Yakima Cement Products Co. v. Great American Ins. Co.
| Decision Date | 30 January 1979 |
| Docket Number | No. 2467-III,2467-III |
| Citation | 590 P.2d 371,22 Wn.App. 536 |
| Parties | YAKIMA CEMENT PRODUCTS COMPANY, a Washington Corporation, Appellant, v. GREAT AMERICAN INSURANCE COMPANY, a Capital Stock Corporation, Respondent. |
| Court | Washington Court of Appeals |
Halverson, Applegate & McDonald, Walter G. Meyer, Jr., Yakima, for appellant.
Nashem, Prediletto, Schussler & Halpin, Don W. Schussler, Yakima, for respondent.
This litigation involves the construction of exclusionary language contained in a policy of liability insurance issued by the defendant, Great American Insurance Company (Great American), to the plaintiff, Yakima Cement Products Company (Yakima).
Yakima is a manufacturer of concrete construction products. In July, 1974, it contracted with F. S. Jones Construction Co. (Jones) for the manufacture of precast concrete panels which were to serve as the exterior walls of a building being constructed by Jones under its contract with the Army Corps of Engineers. Yakima agreed to deliver 81 panels to the job site located 15 miles from its plant. Sixty-three panels were manufactured for use in the Operations building and 18 panels were manufactured for use in the Support building located at the Yakima Firing Center. The panels were installed in the buildings by Jones, acting through another subcontractor.
Following installation, it was discovered that 38 of the panels were defective in several respects: the panels were not uniform in size; they varied in thickness; and the exposed aggregate did not match the appearance of the sample panel. The defects were caused by negligent and defective manufacture by Yakima. The panels were rejected by the Army Corps of Engineers.
Yakima was not aware of the errors in manufacture at the time of delivery. Thereafter, however, it took immediate steps to remedy the defects. Corrections were made while the panels were in place with the exception of a few A dispute arose between Yakima and Jones. Jones refused to pay on the contract, claiming the damages it suffered exceeded the contract price. Yakima brought suit to recover on the contract and Jones counterclaimed for the damage to the roof and the resulting expenses due to delay in completion of the project. Yakima tendered the counterclaim to its insurer, Great American. The tender was refused on the ground that the counterclaim alleged a breach of contract and insurance coverage was available only for damages caused by an "occurrence."
panels which had to be removed to be repaired or replaced. These corrections delayed construction, which resulted in a substantial increase in costs for labor and materials. In addition, the roof was damaged due to weather exposure. Yakima made the repairs at its own expense, no part of which is claimed in this action.
Ultimately, Yakima and Jones negotiated a settlement whereby Yakima was awarded $107,974.17 on its contract and Jones was awarded $69,474.17 on its counterclaim. Jones paid Yakima $38,500 the difference between the contract price and the counterclaim. Yakima then filed this action against Great American to recover the $69,474.17 judgment entered against it on the Jones counterclaim. 1
The trial court held that there was an "occurrence" within the terms of the policy. However, exclusion (n), known as the "sistership provision," precluded recovery. The court went on to hold that except for the exclusion, there was property damage to the roof of the building to which the panels were attached in the amount of $26,000. Consequential damages due to delay of $43,474.17 were found not to come within the policy definition of property damage.
Great American denies liability on the basis that (1) there was no accident as required by the policy; (2) exclusion (n), the sistership provision, precludes recovery for
damages incident to the withdrawal of the named insured's product; (3) there was no property damage; and (4) there is no substantial evidence to support the computation of damages.
Initially, we must determine whether the misfabrication of the concrete panels, necessitating their repair and/or removal, is an "occurrence" under the terms of this liability insurance policy. The insurance policy obligates Great American:
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.
The policy defines an occurrence as:
An accident, including injurious exposure to conditions, which results, during the policy period, in bodily injury or property damage neither expected nor intended from the standpoint of the insured . . .
We have defined an accident to mean: "(a) an undesigned, sudden, and unexpected event; (b) a mishap resulting in injury to a person or damage to a thing." 2 An occurrence has been defined as: "Any incident or event, especially one that happens without being designed or expected." 3
A review of decisions from other jurisdictions indicates that courts have taken a liberal approach in interpreting the term accident. 4 It has been said that the term accident In the context of liability insurance policies, the word "accident" should not be construed as excluding claims involving negligence or breach of warranty; otherwise, little protection would be given to the insured. Bundy Tubing Co. v. Royal Indemnity Co., 298 F.2d 151, 153 (6th Cir. 1962). "(I) nsurance policies should be construed to maximize coverage in a fashion consonant with fairness to the insurer." 5 Great American cites Evans v. Metropolitan Life Insurance Co., 26 Wash.2d 594, 174 P.2d 961 (1946), which we find distinguishable. The Evans court was concerned with construing the term "accidental" within the context of an accidental death policy. Here, we are dealing with an accident or occurrence within the context of a products liability policy.
must be defined in the context of the product being manufactured by the insured and the kind of losses sustainable in the event of a defect in manufacture. "(T)he hazards to be insured against are the mishaps or unintended consequence that can result from the use of the product." Ramco, Inc. v. Pacific Insurance Co., 249 Or. 666, 439 P.2d 1002, 1005 (1968).
In summary, an occurrence requires (1) an accident, (2) resulting property damage, (3) neither expected nor intended by the insured. Here, the misfabrication of the
panels was the result of negligence on the part of Yakima. The trial court found that Yakima was unaware of the defects in the panels at the time of delivery. The subsequent rejection of the panels and resulting property damage to the roof of the Operations building was unintended and unforeseen. Thus, we affirm the trial court's conclusion that there was "an occurrence" within the terms of the Great American policy.
Next, we are asked to consider the applicability of exclusion (n), known as the sistership provision. The exclusion provides:
This policy does not apply:
(n) under Coverages B and D, to damages claimed for the withdrawal, inspection, repair, replacement, or loss of use of the named insured's products or work completed by or for the named insured or of any property of which such products or work form a part, if such products, work or property are withdrawn from the market or from use because of any known or suspected defect or deficiency therein.
The term "sistership" was derived from an incident in the aircraft industry in which one plane crashed and its sisterships were thereafter grounded and recalled by the manufacturer in order to correct a common defect which had caused the crash. 6
The rationale behind the sistership exclusion has been explained as follows:
The recall of equipment or parts discovered to have a common fault involve expenses incurred to prevent accidents which have not occurred. While the insurance covers damages for bodily injuries and property damages caused by the product that failed, it was never intended R. Long, Law of Liability Insurance, Vol. 3, App. -47 § 15 (1966).
that the insurer would be saddled with the cost of preventing other failures, any more than it was intended that the insurer would pay the cost of preventing the first failure if the product had been discovered to be in a dangerous condition before the occurrence.
Thus, the insurer is not liable for the cost of preventative or curative action taken by its insured. Instead, the insured must bear the cost of withdrawing a product from the market in situations in which a danger is apprehended although no accident has occurred. Wyoming Sawmills, Inc. v. Transportation Insurance Co., 282 Or. 401, 578 P.2d 1253 (1978).
We have not previously interpreted the language of the sistership exclusion; however, cases from other jurisdictions suggest its inapplicability here. In Arcos Corporation v. American Mutual Liability Insurance Co., 350 F.Supp. 380 (E.D.Pa.1972), the insurer was held liable for expenses incurred in ripping out and rewelding the joints on a nuclear powered submarine when the insured supplied defective weld wire. In Wyoming Sawmills, Inc., the insurer supplied defective 2 X 4 studs which were incorporated into a building. The court held that the insurance policy provided coverage for expenses attributable to tearing out and putting back parts of the building which were damaged in the course of replacing the studs. In Bigelow-Liptak Corp., the insured had a contract to install refractory lining in a pressure vessel. The lining installed was not of the desired thickness and the insured was required to replace it. In the course of removing the lining, the insured damaged the pressure vessel, which necessitated extensive repairs. These repairs were also covered by Bigelow's insurance policy despite claims by the insurer as to the applicability of the sistership exclusion. 7
Great American calls our attention to Hamilton Die Cast, Inc. v. U. S. F. & G....
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