Thomas W. Hooley & Sons v. Zurich General Acc. & Liability Ins. Co.

• Decision Date: 26 May 1958
• Docket Number: No. 43537,43537
• Court: Louisiana Supreme Court
• Parties: , 67 A.L.R.2d 1078 THOMAS W. HOOLEY & SONS v. ZURICH GENERAL ACCIDENT AND LIABILITY INSURANCE COMPANY, Ltd.

Page 449

103 So.2d 449

235 La. 289, 67 A.L.R.2d 1078

THOMAS W. HOOLEY & SONS v. ZURICH GENERAL ACCIDENT AND LIABILITY INSURANCE COMPANY, Ltd.

No. 43537.

Supreme Court of Louisiana.

May 26, 1958.

Rehearing Denied June 27, 1958.

Dart, Guidry & Dart, Louis C. Guidry, New Orleans, for plaintiff-appellant.

Normann & Normann, New Orleans, for defendant-appellee.

TATE, Justice ad hoc.

Plaintiff partnership appeals from judgment dismissing its suit to recover a sum allegedly due, under a policy issued to it by defendant insurer, in reimbursement of damages to the property of another paid by plaintiff. The 'Comprehensive General Liability Policy' in question insured plaintiff contractor against liability imposed by law upon said insured for damages because of injury to property caused by accident. Excluded from coverage of the policy was property in the 'care, custody or control' of the insured.

On January 16, 1953, during the term of the policy and while plaintiff was fulfilling its contact with the City of New Orleans to dismantle the statute of Robert E. Lee and the supporting stone column located in Lee Circle, a portion of the column fell from a crane and damaged a large ornamental cast-iron urn situated at the base of the monument, as well as some granite slabs.¹ By the terms of its contract the plaintiff partnership was liable for damages caused to City property during performance of the contract. The defendant further does not dispute that such damages amounted to $4,870, as demanded and proven by plaintiff.

Defendant seeks to evade liability under its insurance contract because: (a) the damaged property allegedly was under the 'care, custody or control' of the plaintiff insured and thus excluded from coverage of the policy; and (b) plaintiff allegedly violated clauses of the policy prohibiting the insured from voluntarily settling or paying claims prior to final judgment obtained against it by the third person (the City) whose property was damaged. The trial court, in dismissing plaintiff's suit, sustained the latter defense.

As the District Court held, the attempted first defense that the damaged property was within the 'care, custody or control' exclusion clause is clearly without factual or legal merit.

Plaintiff's dismantling contract concerned the Lee statue and its supporting column and did not include the base of the monument (upon which the column was situated) or the ornamental urns at the corners of the base, accidental damage to one of which urns is the subject of the present suit.

The uniform jurisprudence holds that damaged property or premises merely incidental or adjacent to the contracted object upon which work is being performed by the insured is not within the 'care, custody or control' of the insured for purposes of the exclusion clause in question, even though he might be permitted access thereto during the performance of his contract. Boswell v. Travelers Indem. Co., 1956, 38 N.J.Super. 599, 120 A.2d 250, Maryland Cas. Co. v. Hopper, Tex.Civ.App.1950, 237 S.W.2d 411, Rex Roofing Co. v. Lumber Mut. Cas. Ins. Co., 1950, 280 App.Div. 665, 116 N.Y.S.2d 876, A. T. Morris & Co. v. Lumber Mut. Cas. Ins. Co., 1937, 163 Misc. 715, 298 N.Y.S. 227, Cohen v. Keystone Mut. Cas. Co., 1943, 151 Pa.Super. 211, 30 A.2d 203.

The cases cited by defendant recognize this principle; although, on the basis of facts distinguishable from the present, recovery was denied to the insureds therein on the basis of the aforesaid exclusion clause. These cases found the damaged property thereon to be within the 'care, custody or control' of the insured as the actual subject of the insured's repair, installation, construction, or transportation contract, or as equipment actually used by the insured in the performance thereof. International Derrick & Equipment Co. v. Buxbaum, 3 Cir., 1957, 240 F.2d 536, Hardware Mut. Cas. Co. v. Mason-Moore-Tracy, Inc., 2 Cir., 1952, 194 F.2d 173, L. L. Jarrell Construction Co. v. Columbia Cas. Co., D.C. 1955, 130 F.Supp. 436; Root Motor Co. v. Massachusetts Bonding & Ins. Co., 1932, 187 Minn. 559, 246 N.W. 118; Maryland Cas. Co. v. Holmsgaard, 1956, 10 Ill.App.2d 1, 133 N.E.2d 910, and John G. Speirs & Co. v. Underwriters at Lloyd's London, 1948, 84 Cal.App.2d 603, 191 P.2d 124.

The defendant insurer's denial of coverage and liability upon such first ground, in the face of the uniform jurisprudence and the uncontradicted facts, would seem to subject it to the penalties and attorney's fees as demanded by plaintiff's supplemental petition, as a refusal to pay a covered loss (after due proof thereof) which is 'arbitrary, capricious, or without probable cause', LSA-R.S. 22:658.

Moreover, such assessment of penalties seems especially justified under the facts of the present case. Before the plaintiff entered upon the performance of the dismantling contract, upon specific inquiry by plaintiff's senior partner concerning the subject he was informed by defendant's underwriting agent (on the basis of underwriting information available to the latter, which of course was based upon the above jurisprudence) that portions of the premises such as that damaged were not within his 'care, custody or control' so as to be excluded from the protection of the present policy.² The record further reflects that defendant insurer was informed of this circumstance by its agent. After the accident, as is also shown by the record, the service company retained by defendant insurer to investigate the claim, by written report, soon after the accident informed said insurer that the plaintiff insured had no care, custody or control of the damaged property in question.

However, despite the undoubted coverage by defendant's policy of the damages herein concerned, defendant insurer not only denies liability for penalties for its refusal to pay same, but denies liability for the damages themselves by a supplementary defense (sustained by the trial court) arising from the plaintiff insured's alleged violation of the 'no action' clause³ of defendant's insurance policy.

As to the circumstances upon which this defense is based, the undenied facts of the record show: After defendant insurer denied liability for the damages in question, plaintiff proceeded to repair the damage itself by amicable agreement with the City.⁴ As defendant's underwriting agent stated, the damages were thus minimized, as the repair thereof was done 'more economically * * * by him (Hooley) fixing it instead of letting the bid out', and of course the expenses of litigation were saved. Further, with the knowledge and approval of defendant's representatives, plaintiff contractor sought (although unsuccessfully-- see footnote 1 above) to shift ultimate legal responsibility for the present damages from itself (and thus from defendant insurer) and to the lessor of the crane involved.

Nevertheless, defendant insurer insists that recovery should be denied because, although it initially and consistently thereafter denied policy coverage as to the damages herein concerned, it never specifically refused to defend a suit brought by the owner of the damaged property against its insured--and indeed had no opportunity to do so because its insured settled the claim and avoided such suit.

Without the exception of a single American jurisdiction, it is noted in summary of a great number of cited cases in the Annotation, 'Consequences of liability insurer's refusal to defend action against the insured upon the ground that claim upon which action is based is not within coverage of policy', 49 A.L.R.2d 694, at page 744, that:

'* * * an insurer's unjustified refusal to defend relieves the insured from his contract obligation not to settle, and the insured is at liberty to make a reasonable settlement or compromise without losing his right to recover on the policy.'

A practical reason for this holding is stated in St. Louis Dressed Beef & Provision Co. v. Maryland Cas. Co., 1906, 201 U.S. 173, at page 26 S.Ct. 400, at page 404, 50 L.Ed. 712, the grandfather case of this line of jurisprudence:

'* * * It would be stretching the words quoted (i.e., the 'no action' clause) to a significance equally hurtful to both parties, and probably equally absent from the minds of both, to read them as having within their scope an initial repudiation of liability by the defendant, and a requirement that, in that event, the plaintiff should be bound to try the case against itself, although it should be plain that by a compromise it could reduce its claim on the defendant as well as its own loss.'

Although most of the cases involved not only (as here) an unjustified denial of liability but also a specific refusal to defend an action brought against the insured, the reasoning therein as well as the equitable reasons therefor support the conclusion that by the mere denial of the insurer to...