Timberline Equipment Co., Inc. v. St. Paul Fire & Marine Ins. Co.

Decision Date28 March 1978
Citation281 Or. 639,576 P.2d 1244
PartiesTIMBERLINE EQUIPMENT CO., INC., a corporation, Respondent, v. ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Appellant, and Fred S. James & Co., of Oregon, a corporation, Defendant.
CourtOregon Supreme Court

Jon A. Schiewe, Portland, argued the cause and filed the briefs for appellant.

Gerald R. Pullen, Portland, argued the cause and filed the brief for respondent.

Before DENECKE, C. J., TONGUE and LINDE, JJ., and GILLETTE, J. Pro Tem.

DENECKE, Chief Justice.

The plaintiff-insured recovered a judgment in this action against its insurer, the defendant St. Paul Fire and Marine Insurance Company. The trial court entered a voluntary nonsuit for the defendant Fred S. James & Co. St. Paul appeals.

The theory of the complaint is ambiguous. The most positive language in the complaint alleges that after the loss St. Paul told plaintiff it was covered and is therefore estopped to deny coverage of plaintiff. At the trial, however, the plaintiff's theory was that its loss was covered under the policy issued by St. Paul and was not within an exclusion clause in the policy. St. Paul never objected to plaintiff's proceeding in this manner.

St. Paul in its answer admitted contracting to insure the plaintiff against loss from certain liabilities it might incur but denied the balance of the allegations. St. Paul, however, both at trial and on appeal, has relied upon the theory that most of the loss for which plaintiff sought reimbursement was not covered because of an exclusion clause in the policy.

The trial court made no special findings to indicate on what basis it held for plaintiff. Plaintiff argued in this court that St. Paul could not contend that the exclusion clause applied because it failed to plead it.

If the theory of plaintiff's complaint was estoppel, as the language of the complaint indicates, the exclusion clause would be immaterial and unnecessary to plead. Because the allegations of the complaint made the exclusion clause immaterial and because at all stages of the trial court proceeding except at the close, both parties proceeded on the basis that the issue was the applicability of the exclusion clause, we will decide the case on that basis.

The plaintiff, Timberline Equipment Co., is a dealer in logging equipment. It sold a combination tower and yarder to a logger at a price of approximately $200,000. Timberline purchased these from the manufacturer. Timberline also sold the logger, as part of the same transaction, guylines to rig the tower which Timberline bought from another source. The guylines were defective, broke and caused the tower to collapse. The logger brought an action against Timberline for damages to the tower and for other damage.

St. Paul had issued a liability policy to Timberline and Timberline called upon St. Paul to defend the action brought by the logger. St. Paul refused. Timberline settled the logger's action and brought this action for the costs of defense and for the amount paid in settlement.

St. Paul contends that its policy excludes liability for damages to the tower. An exclusion clause of the policy provides that the insurance does not apply: "(k) to property damage to the Named Insured's products arising out of such products or any part of such products." The policy's definitions provide: "Named Insured's products means goods or products manufactured, sold, handled or distributed by the Named Insured * * *." St. Paul contends the tower and guylines were "products * * * sold * * * by the Named Insured" and the damage to the tower arose out of "a part of such products"; that is, the guylines. The issue is whether the policy excludes recovery for only damage to the guylines or also damage to the tower.

In Paxton-Mitchell Co. v. Royal Indemnity Co., 279 Or. 607, 569 P.2d 581 (1977), we were called upon to interpret an identical exclusion clause. That decision, however, is not decisive because the facts and the issue were significantly different.

In that case, the insurer conceded on appeal that whether the truck was a "product" was a question of fact, but contended there was no evidence to support the trial court's decision. We proceeded on the basis of the concession that it was a question of fact and concluded there was evidence and affirmed.

As a general rule the construction of a contract, including an insurance contract, is a question of law. May v. Chicago Insurance Co., 260 Or. 285, 292-294, 490 P.2d 150 (1971). The exception to this rule is that if the language of the contract is ambiguous, or if technical words, local phrases or terms of art are used and evidence is properly admitted showing meaning, the question becomes one of fact. Libby Creek Logging, Inc. v. Johnson, 225 Or. 336, 339, 358 P.2d 491 (1960).

We conclude the language of the exclusion clause, as applied to the issue in this case, is not ambiguous. The interpretation of the clause is a question of law.

Neither party has attempted to explain the purpose of this exclusion. One writer stated the purpose as follows:

"The products hazard and completed operations provisions are not intended to cover damage to the insured's products or work project out of which an accident arises. The risk intended to be insured is the possibility that the goods, products or work of the insured, once relinquished or completed, will cause bodily injury or damage to property other than to the product or completed work itself, and for which the insured may be found liable. The insured, as a source of goods or services, may be liable as a matter of contract law to make good on products or work which is defective or otherwise unsuitable because it is lacking in some capacity. This may even extend to an obligation to completely replace or rebuild the deficient product or work. This liability, however, is not what the coverages in question are designed to protect against. The coverage is for tort liability for physical damage to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained." Henderson, Insurance Protection for Products Liability and Completed Operations What Every Lawyer Should Know, 50 Neb.L.Rev. 415, 441 (1971).

This appears to be a reasonable explanation of the exclusion's purpose. The insurance provides liability coverage that is, coverage for the insured's tort liability to a third party.

The...

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