Case Title: Action Ads, Inc. v. Great American Ins. Co.

Citation: 

Docket Number: 84-18

State: wyoming

Court: Wyoming Supreme Court

Date: 1984-08-08T00:00:00Z

Document:
Action Ads, Inc. v. Great American Ins. Co.1984 WY 86685 P.2d 42Case Number: 84-18Decided: 08/08/1984ACTION ADS, INC., A WYOMING CORPORATION; ROBERT SHRINER, AND ERNESTINE SHRINER, APPELLANTS (PLAINTIFFS), 

v. 

GREAT AMERICAN INSURANCE COMPANY, APPELLEE (DEFENDANT).
Supreme Court of Wyoming
ACTION ADS, INC., A 
WYOMING CORPORATION; ROBERT SHRINER, AND ERNESTINE SHRINER, APPELLANTS 
(PLAINTIFFS), 

v. 

GREAT AMERICAN INSURANCE 
COMPANY, APPELLEE (DEFENDANT).

 
 
Appeal from the District 
Court, LaramieCounty, Alan B. Johnson, 
J.

 
 
E. James Burke 
of Hanes, Gage & Burke, P.C., Cheyenne, for appellants.

Dennis M. Hand 
of Hand, Hand & Hand, P.C., Casper, for appellee.

Before ROONEY, C.J., and 
THOMAS, ROSE, BROWN and CARDINE, JJ.

ROSE, 
Justice.

[¶1.]     This appeal concerns 
the coverage afforded by the general-liability insurance provision of a 
"Business Protector Policy" issued by appellee Great American Insurance Company 
to appellant Action Ads, Inc. The district court determined that coverage did 
not extend to the insured's liability arising from breach of contract and 
awarded summary judgment in favor of the insurance 
company.

[¶2.]     We will 
affirm.

FACTS

[¶3.]     Appellant, Action Ads, 
and one of its salesmen, Kenneth Judes, entered into an employment contract 
which required appellant to provide a medical insurance program for Judes. 
Action Ads failed to furnish any insurance coverage. When Judes sustained 
serious injuries in a gas explosion in a mobile home, he brought suit against 
his employer for damages resulting from breach of the obligation to obtain 
insurance under the employment contract. Judes' favorable judgment in the 
district court was reversed by this court on the ground that the agreement to 
provide medical insurance was not sufficiently definite and certain to 
constitute an enforceable contract. Action Ads, Inc. v. Judes, Wyo., 671 P.2d 309 
(1983).

[¶4.]     Shortly after receiving 
Judes' complaint, Action Ads notified its liability insurer, appellee Great 
American Insurance Company, and requested that Great American defend the action 
and pay any resulting judgment in favor of Judes. Action Ads relied on the 
coverage clause of the comprehensive general-liability insurance issued by Great 
American as part of its "Business Protector Policy":

"The company will pay on 
behalf of the insured all sums which the 
insured shall become legally obligated to pay as damages because 
of

A. bodily injury or

B. property 
damage

to which this insurance 
applies, caused by an occurrence, and 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, even if 
any of the allegations of the suit are groundless, false or fraudulent * * *." 
(Emphasis added.)

The policy 
defines "occurrence" as

"* * * an accident, 
including continuous or repeated exposure to conditions, which results in bodily 
injury or property damage neither expected nor intended from the standpoint of 
the insured."

Great American 
refused to defend Action Ads, maintaining that the liability policy did not 
cover damages arising from breach of contract.

[¶5.]     Action Ads, its 
president and its vice-president initiated this action against Great American 
prior to this court's decision in Action 
Ads, Inc. v. Judes, supra. After our reversal of the judgment against 
appellants in that suit, they continued to maintain their claim against Great 
American for attorney's fees, injury to business reputation, mental anguish and 
suffering of the corporate officers, and punitive damages.

[¶6.]     Both parties filed 
motions for summary judgment. The district court granted Great American's 
motion, ruling that the comprehensive general-liability policy extended to 
liability imposed by law for torts and not to damages for breach of contract. 
The trial court held that Great American had no duty to defend the suit brought 
by Action Ads' former employee, since

"* * * [t]he liability of 
Action Ads was `because of' a breach of contract despite the fact that the 
amount of damages would necessarily be determined by medical expenses related to 
a bodily injury."

[¶7.]     Appellants ask us to 
review the single issue that determined this case before the trial court: 
Whether the liability policy encompassed Action Ads' potential liability for 
failure to provide medical insurance under the terms of its employment contract 
with Judes. Appellants take the position that the language in the coverage 
provision is sufficiently broad to include an insured's liability arising from 
breach of contract.

SCOPE OF LIABILITY 
COVERAGE

[¶8.]     Courts universally have 
interpreted liability-coverage provisions, identical to that found in 
appellants' policy, as referring to liability sounding in tort, not in contract. 
International Surplus Lines Ins. Co. v. 
Devonshire Coverage Corp., 93 Cal. App. 3d 601, 155 Cal. Rptr. 870 (1979), is a 
representative case. There Devonshire, a 
general-insurance agent, had issued a $500,000 fire-insurance policy on a 
clubhouse. Under a separate contract with the insured, Devonshire had agreed either to obtain additional 
insurance or to indemnify the insured for damages in excess of $500,000. 
Devonshire failed to obtain the extra 
insurance. The clubhouse burned, and the insured obtained a judgment against 
Devonshire for more than $800,000. Devonshire sought to hold its liability-insurance carrier 
responsible for that judgment. In ruling for the insurer, the California Court 
of Appeals interpreted a comprehensive-liability provision, identical to the 
coverage provision in the present case, as extending to liability based only on 
tort claims:

"The phrase `legally 
obligated to pay as damages' as used in the * * * [liability] policy, is 
synonymous with `damages for a liability imposed by law.' That latter phrase has 
been uniformly interpreted as referring to a liability arising ex delicto as 
distinguished from ex contractu. (Ritchie 
v. Anchor Casualty Co.[, 135 Cal. App. 2d 245, 286 P.2d 1000 [(1955)].]) The 
theory that Devonshire assumed a liability * * 
* for which * * * [its liability insurer] provided coverage cannot be sustained 
by the terms of the policy or applicable law." 155 Cal. Rptr.  at 
875.

[¶9.]     The Supreme Court of 
Alaska considered a factual situation similar to the case at bar in Continental Insurance Company v. 
Bussell, Alas., 498 P.2d 706 (1972). In that case, an 
employer agreed in a union contract to purchase life insurance for his employees 
who traveled in aircraft in the course of business. The employer purchased a 
liability-insurance policy, but failed to acquire the promised life insurance. 
When an employee perished in an airplane crash, the estate sued for the $25,000 
"death benefit" under the union contract. The employer filed a third-party claim 
against Continental Insurance Company, his liability insurance carrier. The 
Alaska Supreme Court held that Continental Insurance Company had no obligation 
to defend the employer or to pay the $25,000 death benefit. In interpreting the 
standard comprehensive general-liability clause with which we are concerned, as 
well as a contractual-liability provision not pertinent here, the court 
said:

"Neither of the coverage 
portions in issue applies to damages arising from an insured's breach of a 
contractual duty. There is no language in any section of the policy which even 
tangentially alludes to coverage protecting against breaches of contract." 498 P.2d  at 710.

Other cases 
reaching the same conclusion include Olympic, Inc. v. Providence Washington 
Insurance Company of Alaska, Alas., 648 P.2d 1008 (1982); Kisle v. St. Paul Fire and Marine Insurance 
Company, 262 Or. 1, 495 P.2d 1198 (1972); Boiler Brick and Refractory Co. v. Maryland 
Casualty Co., 210 Va. 50, 168 S.E.2d 100, 102 
(1969).

[¶10.]  Rowland H. Long in his treatise, The Law 
of Liability Insurance, summarized the uniform judicial interpretations of 
standard liability-coverage provisions found in current and earlier 
policies:

"The promise in the 
insuring provision of the earlier liability insurance policies is to pay all 
sums by reason of liability `imposed upon the insured by law for damages.' In 
more recent editions of the policy, the promise is to pay all sums `which the 
insured shall become legally obligated to pay as damages.' Damages `imposed by 
law' and damages which a person is `legally obligated' to pay express the same 
thought. The law imposes upon the insured a liability to pay damages for bodily 
injuries or damage to property caused by his carelessness and arising out of the 
ownership, maintenance, care, custody, or use of property. This is the liability 
upon which the insurer agrees `to pay on behalf of the insured all sums which 
the insured shall become legally obligated to pay.' This provision limits the 
insurer's obligation. `Liability imposed by law for damages' or damages which 
the insured becomes `legally obligated' to pay exclude the concept of liability 
which the insured may have voluntarily assumed * * *." 1 Long, Law of Liability 
Insurance, § 1.10, p. 1-25.

See also 7A 
Appleman, Insurance Law and Practice (Berdal ed.), § 4493, pp. 55-56 
(1979).

[¶11.]  Appellants assert that such a narrow 
reading of the liability-coverage clause cannot be reconciled with the expansive 
protection contemplated by the policy titles "Business Protector Policy" and 
"Comprehensive General Liability Insurance." The coverage clause, not the policy 
titles, controls, however, and these admittedly broad labels cannot override the 
express provisions of the coverage paragraph so as to protect the insured 
against all possible risks. Fresno Economy Import Used Cars, Inc. v. United 
States Fidelity & Guaranty Company, Inc., 76 Cal. App. 3d 272, 142 Cal. Rptr. 681, 686 (1977).

[¶12.]  We conclude that the coverage clause at 
issue in the present case encompasses liability which the law imposes on all 
insureds for their tortious conduct and not on the liability which a particular 
insured may choose to assume pursuant to contract. Action Ads' potential 
liability in this case stemmed not from its own negligent behavior, but from a 
contractual obligation. Therefore, Great American had no duty under the 
comprehensive general-liability insurance policy to defend Action 
Ads.

[¶13.]  The summary judgment is 
affirmed.

ROONEY, Chief Justice, specially 
concurring.

[¶14.]  I concur with that said in the majority 
opinion, but I understand one of appellants' arguments to be that 
notwithstanding the fact that the contract does not cover contract liability, it 
does include a duty to defend a breach of contract claim. In support thereof, 
appellants point to the policy language which recites:

"* * * the company shall 
have the * * * duty to defend any suit * * * even if any of the allegations of 
the suit are groundless, false or fraudulent. * * *"

[¶15.]  However, the rest of the quoted provision 
provides in part that the "duty to defend any suit" is one "seeking damages on 
account of such bodily injury or property damage." Accordingly, even the duty to 
defend is limited to tort actions.