Case Title: Industrial Chemical v. Hartford Acc. & Indem.

Citation: 475 So. 2d 472

Docket Number: 

State: alabama

Court: Alabama Supreme Court

Date: 1985-06-21T00:00:00Z

Document:
475 So. 2d 472 (1985)
INDUSTRIAL CHEMICAL & FIBERGLASS CORP., A Corporation,
v.
HARTFORD ACCIDENT & INDEMNITY COMPANY, A Corporation, et al.
No. 83-1244-CER.

Supreme Court of Alabama.
June 21, 1985.
Rehearing Denied August 23, 1985.
*473 Don B. Long, Jr. and Thomas E. Walker of Johnston, Barton, Proctor, Swedlaw & Naff, Birmingham, for appellant.
T. Thomas Cottingham, Julia Smeds Stewart, and F.A. Flowers III of Thomas, Taliaferro, Forman, Burr & Murray, Birmingham, for appellees.
*474 PER CURIAM.
The issue presented by these certified questions from the United States District Court, Northern District of Alabama, is whether Hartford Accident & Indemnity Company is obligated under the terms of its policy to defend Industrial Chemical & Fiberglass Corporation.
On July 6, 1980, Terry D. Chandler and Dewey Edward Ensley, employees of J.M. Foster, Inc., were working within the line and scope of their employment repairing cracks in the floor of a fiberglass storage tank located at an acid regeneration plant in Fairfield, Alabama. The repair process required the use of certain chemicals, particularly methyl ethyl ketone peroxide (MEKP), a catalyst which is mixed with a promoter, cobalt naphthenate, to cause the polyester resin placed over fiberglass matting to gel and become hard. The MEKP, which was still in its original container, was placed inside a galvanized metal bucket and lowered into the tank where Chandler and Ensley were working. As a result of cobalt contamination, the MEKP decomposed, began to smoke, and erupted into flame. Both Chandler and Ensley suffered severe burns, which resulted in their deaths.
The MEKP was manufactured by Reichhold Chemicals, Inc. (Reichhold) and distributed by Industrial Chemical & Fiberglass Corp. (Industrial Chemical). Chandler and Ensley's widows and children brought wrongful death actions against Reichhold and Industrial Chemical, and based their claims on negligence, breach of warranty, and the Alabama Extended Manufacturer's Liability Doctrine. Thereafter, Industrial Chemical brought a declaratory judgment action in the United States District Court for the Northern District of Alabama, seeking a determination that Hartford Accident & Indemnity Company (Hartford) is obligated to defend it in the wrongful death actions based upon certain provisions in an insurance policy issued by Hartford to Reichhold. Those provisions are as follows:
to which this insurance applies, caused by an occurrence, if the bodily injury or property damage is included within the completed operations hazard or the products hazard, and the company shall have the right and duty to defend any suit brought against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent ...
"`bodily injury' means bodily injury, sickness or disease sustained by any person which occurs during the policy period, including death at any time resulting therefrom;
Industrial Chemical was one of those designated as a vendor within the meaning of the Additional Insured Vendor's Broad Form Modified provision; as such, it sought coverage under that provision. Hartford, however, denied coverage to Industrial Chemical under the policy, and both sides moved for summary judgment.
It was Hartford's position in the federal court, as well as here, that the coverage with respect to the vendor does not apply to bodily injury arising out of repair operations. It argues that since the employees were engaged in a repair operationrepairing the tankthe coverage offered by the vendor's endorsement is excluded. Industrial *476 Chemical counters this argument by asserting that the "arising out of" phrase, as it appears in the exclusion, "should be interpreted to require Hartford to prove that the repair operations caused the bodily injury in order to invoke the exclusion to defeat coverage."
Because these were the respective positions of the parties, it is obvious why the federal court framed the questions to us as follows:
This Court consented to answer the certified questions and granted oral argument.
It is apparent from the questions that both the parties and the federal court assumed that if the bodily injury occurred while the person was engaged in a repair operation of any kind, the exclusion expressed in paragraph 1(B)3 applied. The court then asked, still assuming that the exclusion applied to any kind of repair operation, whether the exclusion would likewise apply whether the repair operation were the cause of the injury.
We do not read the exclusion to apply to all repair operations and, therefore, address the issue which is obviously presented by the questions, viz.:
As we read the endorsement, Industrial Chemical is covered under the policy, and the exclusion contained in 1(B)3 refers not to repair operations generally, but to repairs to the product itself. The fact that the deceased employees were engaged in "repair operations" on a storage tank while using the manufacturer's product, sold in its original form by the vendor, does not bring it within the exclusion. A fair reading of the vendor's endorsement demonstrates the correctness of this position. It is obvious that the vendor's endorsement was designed to provide coverage to a vendor of an insured's product except where bodily injury or property damage arises out of a demonstration (of the product), installation (of the product), servicing (of the product), or repair operations (on the product). Coverage is afforded where such operations, i.e., demonstration (of the product), installation (of the product), or repair operations (on the product), are performed at the vendor's premises in connection with the sale of the product.
Stated differently, the endorsement affords coverage to the vendor of the named insured's product, but excludes coverage where bodily injury arises out of the demonstration, installation, servicing, or repair of the product, except where those activities take place on the premises of the vendor in connection with the sale of the product.
It is fair to hold the manufacturer (and its insurer) liable for bodily injury caused by a defect in the product, even though the product has been changed, if the injury was not caused by the change.
It is equally fair to hold the manufacturer or its carrier liable for bodily injury caused by a defect in the product, even though the product is undergoing demonstration, installation, servicing, or repair, if these activities did not cause the injury.
There is nothing in this exclusion to remove from coverage an injury occurring after the sale of the product while the *477 product is being used for its intended purpose, whether or not that use involves repairs to something other than the product itself.
If we assume that facts are produced which bring the exclusion into operation, that is, facts showing a repair operation performed upon the product itself, then we would hold that in order to exclude coverage, Hartford must prove that the repair operation was the cause of the bodily injury suffered by the employees.
Several cases from other jurisdictions are cited by Industrial Chemical in support of its contention that Hartford must prove that the bodily injury arose out of repair operations. Sears, Roebuck & Co. v. Reliance Insurance Co., 654 F.2d 494 (7th Cir.1981); Sears, Roebuck & Co. v. Employers Insurance of Wausau, 585 F. Supp. 739 (N.D.Ill.1983); Mattocks v. Daylin, Inc., 452 F. Supp. 512 (W.D.Pa.1978), affirmed, 614 F.2d 770 (3d Cir.1979); Sears, Roebuck & Co. v. Zurich Insurance Co., 299 F. Supp. 518 (N.D.Ill.1969); Senco of Florida, Inc. v. Continental Casualty Co., 440 So. 2d 625 (Fla.Dist.Ct.App.1983).
In all of these cases, the exclusion concerned either changes made in the product (of the insured) or a product (of the insured) which was used as an ingredient of another thing.
In Mattocks, Sullcraft Manufacturing Co., the vendor of a pair of boys' cotton pajamas which ignited and injured a minor plaintiff, sought a judgment declaring that it was entitled to be defended by I.N.A., the insurer of the manufacturer of the cloth used in the pajamas (Dan River, Inc.).
The existing policy of insurance between I.N.A. and Dan River contained a vendor's endorsement similar to the one presently at issue, which purported to provide coverage to vendors of Dan River's product. The exclusion in that policy was as follows:
452 F. Supp.  at 514.
I.N.A. opposed the declaratory judgment action by contending that the above exclusion was clearly intended to exclude vendors who acquired materials from Dan River to become component or integral parts of products manufactured by those vendors, and that, by fashioning the material purchased into pajamas, Sullcraft had changed the physical form of the material and called into play the exclusion.
The United States District Court for the Western District of Pennsylvania disagreed and stated:
452 F. Supp.  at 515.
Similarly, in Reliance Insurance Co., the Seventh Circuit Court of Appeals held that an exclusion almost identical to the one in Mattocks did not exclude coverage of a vendor (Sears, Roebuck & Co.) which purchased cloth from a manufacturer (Riegel Textile Corp.), had it sewn into slacks, labeled, and repackaged, and which, after the slacks caught fire and killed a girl, sought coverage under the vendor's endorsement of Riegel's insurance policy with Commercial Union Insurance Company. The exclusion therein provided:
654 F.2d  at 496.
In rejecting the applicability of the exclusion, the court adopted and expounded upon the reasoning expressed in Mattocks, stating:
"The first category of exclusions in Exclusion 1 excludes injuries arising out of specified changes. This language requires a nexus between the changes and the injuries. As the Mattocks court discussed, this language comports with principles of fairness. It would be unfair to hold a manufacturer responsible for injuries arising out of changes made after the product left the manufacturer's control. But Commercial argues that the second category of exclusions in Exclusion 1 need have no nexus requirement between the changes and the injuries. Commercial argues that the second category of exclusions should be read to exclude coverage of injuries arising out of products which have been `labeled or relabeled,' or used as a `part' of any other thing regardless of whether there was any connection between the injury and the relabeling or use as a part.
"The problem with Commercial's argument is that it proves too much. Riegel sold the fabric to Sears to become slacks with the Sears' label. If the mere labeling or use as a `part' of the finished slacks could defeat coverage of any defect in the fabric itself, then the vendor's insurance covering Sears could not have been worth the piece of paper on which it was printed. The vendor's endorsement would become a nullity. As the Mattocks court said, discussing the identical language:
452 F. Supp.  at 516.
654 F.2d  at 497-499.
The same result was reached in Employers Insurance of Wausau, supra, in which the court, citing Reliance Insurance Co., held that an exclusion contained in a vendor's endorsement excluding from coverage "injuries arising out of any act by a vendor which changes the condition of the product," applied only to injuries for which there was proven a causal connection with the change made by the vendor. Employers Insurance of Wausau, supra, at 745.
These cases involved fact situations where the vendor made changes or incorporated the insured's product into another product, thus falling within the exclusion. The courts held, however, that the bodily injury which occurred was covered unless it arose out of the change made by the vendor. Each court held that the changes in form admittedly made by the vendor must also cause the injuries before the coverage of vendor is excluded.
However, as we read the exclusion in the policy involved in this case, it simply does not apply to the repair operations on the tank being worked on by these employees. There was no repair operation on the insured's product; thus, the exclusion has no application to the facts in this case, as stated to us in the certification.
If, however, facts are produced which would make the exclusion applicable, then, in order to avoid liability for bodily injury, Hartford must show that the bodily injury arose out of the repair operation.
CERTIFIED QUESTIONS ANSWERED.
TORBERT, C.J., and JONES, ALMON, SHORES and ADAMS, JJ., concur.
MADDOX, FAULKNER, EMBRY and BEATTY, JJ., concur specially.
MADDOX, Justice (concurring specially).
I concur in the result reached. The majority holds that "the exclusion in 1(B)(3) refers not to repair operations generally, but to repairs to the product itself." (Emphasis added.) I do not read the policy in this manner.
I do not believe that a chemical, the product in this case, can be repaired. Consequently, I think the words "repair operations," as they are used in the policy, refer to operations in which the chemical is being used instead of operations in which it is being repaired. I recognize that if the product were something other than a chemical, the construction placed on the words "repair operations" by the majority might apply, but I do not believe that construction should apply to the product involved in this case.
FAULKNER, EMBRY and BEATTY, JJ., concur.