Court Opinion

ID: 9451274
Source: CourtListenerOpinion
Date Created: 2023-08-04 17:12:21.592268+00
Date Added: 2024-06-11T17:32:38.750308
License: Public Domain

MERRILL,
Circuit Judge (dissenting) :
While I cannot, for the reasons set forth above, agree with the District Court in holding appellant estopped to deny coverage (assuming that the policy did not afford it), I do find myself in agreement with the result reached by the court. In my judgment the policy should be held to afford coverage. Accordingly,, upon the appeal taken by Carol Chapman,; I would reverse. 1
The trouble in this case, as I view it, is simply that the insurance policy is drawn in such a fashion that when all of its terms are brought together its coverage of the products hazard is wholly and surprisingly inadequate. Some protection against accidents occurring after expiration of the policy period must be afforded or the risk which we normally associate with products hazard has not adequately been met. Some burden should rest upon an insurer to provide adequate coverage for the risks it purposes to cover or to make inappropriate limitations upon coverage clearly apparent through offering optional full coverage at increased premium rates 1 or otherwise.
In recent years increasing attention has been paid to problems created by what have come to be called contracts of adhesion — those prepared by one party, usually incorporated in a printed form, and as to whose terms the other party has no choice but to reject or adhere.
Problems have been recognized in two distinct types of situation. In the first (which is not the situation we face) one party to a contract may possess overwhelming economic power. The weaker may possess no alternative but to agree to a contract which he understands perfectly but which in fact is oppressive.
The second situation, which is more common, is the one we face here. In this situation one party who is in a superior (but not necessarily an overwhelming) economic position may, through careful drafting of a grammatically unambiguous but nevertheless lengthy and complex document, obtain the assent of the other party although the other party does not in fact understand all the teims of the contract. It has been felt, in such a situation, that the adhering party should not be conclusively bound by all the terms of the writing as the best evidence of the parties’ agreement.
It must be recognized that the case differs from that of the ordinary written contract in which each party has had his say, or at least an opportunity to speak as to its terms and the manner in which they are expressed. It is no sufficient answer in such a case to say that the writing is unambiguous. That is not the appropriate test. The problem, strictly speaking, is not one of construction but of the true scope of agreement. The conclusion that this is what the parties must have meant lacks the essential rational support of the fact that this is what they said and what they have agreed should be included. Where the contract is in the form of a lengthy printed agreement the inference that the adhering party has read it at length does not so clearly and *54rationally follow from his acceptance of it as to warrant a conclusive presumption to that effect.
It must of course be recognized that in the insurance industry and in many other fields of business it is not always practical for contracts to be reached through a process of bargaining and mutual agreement in detail. It is inevitable that some contracts will be of the adhesion type and the law must allow room for them. In such cases, however, the vulnerability of the adhering party should create a responsibility in the other for fair and open dealing. When the contract provides a surprising and unexpected or unreasonable exemption or limitation of the basic undertaking this responsibility has not been met.
Such was the holding in Karsales, Ltd. v. Wallis, 1 Weekly L.R. 936 (C.A. 1956), where Lord Denning stated:
“The law about exempting clauses has been much developed in recent years, at any rate about printed exempting clauses, which so often pass unread. Notwithstanding earlier cases which might suggest the contrary, it is now settled that exempting clauses of this kind, no matter how widely they are expressed, only avail the party when he is carrying out his contract in its essential respects * * *. They do not avail him when he is guilty of a breach which goes to the root of the contract. The thing to do is to look at the contract apart from the exempting clauses, and see what are the terms, express or implied, which impose an obligation on the party. If he has been guilty of a breach of those obligations in a respect which goes to the very root of the contract, he cannot rely on the exempting clauses.”
Here the definition of products hazard reads:
“The term ‘products hazard’ means: (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, other than equipment rented to or located for use of others but not sold, if the accident occurs after the insured has relinquished possession thereof to others and away from the premises.”
The limitation clause, in a separate paragraph of the policy, reads:
“V. Policy Period, Territory
This policy applies only to accidents which occur during the policy period, within the United States of America, its territories or possessions, Canada or Newfoundland.”
The limitation clause is wholly appropriate to most of the risks covered by the policy. When applied to products hazard, however, it has a most unexpected and surprising result: It actually excludes from coverage a not insubstantial area of the hazard which the policy, by definition, purports to cover and which the insured would normally expect it to cover. The limitation in this respect was inconspicuous and its oversight understandable. A most careful reading and analysis would have been necessary in order to comprehend its effect upon products hazard coverage. It was separated in the policy from the products hazard definition. The definition itself contained a condition which one might assume to be the extent of significant limitation. The focus of the limitation clause itself is upon geographical rather than temporal factors.
I would not hold that parties cannot agree upon such a limited coverage. (Indeed it would seem quite appropriate that any products hazard lingering after other public liability risks have ceased to exist should, in fairness to all concerned, be made the subject of a special optional provision.) I would, however, hold that under such policy provisions as are found here knowledge of such limitation and consent to it must appear otherwise than from the printed words themselves. The proof in this case was to the contrary.

. Failure to provide optional full coverage at increased rates would in itself seem to suggest that premium rates had been calculated upon the assumption that full coverage was afforded. In this respect the District Court, referring to testimony of the insurer’s agents, stated:
“Parker’s deposition (and Clay’s testimony) indicates, without contradiction, that the policy actually delivered to the insureds was the only policy providing products liability that was then available to storekeepers * * * and that Parker did not know of any storekeepers or products liability policy which he could have sold which had a different or broader coverage than the one issued * *