Parma Seed, Inc. v. General Insurance Co. of America

McQUADE, Chief Justice.

The facts giving rise to this litigation are neither complex nor in dispute. It appears that respondent Parma Seed, Inc. purchased a blanket liability insurance policy from appellant General Insurance Company of America. Appellant’s agent suggested that respondent purchase “products coverage,” but respondent declined this additional coverage. During the period when the blanket liability policy was in effect, respondent received orders for a certain weedkilling chemical. Respondent’s supplier delivered the wrong product to respondent’s premises, and respondent’s agents passed this more potent product on to respondent’s customers. The result was the destruction of several field crops upon application of the product.

Claims were made against respondent and its supplier by respondent’s customers, and respondent made demand upon appellant to adjust these claims. Appellant refused, maintaining that these claims were exempted from coverage under the insurance contract. Respondent thereafter filed its complaint initiating the case now before us.

The insuring agreement provided that appellant agreed

“To pay, * * * on behalf of the insured, all sums which the insured shall become legally obligated to pay as damages because of an occurrence which causes bodily injury * * * or injury to or destruction of property * * *; further, to defend any suit against the insured in which damages are sought.”

The insurance contract provided further, in an endorsement prominently entitled “Products and Completed Operations Exclusion,”

“In consideration of the premium at which this policy is written it is agreed this policy does not apply to liability, claims or expense arising out of products or completed operations as defined below :
(1) goods or products manufactured, sold, handled, or distributed by the named insured or by others trading under his name, if the accident occurs after possession of such goods or products has been relinquished to others by the named insured or by others trading under his name and if such accident occurs away from premises owned, rented, or controlled by the named insured; provided, such goods or products shall be deemed to include any container thereof, other than a vehicle, but shall not include any vending machine or any property, other than such container, rented to or located for use of others but not sold; or on premises owned, rented or controlled by the insured, if used in connection with or consumed in any of the following types of enterprises:
(2) operations, if the accident occurs after such operations have been completed or abandoned and occurs away from premises owned, rented or controlled by the named insured: provided, operations shall not be deemed incomplete because improperly or defectively performed or because further operations may be required pursuant to an agreement; proyided further, the following shall not be deemed to be ‘operations’ within the meaning of this paragraph: (a) pickup or delivery, execute from or onto a railroad car, (b) the maintenance of vehicles owned or used by or in behalf of the insured, (c) the existence of tools, uninstalled equipment and abandoned or unused materials. The word ‘operations’ includes any act or omission in connec*660tión with operations performed by or on behalf of the named insured on the premises or elsewhere, whether or not goods or products are involved in such operations.”

The insurance contract also provided, in endorsement “L-144,” that

“In consideration of the premium charged, it is agreed that such coverage as is afforded by the policy does not apply as respects:
1. Erroneous delivery of seeds, meaning wrongful filling of orders whereby the seed genus or species delivered differs that thet ordered by the customer.
2. Any claim for loss of crop due to nongermination, cross pollination, diseased and/or poisoned seed.”

Upon trial of the case to the district court, it was held that coverage for the liability incurred by respondent was afforded by the policy. Neither the “products” nor the “completed operations” exclusionary clauses, supra, were found by the district court to exclude coverage. Appeal from the district court decision was had to this Court, and we issued a unanimous opinion November 30, 1970, reversing the judgment of the district court. Petition for rehearing was filed by respondent on December 18, 1970, and granted on February 4, 1971. The case was reargued in March, 1971 and January, 1972. It is the conclusion of this Court that the opinion of November 30, 1970, in this case, should be and is hereby withdrawn, and this opinion is substituted therefor.

The focus of this litigation is upon the “products and completed operations” exclusionary clause of the contract of insurance. To decide whether coverage for the liability giving rise to this litigation was excluded under the “products” portion of the exclusionary clause, as is contended by appellant, we must determine whether the liability is one “arising out of products” as defined in the policy, quoted supra. We read this exclusionary clause to exclude coverage if the liability for which respondent is seeking indemnification arose out of products manufactured, sold, handled, or distributed by respondent, if the accident giving rise to the liability occurred after possession of the goods has been relinquished to others, and if the accident occurred away from respondent’s premises. Indeed, it would be difficult to phrase the exclusion any more succinctly than it is phrased in the policy exclusionary clause. We think it is clear that when liability results from the functioning or malfunctioning of a product sold by respondent, and the event establishing liability (i. e., the accident) occurs after relinquishment of possession of the product by respondent, and occurs away from respondent’s premises, coverage is excluded. That is precisely the situation in this case.

Respondent strongly argues that liability does not “arise out of” a product sold by respondent unless the product was inherently defective, or at least malfunctions. It is contended that liability arose in this instance out of respondent’s “on premises” negligence in failing to detect that the wrong product had been received from the supplier, and not out of the product itself. Closely related is the contention that the “accident” in this instance was the misdelivery of the product on respondent’s premises.

Respondent cites a number of cases and authorities in support of its contentions as to the scope of the phrase “liability arising out of products.” However, in Employers’ Liability Assurance Corp. v. Youghiogheny & Ohio Coal Co.,1 cited by respondent, the Court clearly stated that the injury involved resulted from a defective freight car, and not the insured’s coal, and therefore the products exclusion was inapplicable. So also, in Lessak v. Metropolitan Casualty Ins. Co. of New York,2 the facts distinguish the Court’s decision that the products exclusionary clause is inapplicable. The Court there observed that liability for the sale of air-gun pellets to a minor (with *661resulting injury to another) arises from the minority of the child, and not from the product. The decision, furthermore, turned upon the phrasing of a clause in the contract granting coverage.

In support of its reading of the scope of the clause in issue, respondent also relies upon several works on insurance law. Respondent quotes Appleman, Insurance Law and Practice, as stating:

“‘[I]f the operation has been completed, and liability results thereafter either by reason of a defect in merchandise or improper workmanship, that is called products liability or completed operations, the protection of which can be purchased for a premium.’ ” (Respondent’s emphasis).3

However, the language in the same paragraph which precedes the quoted sentence is significant. The first part of the paragraph states:

“It is apparent that liability under what we ordinarily term ‘public liability’ coverages can arise fundamentally in three distinct ways. An injury or a loss may result while an activity is in progress, and prior to the completion thereof, either as a result of an act of negligence or an omission. That is what is embraced within the ordinary liability aspect of a public liability policy.” 4

Then follows the sentence quoted by respondent. The third way liability arises, as categorized by Appleman, is through -damage to the product itself, e. g. shipping losses. It may readily be seen that the Appleman statement, viewed in context, lends little support to respondent’s contention that the products exclusion in this contract does not apply if the product is not inherently defective or if liability results from delivery of the wrong product. The same infirmity is encountered in the statements quoted from other works. These general statements simply do not establish that the products exclusion here in issue is as narrow as respondent contends.

Respondent cites Atkins v. Hartford Accident & Indemnity Co.;5 Brant v. Citizens Mutual Automobile Ins. Co.; 6 Stevens Industries, Inc. v. Maryland Casualty Co.;7 Thibodeaux v. Parks Equipment Company,8 and St. Paul Fire and Marine Ins. Co. v. Coleman9 for the proposition that liability arising from delivery of the wrong product, as opposed to delivery of the correct product which turns out to be defective or otherwise gives rise to liability, is not excluded by the products exclusion clause before us. We do not find these cases persuasive. The Atkins and Brant cases turned upon the courts’ conclusions as to the place where the accident occurred. The Stevens case is distinguishable on the same basis. The Thibodeaux case was decided on the basis of an ambiguity found in the contract of insurance; we must agree with the well reasoned dissent in that case, that the ambiguity rationale was tenuous. The decision is not persuasive for respondent’s position herein. The St. Paul Fire & Marine Ins. Co. case is distinguishable on its facts. In short, respondent offers no persuasive authority for the proposition that the phrase “liability arising out of products” does not include the liability incurred by respondent in this case from the sale of the wrong chemical.

On the other hand, we do not find the cases cited by appellant to be particularly persuasive as to the scope of the phrase “liability arising out of products.” The cases are generally distinguishable on the basis of the portion of the exclusionary clause focused upon by the deciding court,10 or on the basis of differences in *662phrasing in the exclusionary clauses defining the products hazard excluded.11 However, despite' aspects of the case of Tidewater Associated Oil Co. v. Northwest Casualty Company12 which make that case distinguishable, the reasoning of the Court in that case does speak to the persistently voiced contention of respondent that it is the negligence of respondent’s agents and not “products liability” as such that is involved in the case before us. The Court in Tidewater- states:

“In practically every case in which injury or damage is caused by the handling or use of a product, or by a defective condition in such product, the occurrence causing' the injury or damage can be traced to some pre-existing negligence. Indeed, were this not so the injured person would have no basis for a tort claim against the insured. Thus, if the allegation of pre-existing negligence were to be regarded as controlling, the result would be to emasculate the product liability exclusion.” 13

We concur with this reasoning, and find it supportive of our reading of the products exclusionary clause in the case before us.

As we have previously noted, respondent contends that the “accident” occurred when the insured supplied its customers with the wrong chemical product. This event took place at the insured’s place of business. Respondent further contended, during oral argument at the rehearing, that an “occurrence” was covered un,der the policy, but that the exclusionary clause applied only to an “accident.” On this premise, respondent urged that the conflict of terms created an ambiguity in the exclusionary-clause which should be resolved in favor of coverage. Respondent further contends that the “L-144” endorsement, quoted supra, makes the products exclusion clause ambiguous, because if the clause is read so broadly as to exclude coverage in the present case then the “L-144” endorsement is superfluous.

The latter contention carries little weight. Even if the “L-144” endorsement was unnecessary, the language of the products liability exclusion is not rendered ambiguous. In any event, it appears that the “L-144” endorsement was added- to this, insurance agreement to be ' certain that the appellant would not be liable for-non-germinating seeds. It is commonplace in insurance contracts for particular endorsements, designed to ensure exclusion of specific areas of potential liability, to overlap with broader exclusionary clauses found elsewhere in the contracts. The extra measure of caution represented by “H-144”' in this case does not compel us to narrow the construction we apply to the products-liability exclusion.

The former contention, that the terms “occurrence” and “accident” create an ambiguity to be resolved in favor of the insured, places in issue the intent of the parties. To ascertain that intent, it is well settled that this Court must look first to the contract itself,14 construing the document as a whole.15 If the language of the entire contract reveals the parties’ intent, it is unnecessary to examine extrinsic evidence of technical usage, or to draw analogies to judicial interpretations in other cases.16 In *663the contract before us, the respondent agreed to pay a reduced premium for a reduced scope of coverage. Specifically, the respondent agreed, inter alia, that “accidents” which arose from products relinquished to customers and which occurred away from respondent’s premises would not be covered. To attribute a special meaning to the term “accidents,” causing it to signify something other than an “occurrence,” and then to assert that destruction of the customers’ crops was a covered “occurrence” rather than an excluded “accident,” violates the context in which the terms are used and vitiates an essential quid pro quo embodied in the contract. Reading the policy in its entirety, it is our opinion that the word “accident” in the exclusionary clause was intended by the parties to cover the facts in this ■ case, excluding them from coverage. This ■ conclusion draws supplementary support from our recent holding in National Avia-tion Underwriters, Inc. v. Idaho Aviation Center, Inc.,17 that “accidents” as that term is used in liability insurance contracts refers to the occurrence in which the injuries are suffered. In the present case, that occurrence was the application of the weedkiller to the crops, resulting in the actual damage.

It is our conclusion that the products exclusionary clause in issue must be construed to exclude coverage resulting from use of a product sold by the insured, if the “accident” giving rise to the liability occurred away from the premises of the insured after possession of the product was relinquished.

The judgment of the district court is reversed. Costs to appellant.

McFADDEN and BAKES, JJ., and SCOGGIN, D. J., concur.

. 214 F.2d 418 (8th Cir. 1954).

. 158 Ohio St. 153, 151 N.E.2d 730 (1958).

. 7A Appleman, Insurance Law and Practice, § 4508, p. 98.

. Id.

. 7 Mich.App. 414, 151 N.W.23 846 (1967).

. 4 Mich.App. 596, 145 N.W.2d 410 (1966)

. 391 F.23 411 (5th Cir. 1968).

. 140 So.2d 215 (La.App.1962).

. 316 F.23 77 (8th Cir. 1963).

. See, Orchard v. Agricultural Ins. Co. of Watertown, N.Y., 228 F.Supp. 564 (D.Or.1964), aff’d, 340 F.23 948 (9th Cir. 1965).

. See Tidewater Associated Oil Co. v. Northwest Casualty Co., 264 F.2d 879 (9th Cir. 1959).

. Id., at 882.

. Id.

. Boesiger v. DeModena, 88 Idaho. 337, 399 P.2d 635 (1965); Durant v. Snyder, 65 Idaho 678, 151 P.2d 776 (1944).

. West v. Brenner, 88 Idaho 44, 396 P.2d 115 (1964).

.Restatement of Contracts, § 235; Williston. on Contracts (Jaeger 3d Ed. 1961), § 614. Where an insurance contract plainly expresses the general objects of the parties and the conditions prescribed by the insurer, it is unnecessary resolve ambiguities in favor of the insured. Rollefson v. Lutheran Brotherhood, 64 Idaho 331, 132 P.2d 758 (1942); Rauert v. Loyal Protective Insurance 61 Idaho 677, 106 P.2d 1015 (1940). *663Neither will strict technical interpretations be employed to expand or restrict the scope of the intended coverage. Thomas v. Farm Bureau Mutual Insurance Co., of Idaho, Inc., 82 Idaho 314, 353 P.2d 776 (1960); Miller v. World Insurance Co., 76 Idaho 355, 283 P.2d 581, (1955).

. 93 Idaho 668, 471 P.2d 55 (1970); see also 2 Hursh, American Law of Products Liability, § 10:5; Bitts v. General Accident Fire & Life Assurance Corp., 282 F.2d 542, 544 (9th Cir. 1960).