Yakima Cement Products Co. v. Great American Ins. Co.

• Decision Date: 11 December 1975
• Docket Number: No. 1426--43512--III,1426--43512--III
• Citation: 544 P.2d 763,14 Wn.App. 557
• Parties: YAKIMA CEMENT PRODUCTS COMPANY, a Washington Corporation, Appellant, v. GREAT AMERICAN INSURANCE COMPANY, a Capital Stock Corporation, Respondent.
• Court: Washington Court of Appeals

Page 557

14 Wn.App. 557

544 P.2d 763

YAKIMA CEMENT PRODUCTS COMPANY, a Washington Corporation, Appellant, v. GREAT AMERICAN INSURANCE COMPANY, a Capital Stock Corporation, Respondent.

No. 1426--43512--III.

Court of Appeals of Washington, Division 3.

Dec. 11, 1975.

As Changed Dec. 31, 1975.

Rehearing Denied Jan. 15, 1976.

Review Denied March 9, 1976.

Walter G. Meyer, Jr., Halverson, Applegate, McDonald, Bond, Grahn, Wiehl, Almon & Putney, Yakima, for appellant.

Donald W. Schussler, Nashem, Prediletto, Brooks, Schussler & Halpin, Yakima, for respondent.

GREEN, Judge.

Plaintiff, Yakima Cement Products Co., commenced this action against its insurer, defendant Great American Insurance Co., alleging breach of the insurance agreement for failing to defend plaintiff against a counterclaim in a prior action. Plaintiff seeks to recover defense costs and attorney's fees together with the amount of the judgment entered against it on the counterclaim. Both parties moved for summary judgment; the trial court granted defendant's motion and dismissed plaintiff's complaint with prejudice. Plaintiff appeals.

Two issues are presented: (1) Did defendant have a duty to defend plaintiff against the counterclaim in the prior action? and (2) Did the counterclaim against plaintiff allege facts that give rise to coverage under the terms of the insurance policy? We hold that summary judgment was properly granted on the first issue. However, a question of material fact exists as to coverage and we reverse and remand for trial on the second issue.

The record reveals that plaintiff, a subcontractor for F. S. Jones Construction Co., contracted to furnish certain pre-cast concrete panels to be incorporated into buildings under construction by F. S. Jones. Plaintiff failed to manufacture the panels according to specifications and although the defects were remedied by plaintiff, F. S. Jones incurred extra expenses resulting from the delay in completion of the project. After completion, F. S. Jones refused to pay plaintiff who commenced suit in United States District Court to recover for work done on the contract. F. S. Jones counterclaimed, alleging that the plaintiff misrepresented its ability to provide the concrete panels called for by the subcontract and breached that contract when it supplied misfabricated panels and failed to meet delivery schedules. The counterclaim alleged that the following damages were incurred: (1) increased labor and materials costs; (2) extra charges filed by other subcontractors; (3) loss of profit; and (4) damage to F. S. Jones' reputation as a general contractor. Plaintiff tendered defense of the counterclaim to the defendant who refused to defend on the ground that the counterclaim failed to allege damages within the coverage of the insurance policy.

Thereafter, plaintiff and F. S. Jones settled their respective claims and requested that the federal court enter agreed findings of fact, conclusions of law and a judgment embodying their settlement. These agreed findings, conclusions and judgment were entered awarding plaintiff $107,974.17 on its subcontract and awarding F. S. Jones $69,474.17 on its counter claim. Counsel for defendant appeared, admittedly without standing, and unsuccessfully objected to the entry of the findings and conclusions because the action had been settled, and thus the only purpose for entry of findings would be to attempt to collaterally estop defendant in a future action on the issue of coverage.

Thereafter, plaintiff commenced this action. In granting defendant's motion for summary judgment, the trial court ruled that the counterclaim in the federal action failed to allege facts within the policy coverage, I.e., damage to Tangible property caused by an occurrence; that defendant had no duty to defend the counterclaim; and that the findings and conclusions entered in federal court were not binding in this action.

First, plaintiff contends that the defendant breached its insurance contract with plaintiff by failing to defend it against the counterclaim. We disagree. The pertinent policy provisions are:

To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of Property damage caused by an Occurrence.

(Italics ours.) 'Occurrence' is defined in the policy as 'an accident.' 'Property damage' is defined as 'injury to or destruction of Tangible property.' (Italics ours.) The policy further provides:

The company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage . . .

The counterclaim alleged damages for costs incurred due to delay and injury to F. S. Jones' reputation arising from plaintiff's misfabrication of the concrete panels. Nowhere in the counterclaim does F. S. Jones allege 'injury to or destruction of tangible property,' I.e., structural harm to the building. See General Ins. Co. of America v. Gauger, 13 Wash.App. 928, 538 P.2d 563 (1975).

An insurer's duty to defend is to be determined from the allegations of the complaint. Seaboard Surety Co. v. Ralph Williams' Northwest Chrysler Plymouth, Inc., 81 Wash.2d 740, 504 P.2d 1139 (1973); Holland America Ins. Co. v. National Indem. Co., 75 Wash.2d 909, 454 P.2d 383 (1969); Kong Yick Inv. Co. v. Maryland Cas. Co., 70 Wash.2d 471, 423 P.2d 935 (1967); 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). In Holland America Ins. Co. v. National Indem. Co., supra, the court said,75 Wash.2d at page 911, 454 P.2d at page 385:

It is well established in this and other jurisdictions that the insurer's duty to defend, unlike its duty to pay, arises when the complaint is filed and is to be determined from the allegations of the complaint.

In the instant case, it is clear that the counterclaim does not allege 'injury to or destruction of tangible property' which would, if proved, render defendant liable on its policy. Thus, as a matter of law, defendant had no duty to defend plaintiff against the counterclaim in the federal court action and summary judgment on this issue was properly granted.

Secondly, plaintiff contends that the findings and conclusions entered in the federal court action recite facts which invoke coverage under the insurance policy, are binding on defendant in this action, and require entry of judgment in favor of plaintiff. We disagree.

While the findings arguably state facts constituting 'injury to or destruction of tangible property,' they are not binding in this action. ¹ In East v. Fields, 42 Wash.2d 924, 925 259 P.2d 639, (1953), the guidelines for determining the effect of findings entered in a prior action are stated:

The rule is that when an insurer has notice of an action against an insured, and is tendered an opportunity to defend, it is bound by the judgment therein upon the question of the insured's liability. 1 Freeman, Judgments (5th ed.) 978, § 447; 30 Am.Jur. 969, § 237; and Restatement, Judgments 511, § 107. The Judgment, however, is not conclusive as to the question of coverage of the policy in question (Restatement, Judgments 517, § 107(g)), for the reason that the causes of action for tort liability and for indemnity liability are separate and distinct. 1 Freeman, Judgments (5th ed.) 991, § 450. Thus, the judgment fixing the tort liability of the defendants in the main action is not Res judicata of the indemnity liability of the insurance company in the...