Tidewater Associated Oil Co. v. Northwest Casualty Co.

• Decision Date: 19 March 1959
• Docket Number: No. 16072.,16072.
• Citation: 264 F.2d 879
• Parties: TIDEWATER ASSOCIATED OIL COMPANY, a corporation, Appellant, v. NORTHWEST CASUALTY COMPANY, a corporation, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

264 F.2d 879 (1959)

TIDEWATER ASSOCIATED OIL COMPANY, a corporation, Appellant, v. NORTHWEST CASUALTY COMPANY, a corporation, Appellee.

No. 16072.

United States Court of Appeals Ninth Circuit.

March 19, 1959.

Wheelock, Richardson & Niehaus, C. R. Richardson, Portland, Or., for appellant.

Phillips & Sandeberg, W. K. Phillips, Leo Levenson, William C. Ralston, Portland, Or., for appellee.

Before BARNES, HAMLEY, and HAMLIN, Circuit Judges.

HAMLEY, Circuit Judge.

Northwest Casualty Company refused to defend its public liability policyholder, Tidewater Associated Oil Company, against a particular damage claim. It also refused to reimburse Tidewater for the sum paid in compromise settlement of that claim. Tidewater brought this action against the insurance company to recover the sums expended in defending against and settling the claim.

The trial court rendered judgment for defendant. It was held that under an "exclusion of product liability" endorsement attached to the policy the claim in question was excepted from policy coverage. Plaintiff appeals, contending that the damage claim asserted against it was not excluded under the product liability endorsement.

The comprehensive public liability policy was issued to William V. Sherer, a Tidewater gasoline and oil distributor at Bandon, Oregon. By endorsement on the policy appellant was named an insured so far as its interest was concerned. Attached to the policy was an endorsement entitled "Exclusion of Product Liability," which we quote in the margin.¹

While this policy was in effect, Mrs. Ruth Buffington, who resided near Bandon, ordered stove oil from Sherer. For the purpose of filling this order, a truck was driven to the Buffington residence. The oil was to be placed in a storage tank attached to the outside of the house. Mrs. Buffington requested, however, that the truck driver first fill with stove oil a small can she kept on the back porch. This can of oil was used for starting fires in the kitchen stove.

The truck was divided into compartments, one of which contained stove oil, another contained regular gasoline, and the third contained ethyl gasoline. The truck was equipped with one hose to serve all three compartments. The driver took this hose and filled the small can. Immediately prior to this the driver had used the hose to deliver gasoline.

The next morning Mrs. Buffington used the small can to start a fire in the kitchen stove. She was severely burned when the can exploded and enveloped her in flames. The stove oil in this can was apparently contaminated with gasoline.

Mrs. Buffington later brought suit against appellant and others to recover damages in excess of $100,000. Two causes of action were stated in her complaint, one based on negligence and the other on breach of implied warranty.

Tidewater tendered the defense of this suit to Northwest Casualty Company. The latter denied liability under the policy and refused to defend. Appellant, through its excess coverage insurer, Continental Casualty Company, thereupon undertook to defend the action. Prior to the trial the action was compromised and settled for the sum of $15,000. Appellant expended the sum of $750 in attorney's fees and $260.73 in costs. In the instant action against Northwest Casualty Company, appellant seeks recovery of these sums.

The first question which we must decide is whether on these facts the insurance company was obligated to assume the defense of appellant against the Buffington suit.

Under the policy in question Northwest Casualty Company agreed to defend the insured against suits for damages "even if such suit is groundless, false or fraudulent," but only "as respects such insurance as is afforded by the other terms of this policy. * *" It is therefore necessary to determine whether by any reasonable intendment of the Buffington complaint, and regardless of ultimate merit, liability of a kind covered by the policy could be inferred. See Boutwell v. Employers' Liability Assur. Corp., 5 Cir., 175 F.2d 597, 600. If so, appellee was obligated to defend.

The kinds of liability covered by the policy are set out in the general insuring agreements,² with the "exclusion of product liability" endorsement operating as an exception thereto. Appellant argues that three of the four negligence allegations of the Buffington complaint state bases of liability within the general insuring agreements and not excepted therefrom by the "exclusion of product liability" endorsement.

These allegations of negligence are: (1) Use of a hose which contained gasoline left therein after the immediately preceding gasoline delivery; (2) failure to remove gasoline from the hose by filling the residential storage tank with stove oil before undertaking to fill the small can; and (3) failure to have and maintain on the truck a separate hose to be used exclusively for stove oil. Appellant contends that these allegations of negligence are directed to the use of faulty equipment or the negligence of the truck driver and do not pertain to a product of the insured or a defect in a product manufactured by the insured.

The injuries sustained by Mrs. Buffington were caused when she started a fire in the kitchen stove with what she believed to be stove oil but which was actually part or all gasoline. The injuries were thus caused by the "handling or use of, or the existence of * * * a condition in" the stove oil, as those words are used in the exclusion endorsement.

The stove oil was sold to Mrs. Buffington by Tidewater's agent and was therefore a "product" as that term is used in the endorsement.

The explosion which caused the injuries was an "occurrence."...