West Bend Co. v. Chiaphua Industries, Inc.
| Decision Date | 29 August 2000 |
| Docket Number | No. 98-C-567.,98-C-567. |
| Citation | 112 F.Supp.2d 816 |
| Court | U.S. District Court — Eastern District of Wisconsin |
| Parties | The WEST BEND COMPANY, Plaintiff, v. CHIAPHUA INDUSTRIES, INC. and Royal Insurance Company of America, Defendants. |
L. William Staudenmaier, Stacy C. Gerber Ward, Cook & Franke, Milwaukee, WI, for Plaintiff.
James C. Ratzel, Ratzel & Associates, Brookfield, WI, for Defendants.
DECISION AND ORDER
This diversity case comes before the Court on cross-motions for summary judgment by the plaintiff, The West Bend Company ("West Bend"), and defendants Chiaphua Industries, Inc. ("Chiaphua") and Royal Insurance Company of America ("Royal"). Chiaphua supplied hot air corn poppers to West Bend, including a unit that allegedly caused a 1989 fire in the Bloomfield, Connecticut home of Richard and Pamela Root-Palazzolo. In 1997, West Bend settled a products liability suit arising out of the fire for $120,000. At approximately the same time, West Bend first notified Chiaphua and Royal concerning the Root-Palazzolo suit. West Bend now seeks indemnification from Chiaphua on the basis of language set forth in the purchase order for the popcorn popper allegedly involved in the fire. West Bend is also an additional named insured on a policy of liability insurance issued by Royal to Chiaphua, and seeks indemnification from Royal on that basis.
The defendants argue that West Bend's failure to provide timely notice of the Root-Palazzolo matter precludes recovery under either the indemnification clause in the purchase order or the Royal policy. Additionally, Royal invokes the defense that West Bend's voluntary payments in settlement of the Root-Palazzolo suit negate any indemnity obligations that Royal may have in connection with the fire. For the reasons set forth below, the Court enters summary judgment in favor of the defendants and against the plaintiff.
West Bend, headquartered in the Wisconsin town of the same name, manufactures and sells small kitchen appliances. Stipulation of Facts ("Facts"), ¶ 1. Some of the products sold by West Bend are manufactured by other companies, such as Chiaphua, a manufacturer based in Hong Kong. Id., ¶¶ 2-3. Among the products manufactured by Chiaphua and sold to West Bend during the 1980's was a hot air corn popper ("the popper"). Id., ¶ 5. In connection with the sale of the popper, West Bend issued a purchase order that contained the terms of the sale, including the following:
Seller warrants the goods covered by this order are merchantable and fit for their intended purpose, safe for consumer use either alone or when combined in Buyer's product and acceptance of this order shall constitute an agreement on Seller's part to indemnify, defend, and hold harmless Buyer from and against all claims, liabilities, losses, damages or expenses including reasonable attorneys' fees, arising from or by reason of actual or claimed fault or defect or suitability or any litigation based thereon, with respect to any goods or part thereof covered by this order. This obligation shall survive acceptance of the goods and payment therefore by the Buyer. Seller shall provide Buyer a certificate of insurance providing Buyer product liability coverage from companies acceptable to Buyer in amounts not less than $1,000,000 per occurance [sic].
Affidavit of Donald Theisen ("Theisen Aff."), Exhibit A (Feb. 29, 1980 Purchase Order); Facts, ¶ 37.
In keeping with its contractual obligations, Chiaphua procured liability coverage from Royal, an Illinois insurance company that is licensed to do business in the State of Wisconsin. Id., ¶ 4. Royal issued a Commercial General Liability Policy ("CGL") to Chiaphua, Policy No. P SP-112318 0089, with effective dates from April 15, 1989 to April 15, 1990 ("the Policy"). Affidavit of Stacy C. Gerber Ward ("Ward Aff."), Exhibit A. A vendors endorsement names West Bend as an additional insured under the Policy. Id.; Facts, ¶ 33. Among the terms and conditions of the Policy are provisions regarding the duties of insureds in the event of an occurrence, claim or suit. Ward Aff., Exhibit A. Specifically, Section IV, Subsection 2 provides as follows:
a. You must see to it that we are notified promptly of an `occurrence' which may result in a claim. Notice should include:
(1) How, when and where the `occurrence' took place; and
(2) The names and addresses of any injured persons and witnesses;
b. If a claim is made or `suit' is brought against any insured, you must see to it that we receive prompt written notice of the claim or `suit';
c. You and any other involved insured must:
(1) Immediately send us copies of any demands, notices, summonses or legal papers received in connection with the claim or `suit;'
(2) Authorize us to obtain records and other information;
(3) Cooperate with us in the investigation, settlement or defense of the claim or `suit;' and
(4) Assist us, upon our request, in the enforcement of any right against any person or organization which may be liable to the insured because of injury or damage to which this insurance may also apply.
d. No insureds will, except at their own cost, voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without our consent.
Id. (Bates No. 000045).
On October 28, 1989, a fire occurred at the Root-Palazzolo home in Bloomfield, Connecticut. Facts, ¶ 8. The Bloomfield Fire Department conducted an investigation and determined that the cause of the fire had been the overheating of a West Bend popper, which the parties concede was one of the units manufactured by Chiaphua and sold to West Bend. Id., ¶¶ 6, 10 & Exhibit B. The Root-Palazzolos had owned the popper for several years and had used it without incident. Id., ¶ 13. At the time of the fire, babysitter Leslie Feikle was in charge of the Root-Palazzolo home. Id., ¶ 11. Feikle claims that she turned on the popper, went upstairs, and returned a short while later to find the popper on fire. Id., ¶ 12 & Exhibit F (Feikle Statement). According to the Root-Palazzolos, the resulting fire caused $230,000 in damage, including extensive smoke damage. Id., ¶ 16 & Exhibits B, E. Initially, at least, the losses claimed by the Root-Palazzolos' public adjuster appeared to be greatly exaggerated. Facts, Exhibit H (Bates No. 010046). In the end, however, Crum & Forster paid out the entire $230,000. Complaint, ¶ 7.
Lawrence J. Dove Associates ("Dove") was retained by the Root-Palazzolos' property insurer, Crum & Forster, to conduct an investigation into the cause and origin of the fire. Facts, ¶ 20. Dove concluded that the popper had been the source of ignition for the fire. Id., Exhibit G. Dove opined that the "overtemperature device built into the unit" had a design defect, in that it "didn't function to limit the heat energy and prevent appliance overheating and fire." Id. Additionally, Dove noted that the unit, known as "The Poppery (TM)," did not have an automatic shutoff device that would turn the machine off after a specified period of time. Id. Dove's conclusions were based in part upon nondestructive testing of the unit that allegedly caused the fire, as well as inspection of an exemplar unit. Id.
Neither Chiaphua nor Royal were informed concerning the fire, the investigation as to its cause and origin, or the ensuing claims adjustment process.
In October of 1992, three years after the fire, Crum & Forster initiated a subrogation action against West Bend in Connecticut, seeking to recover the payments it had made to the Root-Palazzolos in connection with the fire. Id., ¶ 24. West Bend hired Attorney Thomas Hagarty of the law firm of Halloran & Sage to defend it against the product liability claims asserted in the lawsuit. Id., ¶ 25. Although Hagarty filed an answer on behalf of West Bend, it appears that he did little else. For example, Hagarty did not take any depositions or hire any experts,1 nor did he explore the issue of potential insurance coverage for the claim. Id., ¶¶ 26-30. In May 1997, after the case had languished for several years, West Bend settled with Crum & Forster for $120,000. Id., ¶ 31.
The parties have stipulated that Royal and Chiaphua lacked any kind of notice concerning any aspect of the fire or the lawsuit against West Bend until May of 1997. Id., ¶¶ 34-35. On May 1, 1997, by which time the ink on the settlement agreement was apparently dry, West Bend notified Chiaphua of these matters for the very first time. West Bend's Greg Miller informed Chiaphua by fax that:
We recently got involved in a product liability case featuring a hot air corn popper that was made by Chiaphua for West Bend [illegible] years ago.... it was a situation where the corn popper was determined by the local fire department to be the cause of a fire that completely destroyed a house. It appears that this case will be settled for $120,000. Of course, we have all our attorneys' fees in addition to the settlement [illegible].
I believe Chiaphua carried a $1,000,000 product liability insurance policy on the production of this product. The insurance policy was a condition of doing business with us at that time.
Would you kindly forward to me the insurance policy number as well as the person to contact within the organization[?]
Ratzel Aff., Appendix (Bates No. 000610). In response to this communication, Chiaphua did not waste any time contacting Royal, although it was not until about a year later that Royal formally denied West Bend's request for indemnification. Complaint, Exhibit C. Royal acknowledged that West Bend was an additional insured under the Policy and that the underlying litigation "appear[ed] to be covered by the policy, as there [was] an `occurrence' and `property damage' as those terms are defined in the policy." Id. However, Royal denied any obligation to indemnify...
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