount of the Insured's obligation to pay shall have been finally determined either by judgment against the Insured after actual trial or by written agreement of the Insured, the claimant and the Company .

Any person or organization or the legal representative thereof who has secured such judgment or written agreement shall thereafter be entitled to recover under this Policy to the extent of the insurance afforded by this Policy.Nothing contained in this Policy shall give any person or organization any right to join the Company as a co-defendant in any action against the Insured to determine the Insured's liability.'

The rules of construction which we are to follow in construing the pertinent provisions of said policy have been summarized by Chief Justice Chadick in Kelley v. American Insurance Company, Tex.Civ.App ., 316 S.W.2d 452, 455(affirmed160 Tex. 71, 325 S.W.2d 370) as follows:

'In construing the...