Williamson & Vollmer Engineering, Inc. v. Sequoia Ins. Co.

• Decision Date: 28 October 1976
• Citation: 64 Cal.App.3d 261,134 Cal.Rptr. 427
• Court: California Court of Appeals Court of Appeals
• Parties: WILLIAMSON & VOLLMER ENGINEERING, INC., a California Corporation, Plaintiff and Appellant, v. SEQUOIA INSURANCE COMPANY, a California Corporation, Defendant and Respondent. Civ. 37732.

Page 427

134 Cal.Rptr. 427

64 Cal.App.3d 261

WILLIAMSON & VOLLMER ENGINEERING, INC., a California Corporation, Plaintiff and Appellant, v. SEQUOIA INSURANCE COMPANY, a California Corporation, Defendant and Respondent.

Civ. 37732.

Court of Appeal, First District, Division 1, California.

Oct. 28, 1976.

Hearing Denied Dec. 22, 1976.

Paul H. Cyril, Bronson, Bronson & McKinnon, San Francisco, Steven D. Hallert, Walnut Creek, for plaintiff and appellant.

Donald W. Rees, Gordon & Rees, San Francisco, for defendant and respondent.

SIMS, Associate Justice.

Plaintiff, a small engineering firm that provides electrical and mechanical engineering design services, has appealed from an adverse judgment in an action in which it sought a declaration that the defendant insurer was obligated to defend it and indemnify it, within the policy limits, against a claim, asserted by an architectural firm to whom it had furnished services, seeking recovery of indemnity for any loss it may incur on the owner's claim for damages for negligence in the design and supervision of work for which the engineering firm was allegedly responsible.

The principal issue is whether the answers to two questions contained in the application for the policy of insurance issued by defendant evidenced a misrepresentation and concealment of material facts in the light of the circumstances known to the applicant at that time. Subordinate issues are: if so, whether defendant was entitled to the relief afforded by the trial court, whether the claim presently asserted was excluded from coverage by the terms of the policy, and whether the defendant insurer was bound to defend even if not bound to indemnify. Since all of those issues must be resolved against the insured it is unnecessary to consider the insurer's further contentions, offered in support of the judgment, that it was relieved of responsibility under the terms of the policy because the insured elected to handle the claim itself, and that the insured was not the real party in interest because it had assigned its rights to the architect.

On October 28, 1968, plaintiff contracted with the architect to provide electrical and mechanical engineering services for the College of Marin Library project. Under the terms of that contract plaintiff was required to have professional liability insurance. Apparently whatever insurance the engineering firm once had lapsed by April 1973. At that time it consulted a broker for the purpose of securing such insurance. The broker requested a quotation from defendant insurer, and, after receiving additional information which it requested, the insurer sent a quotation valid for 30 days on May 15, 1973. At or about the same time a question arose concerning defects in the mechanical design of air conditioning, heating, and ventilation systems in the library. The nature of the engineering firm's knowledge of that problem is reviewed below.

The plaintiff because of financial difficulties failed to act on the quotation until August 2, 1973, when it sent the broker a check for the quoted premiums. Since the original quotation had lapsed, the insurer required a new application form. The broker copied the original application and sent it to plaintiff's president with instructions to review it carefully and note any changes. The application was returned without change and was sent to defendant by the broker. On August 13, 1973, the insurer issued its policy effective August 10, 1973, for a period of one year with a limit of $100,000 over a $5,000 deductible. The material terms of the application and policy are reviewed below.

In 1974 the contractor brought an action against the owner to recover payments which it alleged were wrongfully withheld for work performed on the general contract. The owner cross-complained against the architect, who in turn, in May 1974, filed a cross-complaint against the engineering firm. That firm tendered defense of the architect's claim to the defendant insurer, and it refused to defend or indemnify. This action resulted.

Preliminary, we note that no findings of fact and conclusions of law were requested by either party. (See Code Civ.Proc., § 632; and Cal.Rules of Court, rule 232.) The court's judgment provides as follows: '(1) Defendant SEQUOIA has no duty to defend or indemnify plaintiff with respect to claims arising out of plaintiff's performance of its contract with Corwin Booth & Associates Architects pertaining to the College of Marin--Library. ( ) (2) Defendant SEQUOIA has no duty to defend or indemnify plaintiff with respect to the claim of Corwin Booth & Associated Architects asserted against plaintiff in a cross-complaint in action number 70071 in the Superior Court of the State of California, in and for the County of Marin.'

'Findings having been waived, every intendment is in favor of the judgment, and, therefore, upon all of the issues raised by the pleadings, it must be presumed that the trial court, in effect, found all the facts necessary to support the judgment in favor of the plaintiff. (Citations.)' (Gray v. Gray (1921) 185 Cal. 598, 599, 197 P. 945. See 6 Witkin, Cal.Procedure (2d ed. 1971) Appeal, § 235, p. 4226.)

Furthermore, under the substantial evidence rule, the scope of review is limited as follows: "When a finding of fact is attacked on the ground that there is not any substantial evidence to sustain it, the power of an appellate court Begins and Ends with the determination as to whether there is any substantial evidence contradicted or uncontradicted which will support the finding of fact.' (Primm v. Primm (1956) 46 Cal.2d 690, 693, 299 P.2d 231. . . .) ( ) 'It is well established that a reviewing court starts with the presumption that the record contains evidence to sustain every finding of fact.' (Tesseyman v. Fisher (1952) 113 Cal.App.2d 404, 407, 248 P.2d 471, 473 other citations omitted.) Defendants' contention herein 'requires defendants to demonstrate that there is No substantial evidence to support the challenged findings.' (Italics added.) (Nichols v. Mitchell (1948) 32 Cal.2d 598, 600, 197 P.2d 550, 552 other citations omitted.)' (Foreman &amp Clark Corp. v. Fallon (1971) 3 Cal.3d 875, 881, 92 Cal.Rptr. 162, 165, 479 P.2d 362, 365. See Cal-Western States etc. Co. v. Feinsten (1940) 15 Cal.2d 413, 419--420, 101 P.2d 696; and cf. Thompson v. Occidental Life Ins. Co. (1973) 9 Cal.3d 904, 919, 109 Cal.Rptr. 473, 513 P.2d 353.)

I

The questions and the answers thereto, which were inserted in the original application forwarded to the company on April 27, 1973, and reinserted in the application forwarded to defendant on August 8, 1973, read as follows: '19A. Has any claim ever been made against the Applicant or against any persons named in question #8 above? Yes If so, state briefly the cause and nature of the claim including the amount involved and names of the project and the claimant, the date when the claim was made, the date the act giving rise to the claim was committed and the final disposition: ( ) General Contractor backcharged plumbing contractor because of sprinkler line fractured--1969, Concord Community Hospital. Design Work done 68/69. Plumbing contractor filed suit against owner, architect, general contractor and applicant. Applicant contributed $4,000 towards settlement out of court. ( ) 19B. Is the Applicant aware of any circumstances which may result in any claim against him, his predecessors in business, or any of the present or past partners or officers? Yes No X If yes, please give full details on the same basis as 19A.' (Emphasis indicates the answers which were inserted by the broker from information received from the plaintiff's president, and which were adopted by his execution of the application.)

The evidence concerning plaintiff's knowledge of the claim which subsequently formed the basis for the architect's cross-complaint filed in May 1964 is as follows: On April 5, 1973, the architect sent a letter to the general contractors with a copy of plaintiff stating that 'Our Engineers agreed to pay for all work related to the solution of this problem.' The author of the letter testified that this statement represented an agreement by plaintiff to pay for the defective work. On April 24, 1973, plaintiff wrote to the architect describing three inspections that plaintiff made of the problems, nothing numerous deficiencies, and concluding that the general and subcontractors were not completing the work according to specifications. On May 15 the architect sent the letter set forth in the margin to the engineering firm. ¹

On June 29, 1973, plaintiff and the architect were advised of two unfavorable reports on the mechanical system. On August 8, 1973, the architect sent plaintiff a copy of a letter to the college concerning the defective work. Plaintiff also received a copy of the architect's letter to the general contractor concerning the corrective work.

The parties have focused on the letter of May 15, 1973. The insurer contends that there was misrepresentation and concealment in the August application. (See Ins. Code, §§ 330, 331, 332, 334, 356, 358, 359 and 360; Cal-Western States etc. Ins. Co. v. Feinsten, supra, 15 Cal.2d 413, 423--424, 101 P.2d 696; Burns v. Prudential Ins. Co. (1962) 201 Cal.App.2d 868, 871, 20 Cal.Rptr. 535; Cole v. Calaway (1956) 140 Cal.App.2d 340, 347, 295 P.2d 84; Mirich v. Underwriters at Lloyd's London (1944) 64 Cal.App.2d 522, 529--530, 149 P.2d 19; 12 Appleman, Ins.Law & Practice, § 7271, p. 374, § 7275, p. 383, § 7291, p. 390 and § 7292, p. 392; and 7 Couch on Insurance (2d ed. 1961) § 35:109, p. 123, § 35:119, p. 137 and § 35:140, p. 157.)

Insofar as there was no extrinsic evidence concerning the matter, the interpretation of the meaning of the questions is a matter of law upon which this court should make an independent determination. (See Estate of Dodge (1971) 6 Cal.3d 311, 318, 98 Cal.Rptr. 801, 491 P.2d 385; Parsons v. Bristol...