Waite v. Aetna Cas. & Sur. Co., 40528
| Decision Date | 09 April 1970 |
| Docket Number | No. 40528,40528 |
| Citation | 77 Wn.2d 850,467 P.2d 847 |
| Court | Washington Supreme Court |
| Parties | David M. WAITE and Vera Waite, his wife, Appellants, v. AETNA CASUALTY AND SURETY COMPANY, a corporation, Respondent. |
Moore, Walstead, Hallowell & Mertsching, Longview, for appellants.
Studley, Purcell & Spencer, Wayne D. Purcell, Longview, for respondent.
In this action, the appellants seek to hold the respondent liable for all of the damages which they were required to pay in the settlement of a lawsuit brought by a purchaser of one of their products. They also sue for the attorney's fees and costs incurred by them in that action. They rely upon the provisions of a comprehensive liability policy issued by the respondent to the appellants.
The policy in question insured the appellants against liability for damage to and loss of use of property caused by accident. It excluded coverage of liability for damage to the appellants' own products 'out of which the accident arises.'
The appellants built a steel logging tower for one Kelley. A necessary part of the tower was a 'fairlead,' a device over which lines were strung for the pulling of logs. The fairlead was attached to the top of the tower. The fairlead which was installed on the tower was taken from a yarder, belonging to Kelley, on which the portable tower was to be mounted. The appellants made some modifications of the fairlead in order to attach it to the tower and the attachment was made with screws.
Shortly after the tower was delivered, it was found that the lines were not working properly, and the appellants spent some time correcting this problem. On the first day that it was again put in use, while Kelley was dragging a load of logs, the fairlead ripped loose from its mounting on top of the tower and fell to the ground, snapping Kelley's cable lines, damaging the fairlead beyond repair, and stopping Kelley's logging operation from March 18 to April 12, 1966, when the installation of a new fairlead was completed.
Kelley brought suit against the appellants, listing in his amended complaint specific items of damage as follows:
1. Loss of profits through deprivation of use of
tower
(a) March 4 through March 17 $ 657.00
(b) March 18 through April 12 3,080.00
---------
Total loss of profits $3,737.00
2. Labor costs in raising and lowering tower
March 4 through March 17 633.60
3. Damage to wire rope: 1,260.00
4. Parts replacement (hydraulic system): 35.00
5. Replacement of fairlead assembly
(a) Parts and freight 3,054.46
(b) Labor 522.50
--------- 3,576.96
---------
Total $9,242.56
With respect to the damages alleged in the amended complaint, it was undisputed that items 1(a), 2 and 4 were not covered by the terms of the policy. The respondent admitted coverage of item 3 but denied that the policy covered the remaining items. The respondent advised the attorney representing the appellants that it would provide a defense for the item admittedly covered and suggested that the attorney represent the interests of both the appellants and the respondent, with a proportionate part of the expense being borne by the respondent. This offer was rejected on the ground that there was a possible conflict of interest. Subsequently, the respondent offered to provide additional counsel to assist in the defense of the action, but this offer was rejected by the appellants.
The suit was settled by the attorney for the appellants for a lump sum of $5,500, with no allocation being made to the various items of damages. The respondent paid to the appellants the sum of $1,460 to be allocated to the damage to the guy wires and loss of use attributable to that damage, and this amount was paid to Kelley as a portion of the settlement.
This action was brought to obtain reimbursement for the remainder of the amount paid by the appellants in settlement of the suit and for the attorneys' fees incurred by the appellants after March 30, 1967.
The trial court determined that the respondent was liable for the loss of use of the tower from March 18 through April 12 (item 1(b)) but was not responsible for damage to the fairlead (item 5). The court further found that the originial claim for loss of profits due to loss of use of the tower, item 1(b), was one third of the total claim. It held that, since there was no allocation made by the parties to the settlement, it should be assumed that the claims were reduced pro rata and it accordingly held the respondent liable for one third of the amount of the settlement, in addition to the amount which it had already paid for the damages to the wire rope and loss of profits attributable to that damage. The respondent was also ordered to pay one third of the appellants' attorneys' fees. 1
The appellants urge as their first contention that the court should have held the respondent liable for the replacement cost of the fairlead (item 5). The burden is upon the plaintiff, in an action on an indemnity policy, to show that the loss suffered comes within the terms of the policy. Isaacson Iron Works v. Ocean Accident & Guarantee Corp., 191 Wash. 221, 70 P.2d 1026 (1937).
The theory of the appellants is that the fairlead was not a product of theirs out of which the accident arose. In the recent case of S. L. Rowland Constr. Co. v. St. Paul Fire & Marine Ins. Co., 72 Wash.2d 682, 434 P.2d 725 (1967), this court construed a comprehensive liability policy of the type involved in this action, and particularly construed the language of the clause excluding coverage of damage to or destruction of any product of the insured 'out of which the accident arises.' We held that where the thing produced by the insured is a large item composed of many component parts (in that case a dwelling house), and damage arises out of one or more of those component parts, only the Component parts out of which the accident arises are excluded. While the fact was not expressly noted in that case, it is evident that where the thing produced by the insured is a building--a structure not ordinarily referred to as a 'product,' incidentally--it is composed of many products.
It is the theory of the appellants that, according to the holding of that case, the logging tower which they built for Kelley was, like the house which the insured built in the S. L. Rowland Constr. Co. case, a structure composed of many 'products.' We need not decide whether a logging tower is a structure like a house--not a single product itself but a composite of products. Assuming that it is, the appellants cannot prevail in their contention that damage to the fairlead was covered by the policy. According to the findings of fact, which are supported by credible testimony in the record, the fairlead itself was a component part out of which the accident arose.
The appellants' claim that the fairlead was not their product, because they did not manufacture it but only modified it and attached it to the tower with an adapter and cap screws. Further, they claim that it was damaged because the cap screws were not strong enough and gave way under the stress placed upon them by the logs which were attached to the lines running over the fairlead, and which became hung up while they were being dragged through the woods.
The trial court found, however, that, under the stress, the fairlead itself broke near its flange at the same time that the cap screws broke. The appellants make no attempt to show that this finding was against the weight of the evidence.
Thus, whether or not the fairlead was a product of the appellants, the undisputed finding of fact is that it was a product or a 'component part' out of which the accident arose. This being the case, the trial court correctly found that it was excluded from coverage under the terms of the policy.
It is next contended that the respondent should be held liable for the entire amount of the settlement as well as all of the attorneys' fees, because it refused to defend the entire suit. While defense of the suit was tendered to the respondent, it is apparent that the appellants' attorney recognized that the respondent was not in a position to defend against the claims which were concededly not covered by the policy and that he himself could not properly represent the respondent's position because of a conflict of interest.
It is the well-recognized rule that an issuer of an indemnity policy who reserves the right and assumes the duty to defend lawsuits is obliged to defend a suit alleging facts which, if proven, would render the insurer liable. Town of Tieton v. General Ins. Co. of America, 61 Wash.2d 716, 380 P.2d 127 (1963); Lawrence v. Northwest Cas. Co., 50 Wash.2d 282, 311 P.2d 670 (1957). On the other hand, this court has held that, where the insurer refuses to defend a lawsuit on the ground that the claim alleged is not covered by the policy, and the claim is in fact one not covered, the insurer is not responsible for the insured's expenses in defending the suit. Kong Yick Inv. Co. v. Maryland Cas. Co., 70 Wash.2d 471, 423 P.2d 935 (1967); Isaacson Iron Works v. Ocean Accident & Guarantee Corp., Supra. For obvious reasons, this is the universal...
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