Opinion
PAUL-MERCURY
1-6-1958
GEDDES & SMITH, Inc., a corporation, Plaintiff and Appellant, v. SAINTINDEMNITY CO., Defendant and Respondent. * Civ. 8949.
Riggins, Rossi, King & Kongsgaard, Napa, for appellant. Desmond, McLaughlin & Russell, Sacramento, for respondent.
GEDDES & SMITH, Inc., a corporation, Plaintiff and Appellant,
v.
SAINT PAUL-MERCURY INDEMNITY CO., Defendant and Respondent. *
Jan. 6, 1958.
Rehearing Denied Jan. 29, 1958.
Hearing Granted March 6, 1958.
Riggins, Rossi, King & Kongsgaard, Napa, for appellant.
Desmond, McLaughlin & Russell, Sacramento, for respondent.
PEEK, Justice.
Plaintiff appeals from a judgment in favor of defendant St. Paul-Mercury Indemnity Co., a corporation, herein called St. Paul, in an action to recover on an insurance policy issued by St. Paul to California Aluminum Products, Inc., referred to herein as Aluminum Products.
Plaintiff, in the course of its business as a building contractor, purchased a number of aluminum doors from Aluminum Products. Shortly after installation plaintiff found the doors to be defective and filed action number 90122 in the Superior Court of Sacramento County against Aluminum Products alleging (1) breach of warranty and (2) negligence. The second count was subsequently dismissed. Following service of the complaint upon Aluminum Products, St. Paul, by letter, denied coverage under its policy and refused to defend. Thereafter Aluminum Products, by its own counsel, appeared and answered both generally and specially to plaintiff's complaint, and by way of cross-complaint sought recovery of the balance of the purchase price of the doors. The record in that proceeding, which plaintiff introduced into evidence in the present action, shows findings by the court that the allegations of the complaint were true; that plaintiff, in reliance upon the warranties of quality, merchantability, serviceability, and fitness for the use intended, purchased certain doors together with the necessary hardware from Aluminum Products for use in the construction of certain dwelling houses plaintiff was then building; that within a few days after installation, and in some instances up to six months thereafter, the doors began to come apart in various ways and under various conditions as therein set forth so that eventually all had to be replaced; that none of said doors were reasonably fit for the purpose intended; that the replacements were likewise defective; that altogether 2,604 doors were shipped, of which 2,488 were actually handled by plaintiff before the necessary 760 usable doors were obtained; that plaintiff expended certain sums of money for freight and storage, for installation and for replacement; that plaintiff was unable to complete the houses in time to meet its contract commitments; that purchasers of the houses threatened damage actions; that the entire time of its office staff and its managing directors was needed to meet the demands made upon them; that plaintiff lost the profits it would have received from sale of the houses; that its good will was destroyed; that it was threatened with proceedings to revoke its license; that its credit was impaired; that it incurred obligations it was unable to pay and ultimately was compelled to discontinue its business. The judgment that plaintiff recover damages against Aluminum Products in the sum of $100,000 and costs which was entered pursuant thereto has now become final.
Subsequently the present action on the policy was filed and heard by the same court which heard the first case. At the conclusion of the trial the court found substantially as in the first case that in reliance upon the warranties of fitness, serviceability and merchantability, the plaintiff purchased certain doors from Aluminum Products; that following installation defects developed; that the doors were not of the quality warranted; that plaintiff incurred expenses in replacing the doors, in settling disputes and in loss of profits. However, the court further found that plaintiff did not incur any expenses or sustain any damage by reason of injury or damages to, or the destruction of the houses; that the doors did not injure or damage or destroy said houses; that none of said defects or the expenses sustained by plaintiff were caused by accident; that the defects were not caused by defective material or defective workmanship in manufacture; that the judgment in the first action was not rendered after trial; and that St. Paul was not obligated to defend the first action on behalf of Aluminum Products. From those findings the court concluded that plaintiff take nothing and entered judgment in favor of St. Paul.
Two policies were issued to Aluminum Products by St. Paul--one for the period from May 1, 1950, to May 1, 1951; and the second from May 1, 1951, to May 1, 1952. Except for certain endorsements both policies were identical. However it is the second policy and its endorsements which is in issue. Coverage 'C' of that policy covered property damage liability other than automobile. Under the terms of that paragraph St. Paul agreed 'to pay on behalf of the Insured all sums which the Insured shall become obligated to pay by reason of the liability imposed upon him by law or contract for damages because of injury to or destruction of property, including the loss of use thereof, caused by accident.' The limits of liability under this paragraph were set forth to be:
"$ 50,000.00 each accident $ 100,000.00 aggregate operations $ 100,000.00 aggregate protective $ 100,000.00 aggregate products $ 100,000.00 aggregate contractual"
The policy, when originally issued, had attached to it an endorsement entitled 'Number 1--Exclusion of Products Liability' which stated in part as follows: 'It is agreed that the policy does not apply to: (1) the handling or use of, the existence of any condition in or a warranty of goods or products manufactured, sold, handled or distributed by the named insured occurring after the insured has relinquished possession thereof to others, (a) and away from premises owned, rented or controlled by the insured * * *' Thereafter, by endorsement number four which was expressly made retroactive to May 1, 1951, it was agreed in part that 'In consideration of an additional premium to be determined on audit, it is understood and agreed that exclusion of products liability endorsement number 1 is cancelled flat.'
It is plaintiff's contention that from a reading of coverage 'C' together with endorsements one and four, it is apparent that the policy not only covered damages 'caused by accident' but those resulting from breach of warranty as well. At the outset of any discussion relative to the interpretation of the paragraphs in question, it must be remembered that any ambiguity or uncertainty in an insurance policy is to be resolved against the insurer. 'If semantically permissible, the contract will be given such construction as will fairly achieve its object of securing indemnity to the insured for the losses to which the insurance relates. [Citation.] If the insurer uses language which is uncertain any reasonable doubt will be resolved against it; if the doubt relates to extent or fact of coverage, whether as to the peril insured against [citations], the amount of liability [citations] or the person or persons protected [citations], the language will be understood in its most inclusive sense, for the benefit of the insured.' Continental Cas. Co. v. Phoenix Constr. Co., 46 Cal.2d 423, 437-438, 296 P.2d 801, 809.
Under the rule as enunciated it appears to this court that a fair interpretation of the policy here in question is that if, because of the extent of coverage of the policy as originally written and obviously as interpreted by the insurer, it became necessary to have an endorsement specifically excluding certain types of products liability, then by virtue of endorsement number four specifically cancelling endorsement number one in consideration of an added premium, the policy by such cancellation specifically covered '* * * the handling or use of, the existence of any condition in or warranty of goods or products manufactured, sold, handled or distributed by the named insured occurring after the insured has relinquished possession thereof to others,' and that St. Paul would 'pay on behalf of * * * [Aluminum Products] all sums which * * * [it] shall become obligated to pay by reason of the liability imposed upon [it] * * * by law or contract for damages because of injury to or destruction of property, including the loss of use thereof, caused by accident.' To apply the interpretation advanced by defendant would be to defeat the very purpose of endorsement number four which was to restore the coverage excluded by endorsement number one; that is to broaden the coverage for the insured as restricted by endorsement number one.
Defendant contends that the damage suffered by appellant was not 'caused by accident.' We hold that it was and construe the terms as used in the policy as did the court in Hauenstein v. St. Paul-Mercury Indem. Co., 242 Minn. 354, 65 N.W.2d 122, 49 A.L.R.2d 1379. There plaster was sold by plaintiffs to numerous persons. After application to walls and ceilings the plaster shrunk making it necessary to remove the same and to replaster. An action was commenced against plaintiffs for breach of warranty. The defendant insurance company refused to defend, and plaintiffs filed their action for a declaratory judgment seeking to determine the carrier's liability. Judgment was for the defendant and the plaintiffs appealed. In interpreting the identical paragraph here in issue, coverage 'C', the Minnesota court concluded that there was no doubt but that the property damage to the buildings caused by the application of the defective plaster was 'caused by accident' within the meaning of the insurance contract since the damage was a completely unexpected and unintended result, and concluded that 'accident, as a source and cause of damage to property, within the terms of an accident policy, is an unexpected, unforeseen, or undesigned happening or consequence from either a known or an unknown cause.' 65 N.W.2d at page 126. See also Ritchie v. Anchor Casualty Co., 135 Cal.App.2d 245, 253, 286 P.2d 1000.
It is plaintiff's further contention that defendant, by its failure to defend, is now bound by the judgment of the court in the first proceeding. An insurer's obligation to defend is measured by the terms of the insurance policy, applicable statutes, and the pleading of the person who sues the insured. Ritchie v. Anchor Casualty Co., supra, 135 Cal.App.2d at page 250, 286 P.2d at page 1003. From an examination of the complaint in the first action, number 90122, as measured by the the stated rule without regard to niceties of pleading and resolving any doubt in favor of the insured (Ritchie v. Anchor Casualty Co., supra) it appears that plaintiff's complaint fairly apprised St. Paul that plaintiff was suing Aluminum Products for property damage resulting from accident occurring by reason of the use of the doors which had been warranted fit for that use. Furthermore since we hold that the action against Aluminum Products was '* * * ostensibly within the terms of the policy, the insurer, whether it assumes the defense or refuses to assume it, is bound by the result of that action as to all matters therein decided which are material to recovery by the insured in an action on the policy.' Miller v. United States Fidelity & Casualty Co., 291 Mass. 445, 197 N.E. 75, 77. In the case of Artukovich v. St. Paul-Mercury Indemnity Co., 150 Cal.App.2d 312, 310 P.2d 461, the court quoted with approval the above portion from the Miller case and stated the rule thus: 'Ordinarily the insurer is bound by all facts and matters necessarily adjudicated in the original action,' and that any material finding of fact essential to a determination of liability 'is also decisive of the question of coverage.' 150 Cal.App.2d at page 320, 310 P.2d at page 465. Therefore, said the court, 'St. Paul will not be permitted to relitigate in this action a question of fact' on which the judgment was predicated.
When the plaintiff brought its action against Aluminum Products, St. Paul was thereby informed that according to the very mode agreed to in its policy there would be determined in that case the questions of whether or not its insured was liable for damages to property incurred by accident and by breach of warranty and also the extent of that damage. Those issues would necessarily be litigated in that action, and in the course thereof determinations would be made. Also there would have been determined such matters as the provability of damages as being remote, speculative and the like, the types of damage suffered, such as damage to that class of property known as the good will of a business, damage suffered through loss of profits on existing contracts to build houses; in short the damages claimed in the complaint. In Lamb v. Belt Casualty Co., 3 Cal.App.2d 624, 631, 40 P.2d 311, 314, the court held: 'The law is well settled that, where one is bound either by law or agreement to protect another from liability, he is bound by the result of a litigation to which such other is a party, provided he had notice of the suit and an opportunity to control and manage it. [Citations.] * * * The judgment recovered in such a case is the mode by which the insured proves to the insurer that the intrinsic character of the accident was such that he was liable for the consequences of it, and the judgment is conclusive evidence that the insured was liable, and to the extent of the amount of the judgment.' This would be true whether St. Paul came in and defended or, as it did, breached its agreement to defend since it was equally bound by all such determinations properly and necessarily posed by the pleadings and determined by the court.
In Jones v. Zurich General Accident & Liability Ins. Co., 2 Cir., 121 F.2d 761, 763, it was held that, 'Every material fact determined by the state court in that action was conclusively settled by the final judgment 'so that it cannot be further litigated in a subsequent suit between the same parties or their privies whether the second suit be for the same or a different cause of action,' * * * Recovery in such circumstances conclusively settles against the defendant all defenses which might have been pleaded and proved, as well as those which actually were. [Citing cases.]' Necessarily, therefore, St. Paul cannot now complain that in determining the amount of damage suffered the trial court did not, either in findings or judgment, find and adjudge separately as to the different items of damage allowed. Although the complaint ascribed varying amounts for the different items of damage, the court was not obligated, since a single money judgment was sought, to segregate the items in its findings or in its judgment. If St. Paul deemed that such matters would throw some items of damage out of the ambit of its policy, it was up to it to come in and obtain such special adjudications. In this case as in Ford v. Providence Washington Ins. Co., 151 Cal.App.2d 431, 311 P.2d 930, 933, 'we are not directly concerned here with defendant's failure to defend * * * other than as it affects the question of defendant being bound by the jury's implied findings. Had defendant performed that duty there could be no question under the authorities that any of the issues determined by the jury would be binding on defendant. Having failed to perform that duty and having had full notice of the issues being presented to the jury, defendant is likewise bound.'
It is plaintiff's further contention that the trial court erred in its finding that the judgment in the first case was not rendered after trial but was in effect a stipulated judgment. It is true that the minutes of that proceeding show that when the case came on for trial '* * * counsel informed the Court that a stipulated Judgment settling the case was possible and requested that the matter be continued * * *' However the minutes further show that when the court reconvened at 3:15 p. m. that day '* * * counsel stipulated to the Court that the written findings of Fact and Conclusions of Law presented to the Court were the agreed facts of the case. The Court being fully advised in the premises ordered that the matter be submitted and ordered that judgment be entered in favor of the Plaintiff and against the California Aluminum Products, Inc. * * *' Thereafter the judgment which was rendered reads in part as follows: 'This cause came on regularly for trial before the Court sitting without a jury * * * Clarence N. Riggins and Ralph T. Lui appeared as attorneys for the plaintiff, and William A. Sitton, * * * for the defendant, California Aluminum Products, Inc., and the Court having heard the testimony and having examined the proofs offered by the respective parties, and the Court being fully advised in the premises, and having filed herein its findings of fact and conclusions of law, * * *' directed judgment as previously mentioned.
The minutes show, as does the judgment, that the case was heard upon an agreed statement of facts as set forth in the stipulated findings of fact and conclusions of law, and that the court heard the parties, examined the proofs, and being fully advised entered judgment for the plaintiff. Nothing appears in the record to support defendant's contention that the judgment was stipulated. Opinions of the judge or minute orders preceding the decision are merged in or controlled by the judgment. Prothero v. Superior Court, 196 Cal. 439, 443, 238 P. 357. Certainly parties may stipulate to facts and submit the same to the court for determination as they may oral or documentary testimony. It has long been the rule that whenever '* * * a court hears and determines any issue of fact or of law for the purpose of determining the rights of the parties, it may be considered a trial.' Tregambo v. Comanche M. and M. Co., 57 Cal. 501, 505; see also Carney v. Simmonds, 49 Cal.2d 84, 315 P.2d 305; Bice v. Stevens, 129 Cal.App.2d 342, 277 P.2d 106. The parties were all present, a stiplation as to the facts was presented to the court for determination, and its determination thereof constituted a trial of the action and not a stipulated judgment.
The final question posed by St. Paul is that in any event its liability was limited to $50,000 by reason of the policy provision that all damages arising out of 'one prepared or acquired lot of goods or products shall be considered as arising out of one occurrence or accident.' It is true that the policy is so worded. However the evidence is uncontradicted and the court found that Aluminum Products delivered the 760 doors originally purchased between December, 1950, and February, 1951; that for a period of more than one year following June, 1951, it delivered additional doors as replacements; and that such replacements were defective for the previously noted reasons. Therefore, it follows that the damages did not arise out of 'one prepared or acquired lot of goods or products.'
Although we have concluded that the award of damages as made by the court in the first case cannot now be relitigated by St. Paul as to the types of damages, such conclusion does not entirely dispose of this element of the controversy. St. Paul could be responsible only for the damages occurring within the terms of the policy. Necessarily, therefore, in the absence of any specific findings in this regard, it becomes necessary to remand the cause for a determination of this issue.
The judgment is reversed and the cause is remanded to the trial court with instructions to determine the one issue--the amount of damages which occurred within the effective dates of the policy--in accordance with the views herein expressed, and thereafter to enter judgment in favor of plaintiff in accordance with such determination.
VAN DYKE, P. J., and SCHOTTKY, J., concur. --------------- * Opinion vacated 334 P.2d 881.