Court Opinion

ID: 8913661
Source: CourtListenerOpinion
Date Created: 2022-11-27 04:05:48.759047+00
Date Added: 2024-06-11T17:08:46.257888
License: Public Domain

FAIRCHILD, Circuit Judge,
dissenting.
I respectfully dissent.
Sears bought fabric from Riegel, and supplied it to Rollic, made it into a garment, packaged, labeled, and ready for sale by Sears, who sold it to its customer. Sears sold the Riegel fabric as only a part or ingredient of a garment. Rollic made a product out of material supplied by Sears.
Commercial Union is the products liability insurer of Riegel. Reliance is the products liability insurer of Rollic. Each policy contained an endorsement affording coverage endorsed. The Commercial Union endorsement is designated a “Broad Form” and the Reliance endorsement is designated a “Limited Form.” The provisions differ to some extent, but the language relevant to this case is identical.
Each endorsement amended the policy to include “a designated vendor as an insured, but only with respect to the distribution or sale in the regular course of the vendor’s business of the named insured’s product.” The Commercial Union endorsement designated “All Vendors” under the legend “Name of Vendor(s).” Reliance specified Sears. Each insurer also issued a certificate of insurance to Sears.
Each endorsement provided that it is “subject to following additional provisions,” so worded as in effect to be exclusions.
As to Commercial Union, Judge McGarr decided that Sears was not granted coverage for bodily injury liability arising out of alleged defects in the fabric produced by Riegel because of provision l(b)(iv):
“1. The insurance with respect to the vendor [Sears] does not apply to:
(b) bodily injury or property damage arising out of ....
(iv) products [fabric] which after distribution or sale by the named insured [Riegel] have been labeled or relabeled or used as a container, part or ingredient of any other thing [garment] or substance by or for the vendor [Sears].”
I fully agree and see no room for construction under the traditional rule of construction against the insurer.
The majority finds it is unreasonable to read the provision literally because it would make the coverage “illusory.” With all respect, it seems to me that even with the limitation of coverage to instances where the vendor sells the product of the named insured in its original form, the endorsement affords substantial invaluable coverage.
The fallacy of Sears’ position is illustrated by a passage from its reply brief:
“Commercial does not and could not deny that if the Cumberlands [plaintiffs against Sears] had made the same allegations of defective fabric against Riegel they make against Sears, it would be required to defend and indemnify Riegel. What it and the Court below seem to, have ignored is that the certificate of insurance and vendor’s endorsement entitle Sears to the very same coverage.”
To the contrary, it is plain that provision l(b)(iv) of the endorsement limited the coverage afforded the vendor to less than the coverage afforded the named insured. Surely the insurer had the right to do so. And there appeared to be sound underwriting reasons for an insurer to limit coverage and obligation to defendant vendor to claims arising out of products of the named insured which passed through the hands of the vendor without significant change.
In the case before us, as Sears points out, if the coverage afforded the vendor were not so limited, then Commercial Union would have to defend the Cumberlands’ lawsuit from the beginning, even though “a long way down the road” it may be determined that Riegel’s fabric did not cause the injury.
*503In transactions following the pattern in this case, Sears probably wants its suppliers to provide it coverage without this limitation. If so, it should bargain for it and presumably a higher premium would be paid. The case against Reliance presents a different question. Rollic, its named insured, produced a product ready for sale by Sears. Accordingly, l(b)(iv) does not exclude coverage. In essence, however, the facts present the other side of the coin. Sears has supplied a part or ingredient of the finished product and it may be “a long way down the road” before it can be determined whether Rollic’s processing of the fabric contributed to the Cumberland’s injury. An insurer might well not insure a vendor who had supplied materials to the named insured at the same premium it would insure a vendor who merely bought and re-sold the named insured’s product. Accordingly, for a reason similar to that which prompted l(b)(iv), the further provision of the endorsement operates here to exclude from being “an insured” any person or organization “from whom the insured acquired such products or any ingredient, part or container, entering into, accompanying or containing such products.”
The majority attempts to demonstrate that Sears is not a person or organization denied coverage by this provision by interpreting “named insured” as including Sears. With all respect, I find this construction untenable.
I have already quoted the language of the endorsement by which the “vendor” is made an “insured” with respect to the vendor’s sale of “the named insured’s products.” Clearly "named insured” does not mean Sears in that context.
Provision (a) says the insurance with respect to the “vendor” does not apply to any express warranty or sale for a purpose “unauthorized by the named insured.” Again, “named insured” cannot mean Sears.
Provision (b)(iv), similar to the one relevant to Commercial Union, says the insurance with respect to the vendor does not apply to “products which after distribution or sale by the named insured” have been labeled, etc. “by the vendor.” Again, “named insured” does not mean Sears.
At the top of the endorsement, opposite the printed legend “Named Insured” appears “Rollic, Inc., et al.” and Sears, Roebuck and Company appears under the printed legend “Name of Vendors).” Within the fairly brief text of the endorsement there are four demonstrations that “named insured” does not mean Sears.
I would give effect to the provisions relied on by both insurers. I would affirm the part of the judgment in favor of Commercial Union and reverse the part of the judgment which is against Reliance.