Title: SAFECO INS CO v MUNROE v COGSWE

State: montana

Issuer: Montana Supreme Court

Document:

No. 12505 I N T H E S U P R E M E C O U R T O F THE STATE O F M O N T A N A SAFECO INSURANCE C O M P A N Y , a corporation, Plainti-f f and Appellant, Defendants and Respondents. .................... ----------------------------- SAFECO INSURANCE C O M P A N Y , a corporation, Third Part P l a i n t i f f , C O G S W E L L AGENCY, INC., a Corporation, Third Party Defendant and Respondent. Appeal from: D i s t r i c t Court of the Eighth J u d i c i a l D i s t r i c t , Honorable Truma~r Bradford, Judge presiding . Counsel of Record : For Appellant : Loble, Picotte, Loble, Pauly and Sternhagen, Helena, Montana Gene A, P i c o t t e argued, Helena, Montana For Respondent : Dzivi, Conklin, Johnson & Nybo, Great F a l l s , Montana Louis D. Nybo argued, Great F a l l s , Montana Church, Harris, Johnson & Williams, Great F a l l s , Montana Charles C. Love11 argued, Great F a l l s , Montana Smith, Emmons & B a i l l i e , Great F a l l s , Montana Jardine, Stephenson, Blewett & Weaver, Great F a l l s , .- Montana Jack L. Lewis argued, Great F a l l s , Montana Filed : DCT I € 1974 Submitted: September 11, 1974 Decided: # C f 16 1974 M r . J u s t i c e Wesley Castles delivered t h e Opinion of t h e Court. This is an appeal from a judgment of t h e d i s t r i c t c o u r t of t h e eighth j u d i c i a l d i s t r i c t , i n and f o r t h e County of Cascade, which rendered p a r t i a l summary judgment i n favor of defendant, D. E. Munroe, and a g a i n s t p l a i n t i f f , Safeco Insurance Company. O n November 5, 1971, John D . Buchanan f i l e d s u i t i n d i s - trict c o u r t i n Cascade County a g a i n s t David E. Munroe. The amend- ed complaint i n s a i d cause s t a t e s generally t h a t Harold S c h i l l i n g was farming Buchananls land north of Cascade and t h a t S c h i l l i n g ordered seed wheat from Munroe who represented t h a t it was spring wheat, but it was i n f a c t winter wheat. The complaint f u r t h e r a l l e g e s t h a t Munroe t o l d S c h i l l i n g t o r e p l a n t with spring wheat and, although t h i s was done, Buchanan sustained l o s s e s equivalent t o t h e c o s t s of replanting and t h i r t y bushels per a c r e f o r one hundred forty-nine a c r e s f o r which Munroe is l i a b l e . O n January 4 , 1972, Viggo 0 . Andersen and Einer G. Hovland, co-partners, doing business a s Andersm & Hovland, f i l e d s u i t i n d i s t r i c t c o u r t i n Cascade County a g a i n s t Munroe Ranch Co., Inc. The complaint i n s a i d cause s t a t e s generally t h a t Munroe agreed t o s e l l and d e l i v e r spring wheat seed t o AndersRn & Hovland and t h e same was planted by them but it was a c t u a l l y winter wheat which did not come up r e s u l t i n g i n a crop l o s s , expense of destroying a crop t o p r o t e c t t h e next crop from d i s e a s e , f u t u r e a d d i t i o n a l farming expense, and f u t u r e crop l o s s , o r , i n t h e a l t e r n a t i v e , t h e alleged damages a r e s a i d t o be measured by c o s t of seed, c o s t of t r e a t i n g seed, c o s t of transporting seed, c o s t of preparing s o i l t o receive seed, c o s t of seeding and f e r t i l i z i n g , c o s t of spraying and top-dressing, l o s s of use of lands f o r one crop season, expense of destroying crop t o p r o t e c t next crop from d i s e a s e , f u t u r e a d d i t i o n a l farming expense, and f u t u r e l o s s of productivity. Munroe, t h e defendant i n t h e two basic cases described above, purchased a "Growers & Ranchers" policy of insurance from Safeco Insurance Company, the plaintiff in the instant action. Listed on the policy as the "insured" is "D. E, Munroe, Donald G. Munroe and David M. Munroe, DBA Munroe Ranch Company" The policy had a three year term from August 20, 1970 to August 20 1973. The portions of the policy pertinent to this appeal are as follows: LIABILITY COVERAGE "The company will pay all damages the insured is obligated to pay for liability imposed by law: (1) upon him; or (2) upon another, but assumed by him under a contract, because of bodily injury or property damage to which this insurance applies, caused by an occurrence. 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, and may make such investigation and settlement of any claim or suit as it deems ex- pedient. The company shall not be obligated to pay any claim or judgment or defend any suit after the applicable limits of the company's liability has been exhausted by payment of judgments or settlements. "Exclusions "This insurance does not apply: " (d) to property damage * * * (6) to the named insured's products arising out of such products or any part of such products * * * "DEFINITIONS "'damages' includes damages for death and for care and loss of services resulting from bodily injury and damages for loss of use of property resulting from property damage; "'named insured's products1 means goods or products manufactured, sold, handled or distributed by the named insured or by others trading under his name, including any container thereof (other than a vehicle), but !named insured's products' shall not include a vending machine or any property o t h e r than such container, rented t o o r located f o r use of o t h e r s but not sold * * * . "'property damage1 means i n j u r y t o o r destruction of tangible property * * *." Safecocontends here a d a l l e g e d i n its complaint t h a t t h e policy coverage was never intended t o i n s u r e a g a i n s t l o s s e s re- s u l t i n g from r e s a l e of products such a s t h e s e l l i n g of seed wheat t h e insured happened t o have on hand; and t h a t , f o r such coverage, such persons wishing t o be so insured must purchase t h e "misdeliv- e r y of seed" endorsement a v a i l a b l e a t a d d i t i o n a l premium. However, it is uncontradicted by Safeco t h a t Munroe was never offered such an endorsement nor t h a t Munroe was even aware of t h e existence of such an endorsement. Munroe tendered both coverage and duty t o defend t h e two a f o r e s t a t e d actions. Both coverage and t h e duty t o defend were denied by Safeco. Safeco then brought t h e i n s t a n t d e c l a r a t o r y judgment a c t i o n asking t h e c o u r t t o construe t h e policy provisions and t o d e c l a r e t h a t Safeco has not contracted t o cover t h e r i s k s o r t h e damages within t h e contemplation of t h e two basic a c t i o n s and has no duty t o defend them. Safeco brought Harold J. S c h i l l i n g and J i m S c h i l l i n g i n t o t h e case as defendants because a t t h a t t i m e Safeco believed t h a t t h e S c h i l l i n g s claimed t o have suffered a l o s s a r i s i n g o u t of t h e same o r s i m i l a r occurrence and were claiming t h a t they a l s o w e r e e n t i t l e d t o recover a g a i n s t Munroe. O n April 18, 1973, t h e S c h i l l i n g s brought an a c t i o n which is s i m i l a r t o t h e f i r s t two basic actions. It would appear t h a t t h e outcome of t h i s appeal w i l l determine a l s o whether o r not t h e r e is coverage and duty t o defend under t h i s new a c t i o n brought by t h e S c h i l l i n g s . I n t h e i n s t a n t case, defendants f i l e d motions t o dismiss and t o s t r i k e which were r u l e d upon by t h e d i s t r i c t court. The d i s t r i c t court ordered Safecols a l l e g a t i o n s r e f e r r i n g t o t h e "misdelivery of seed" endorsement s t r i c k e n from i t s complaint. The defendants then answered and counterclaimed against Safeco seeking t o avoid t h e policy l i m i t s on t h e grounds, -- i n t e r a l i a , of negligence and estoppel. Safeco then brought a t h i r d p a r t y complaint a g a i n s t t h e Cogswell Agency, Inc., of Great F a l l s , who had sold t h e policy of Safeco, alleging, i n t e r a l i a , t h a t Cogswell had represented t o defendant Munroe t h a t it was authorized t o a c t f o r Safeco i n ways i n which it was not authorized t o a c t , i n d i c a t i n g t h e r e was cover- age f o r t h e r e s u l t s of t h e seed wheat mix up when t h e r e was not. Cogswell denies t h i s a l l e g a t i o n . Thereafter Cogswell moved f o r summary judgment and Munroe moved f o r a p a r t i a l summary judgment. The d i s t r i c t c o u r t issued i t s summary judgment which included findings of f a c t and conclu- s i o n s of law holding t h a t t h e r e was coverage and t h e r e was a corres- ponding duty t o defend. It i s from t h i s decision of t h e d i s t r i c t c o u r t t h a t Safeco appeals. The d i s t r i c t c o u r t denied Cogswell's motion f o r summary judgment on t h e third-party complaint and made no r u l i n g on t h e counterclaims of defendants. Those i s s u e s a r e not now before t h i s Court. To s t o p t h e continuance of t h e two basic a c t i o n s pending t h e appeal of t h e i n s t a n t action, Safeco acquired from t h e d i s - t r i c t c o u r t an order staying proceedings i n those actions. The defendants i n t h e i n s t a n t a c t i o n t h e r e a f t e r received a modifica- t i o n of t h e s t a y of proceedings t o t h e e f f e c t t h a t discovery i n t h e two basic a c t i o n s could continue. Safeco then appealed t h e order modifying t h e s t a y of proceedings allowing discovery. This Court then entered its order staying discovery i n t h e two basic a c t i o n s pending t h i s appeal. Safeco presents f i v e i s s u e s f o r our consideration: (1) Whether, because t h e coverage is only f o r i n j u r y t o o r d e s t r u c t i o n of "tangible" property, t h e d i s t r i c t c o u r t erred i n holding t h a t t h e alleged l o s s was covered by t h e policy? ( 2 ) Whether l i a b i l i t y coverage f o r property damages a r i s i n g o u t of i n s u r e d ' s products was excluded by t h e policy? ( 3 ) Whether t h e d i s t r i c t c o u r t erred i n s t r i k i n g t h e a l l e g a t i o n s i n Safeco's complaint concerning t h e "misdelivery of seed" endorsement? ( 4 ) Whether t h e r e is a duty t o defend t h e underlying cases i n d i s t r i c t court? (5) Whether t h e appeal from t h e d i s t r i c t c o u r t ' s order modifying t h e s t a y of proceedings was necessary t o p r o t e c t Safeco? W e answer t h e f i r s t t h r e e questions i n t h e negative, t h e fourth i n t h e affirmative and t h e f i f t h we hold t o be moot. W e a f f i r m t h e decision of t h e d i s t r i c t court. For purposes of discussion of t h e f i r s t i s s u e we would l i k e t o s e t o u t t h e f i r s t sentence of t h e coverage provision a s it would appear i f t h e i r r e l e v a n t portions w e r e deleted and t h e d e f i n i t i o n s incorporated therein: The company w i l l pay a l l damages, including damages f o r l o s s of use of property r e s u l t i n g from i n j u r y t o o r destruction of t a n g i b l e property, t h e insured is obligated t o pay f o r l i a b i l i t y imposed by law upon him because of i n j u r y t o o r d e s t r u c t i o n of tangible property t o which t h i s insurance a p p l i e s , caused by an occurrence. The insurance applied t o product l i a b i l i t y coverage although, a s l a t e r discussed,Safeco contends t h a t such coverage was limited t o bodily damages, property damage being excluded. Safeco contends t h a t whatever i n j u r e s suffered by Buchanan and Andersen & Hovland, as alleged i n t h e i r complaints, were i n j u r i e s t o "intangible" pro- p e r t y and not i n j u r i e s t o "tangible" property. W e f i n d t h i s contention t o be without m e r i t . W e f i n d no e r r o r i n and adopt t h e finding of f a c t No. 8 of t h e d i s t r i c t court; "8. That i f t h e claimants a g a i n s t Munroe a s aforedescribed suffered any l o s s by v i r t u e of having received and planted t h e wrong type of seed wheat, it follows, a s a matter of common knowledge, t h a t t h e land i n which t h e seed wheat was planted would have been damaged i n t h a t s a i d land would have l o s t a portion of i t s retained moisture, would have l o s t a portion of its re- tained f e r t i l i z e r , weeds would have grown thereon where no crop had grown, erosion would have occurred, s a i d land would have t o have been re- c u l t i v a t e d i n order t o render it s u i t a b l e f o r t h e planting of another crop of t h e same o r s i m i l a r nature, and t h a t i f l i t t l e o r no crop grew, t h e claimants would have received l i t t l e o r no compensation by v i r t u e of having l o s t a crop, and would have suffered l o s s of use of t h e i r lands I' . Although Safeco takes f i v e and one-half pages of i t s b r i e f t o d e f i n e t h e word "tangible1', we f i n d it t o be beyond d i s p u t e t h a t a Montana wheat fieldand t h e crop t h e r e i n , is t a n g i b l e property. The d i s t r i c t c o u r t c l e a r l y found i n j u r y t o t h e wheat f i e l d s and thus i n j u r y t o tangible property. The a l l e g a t i o n s of c o s t s of replanting, t h i r t y bushels per a c r e f o r one hundred forty-nine a c r e s , expense of destroying a crop t o p r o t e c t t h e next crop, c o s t of preparing s o i l , e t c . , i s not damage t o "intangible11 property, a s Safeco contends, but i s merely t h e measure of t h e damage t o t h e "tangible" wheat f i e l d s . Once i n j u r y t o tangible property is found, t h e policy c l e a r l y s t a t e s t h a t it a l s o covers damages f o r l o s s of use of property r e s u l t i n g from i n j u r y t o t a n g i b l e property. The p l a i n , c l e a r , unambiguous meaning of t h e language i n t h e policy i s t h a t once it has been found t h a t tangible property has been damaged, t h e r e i s insurance coverage f o r a l l damages be- cause t h e t e r m damages i s used without l i m i t a t i o n and, i n f a c t , is expanded t o include damages f o r l o s s of use, The i s s u e then becomes whether o r n o t S a f e c o t s policy language is s u f f i c i e n t l y strong enough t o exclude insurance coverage f o r consequential damages--loss of p r o f i t s . It might be t h a t l o s s of p r o f i t s is an i t e m of i n t a n g i b l e damage, However, it i s of utmost importance t o note t h a t t h e policy does not, by any s t r e t c h of t h e imagin- a t i o n , r e q u i r e t h a t t h e r e be tangible damage t o t a n g i b l e prop- e r t y . Clearly, it was not Safeco's i n t e n t i o n t o exclude conse- q u e n t i a l damages o r they would have s a i d s o i n the policy. Safeco, i n attempting t o d i s t i n g u i s h , among o t h e r s , Wells Labberton v. General Casualty Co.'of America, 53 Wash.2d 180, 332 P.2d 250, and St. Paul F i r e & Marine Insurance Co. v. Northern Grain Co., 365 F.2d 361, 368, (8th C i r . ) , argues t h a t t h e c o u r t s t h e r e were not faced with policy language l i m i t i n g coverage t o i n j u r y t o "tangible" property. W e deem it unnecessary t o go i n t o t h e f a c t u a l bases o r i s s u e s of those cases, noting merely t h a t they were s i m i l a r t o t h e i n s t a n t appeal and t h e l o s s e s were held covered by t h e p o l i c i e s . Because t h e p o l i c i e s i n those cases covered i n j u r i e s t o "property" r a t h e r than i n j u r i e s t o "tangible property", Safeco reasons t h a t those cases are not applicable. However, Safeco's argument f a l l s one s t e p s h o r t of t h e mark. To determine whether each p a r t i c u l a r case is applicable o r n o t , t h e case must be examined t o determine whether t h e i n j u r y involved was t o tangible o r intangible property. I f t h a t i n j u r y i s t o t a n g i b l e property, then t h e addition of t h e word "tangible" t o t h e d e f i n i t i o n of property would have no e f f e c t on t h e r u l e of t h e case. I n each of t h e above cases, and i n t h e i n s t a n t appeal, t h e i n j u r y w a s t o a wheat f i e l d and a wheat f i e l d i s t a n g i b l e property. And, d e s p i t e Safeco's d e n i a l s t h a t t h e i n j u r i e s i n Wells Labberton and Northern Grain were i n j u r i e s t o "tangible" property, t h e Court i n Northern Grain s a i d , a t p. 366. " J u s t a s t h e diminution i n value of t h e build- i n g s i n Hauenstein IHauenstein v. S t . Paul- Mercury Indem. Co,, 2 4 2 Minn, 354, 65 N.W.2d 1221 and Dakota Block IDakota Block v. Western Cas. & Surety Co., 81 S.D. 213, 132 N.W.2d 8261 c o n s t i t u t e d property damage within t h e ambit of t h e insuring agreement, so a l s o does t h e dimin- u t i o n i n t h e productivity of t h e wheat crop, as t h e r e s u l t of an i n f e r i o r and d e f i c i e n t q u a l i t y of seed wheat, c o n s t i t u t e property damage within t h e coverage of t h i s policy. The crops r a i s e d by Northern's customers were no less physical prop- erties than t h e buildings i n Hauenstein and Dakota Block. " (Emphasis supplied. ) W e hold t h a t t h e i n j u r i e s alleged i n t h e complaints of Buchanan and Andersen & Hovland a r e i n j u r i e s t o t a n g i b l e property within t h e coverage of t h e policy of insurance sold by Safeco t o Munroe . The second i s s u e r a i s e d concerns t h e following exclusion: "This insurance does not apply: ' I * * * " (d) t o property damage * * * (6) t o t h e named i n s u r e d ' s products a r i s i n g o u t of such products o r any p a r t of such products * * *." Safeco asks t h i s Court t o construe t h e language of t h e exclusion by reading it i n t h e a l t e r n a t i v e : This insurance does n o t apply t o (a) property damage of t h e named i n s u r e d ' s products o r (b) - property damage a r i s i n g o u t of such products o r any p a r t of such products. A s s o construed, t h e i n j u r y t o t h e wheat f i e l d s obviously arose o u t of Munroe's product, t h e seed, t h e exclusion i s applicable, and t h e r e is no coverage under t h e policy. Perhaps i f t h e ex- clusion w e r e punctuated o r phrased i n another manner it would have t h a t e f f e c t . But, a s w r i t t e n , t h e exclusion has reference s o l e l y t o property damage t o t h e named i n s u r e d ' s products. By s u b s t i t u t i n g t h e policy d e f i n i t i o n s f o r "property damage" and "named i n s u r e d ' s products", t h e exclusion reads: This insurance does not apply t o i n j u r y t o o r destruction of t a n g i b l e property t o t h e goods - 9 - products manufactured, sold, handled distributed by the named insured or by others trading under his name including any container thereof arising out of such products or any part of such products. The court in Northern Grain said, at page 368: "Finally, St. Paul contends that irrespective of any 'injury to * * * property' which may con- ceivably exist, coverage is nevertheless precluded under the exclusion of 'injury to or destruction of * * * ( 3 ) any goods, products or containers thereof manufactured, sold, handled or distributed by the Insured * * * . I Thus St. Paul equates the wheat crop of Northern's customers with the seed wheat sold by Northern, and refuses to recognize a distinct and separate identity between the two.' "We refuse to accede to the argument that the wheat crop was merely the seed in changed form and therefore encompassed within the exclusionary clause. By virtue of the germination process in- volved in the production of wheat a transformation did, in fact, occur so as to constitute the wheat crop a separate and distinct entity from the original seed wheat. "Considered in its proper perspective, the func- tion of the exclusionary clause denying coverage of damages for 'injury to or destruction of * * * any goods, products or containers thereof manu- factured, sold, handled or distributed by the Insured * * * ' is clear. Such a provision denies coveraqe to an insured for damaqes occasioned to his own qoods or work product by reason of its internal defectiveness. The exclusionary clause, however, has no reference to damage to property other than the insured's qoods or products or other accidental loss resulting from the defec- tive condition of the insured's work product." (Emphasis supplied. ) Although we have no knowledge of why exclusion ( d ) ( 6 ) was inserted in the instant policy, it appears likely that it was for the reason stated by the court in Northern Grain. Safeco's third contention is that the district court erred in granting defendants' motion to strike from the amended complaint the allegations regarding the existence of a so-called "Misdelivery of Seed" endorsement. The allegation which was stricken by the district court reads as follows: - 10 - "Plaintiff had available for inclusion in such a policy upon payment of an additional premium therefor its 'Misdelivery of Seed' endorsement, a copy of which is attached marked 'Exhibit B'. Defendant ID. E. Munroe,] did not pay for and did not receive such a 'Misdelivery of Seed' endorsement and the same is not a part of the contract of insurance entered between the parties." There is no contention advanced by Safeco that Munroe was offered such an endorsement or was even aware of the existence of such an endorsement. Yet it is advocated by Safeco that this endorsement, or its absence, is evidence of the intention of the parties to the insurance contract. Section 13-705, R.C.M. 1947, provides: "When a contract is reduced to writing, the in- tention of the parties is to be ascertained from the writing alone, if possible; subject, however, to the other provisions of this chapter." This statute makes it clear that, in Montana, a contract is to be interpreted within its four corners and not by reference to ex- traneous matters, as Safeco would have this Court do. In Home Ins. Co. v. Pinski Bros., Inc., 156 Mont. 246, 258, 479 P.2d 274, we stated: " * * * Where the policy is unambiguous, the terms and coverage of the policy must be deter- mined by its language alone and extrinsic evidence is inadmissible to establish its meaning. Section 13-704, R.C.M. 1947; James v. Prudential Ins. Co., 131 Mont. 473, 312 P.2d 125, Kansas City Fire & Marine Ins. Co. v. Clark (D.C. Mont.) , 217 F.Supp. 231 (1963) affirmed 9 Cir., 329 F.2d 647; Glacier Gen. Assur. Co. v. State Farm Insurance Co., 150 Mont. 452, 436 P.2d 533. * * *" We hold that the policy provisions in issue were not ambiguous and that the district court properly struck the allega- tions in Safeco's amended complaint regarding the "Misdelivery of Seed" endorsement. Finding coverage under the policy, Safeco's duty to de- fend the actions brought by Buchanan and Andersen & Hovland against Munroe follows from the language of the policy: " * * * 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 * * *," Safeco's fifth argument goes to the question of whether or not the district court erred in making its order allowing discovery proceedings to continue in the two basic actions pend- ing the appeal of this action. However, since no discovery pro- ceedings have taken place since this Court's order staying the same, this question is moot. Because of the view we have taken of the foregoing issues, we deem it unnecessary to discuss any of the other issues raised by the parties. The summary judgment of the district court is affirmed. i ,"i" We concur: 'thief Justice