Reliance Natl. Ins. v. William Hatfield , 228 F.3d 909 ( 2000 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 99-3631
No. 99-3632
___________
Reliance National Insurance Company, *
*
Plaintiff - Appellee, *
*
v. * Appeals from the United States
* District Court for the
William Hatfield; Nancy Hatfield; * Eastern District of Arkansas.
Turbine Conversions, Ltd.; J. R. *
Cartillar, doing business as *
Cartillar Flying Service, *
*
Defendants - Appellants, *
___________
Submitted: May 8, 2000
Filed: October 10, 2000
___________
Before BOWMAN, LOKEN and BYE, Circuit Judges.
___________
LOKEN, Circuit Judge.
Turbine Conversions, Ltd., of Nunica, Michigan (“Turbine”), sold two PT6 Pratt
& Whitney turbine engines and two T45 conversion kits to Cartillar Flying Service of
Hickory Ridge, Arkansas (“Cartillar”). Turbine completed the conversions, which
entailed installing the turbine engines in Cartillar’s agricultural aircraft, and returned
the converted airplanes to Cartillar in Arkansas. Shortly thereafter, the converted
engines suffered catastrophic failures. Cartillar sued Turbine for breach of warranty
and recovered a substantial judgment for damages to the engines. In this separate
action by Turbine’s insurer, Reliance National Insurance Company seeks a declaratory
judgment that its liability policy for the applicable period did not cover those damages.
The district court1 granted judgment in favor of Reliance, concluding that business risk
exclusions in the policy preclude coverage for damage to the products Turbine sold to
Cartillar. Turbine, Cartillar, and their owners appeal. The parties agree that Michigan
law governs the coverage issue. Construing the insurance policy and Michigan law de
novo, see St. Paul Fire & Marine Ins. Co. v. Missouri United Sch. Ins. Council, 98 F.3d
343, 345 (8th Cir. 1996) (standard of review), we affirm.
The Reliance policy was a comprehensive general liability (“CGL”) policy
tailored to Turbine’s aircraft- and airport-related business. As the policy name
suggests, the CGL form of policy is used to offer insureds a buffet of standard business
liability coverages. Each insured selects the types and amounts of coverage that are
suitable to its business. These coverages are recorded on the policy’s declarations
page. Other policy terms and conditions, such as coverage definitions, conditions, and
exclusions, appear in standard printed policy documents that accompany the
declarations page. Although each insurer is free to formulate its own CGL policy, this
policy structure has been developed by a nationwide industry service organization and
is very widely (if not universally) employed. See generally Fresard v. Michigan Millers
Mut. Ins. Co., 327 N.W.2d 286, 287-88 (Mich. 1982).
The Reliance policy stated that it covered bodily injury and property damage to
which this insurance applies. It is undisputed that Cartillar’s engine damage falls within
the policy’s definition of property damage -- “injury to or destruction of tangible
property.” Under Michigan law, the term “to which this insurance applies” subjected
1
The HONORABLE STEPHEN M. REASONER, United States District Judge
for the Eastern District of Arkansas.
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the general insuring clause to the limitations set forth in the policy exclusions. See
Tiano v. Aetna Cas. & Sur. Co., 301 N.W.2d 476, 481 (Mich. Ct. App. 1980). The
applicable insurance was defined in the “coverage parts” set forth in the policy’s
declarations page and attachments. The declarations page stated that the policy
provided “Owners’, Landlords’ and Tenants’ Liability Insurance,” “Hangarkeepers’
Liability Insurance,” “Contractual Liability Insurance,” and -- most relevant to this case
-- “Completed Operations and Products Liability Insurance.” An attachment to the
declarations page declared, in part, that Completed Operations coverage is provided
for “T45 Conversions and Sale of PT6 Engines Installed,” the products and work
Turbine sold to Cartillar in the underlying transaction here at issue.2
The “completed operations” and “products” coverages were defined in a printed
portion of the policy entitled “Comprehensive General Liability Insurance -- Coverage
Part.” These definitions provided in relevant part:
“completed operations hazard” includes bodily injury and
property damage arising out of operations or reliance upon a
representation or warranty made at any time with respect thereto, but only
if the bodily injury or property damage occurs after such operations have
been completed or abandoned and occurs away from the premises owned
by or rented to the named insured. “Operations” include materials, parts,
or equipment furnished in connection therewith.
2
This document, policy form AV 00 P038/39 00 1193 (which we will call Form
38/39), clarified the scope of the completed operations and products liability coverage
part listed on the declaration page. Form 38/39 did not add another coverage part.
Indeed, it limited the completed operations and products coverages to the operations
and products specified on the form, and it listed the premium bases for these coverages.
Form 38/39 provided information necessary to define the hazards covered and thus
comprised an essential part of the complete policy document. The declarations page
described Form 38/39 as an “[e]ndorsement forming a part of this policy.” Form 38/39
included the warning, “This Coverage Part shall not be binding on [Reliance] unless
attached to the Declarations Page.”
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“products hazard” includes bodily injury and property damage
arising out of the named insured’s products or reliance upon a
representation or warranty made at any time with respect thereto, but only
if the bodily injury or property damage occurs away from premises owned
by or rented to the named insured and after physical possession of such
products has been relinquished to others.
Turbine was liable to Cartillar for property damage arising out of Cartillar’s reliance
upon Turbine’s warranties. The damage occurred after Turbine’s operations were
completed and after Turbine had relinquished the products to Cartillar. Thus, if our
analysis of the relevant policy provisions ended here, Turbine’s loss would be covered.
However, the policy also contained numerous exclusions, which appeared in the
same printed portion of the policy as the definitions of the completed operations and
products hazards. Relevant to this case are three so-called “business risk” exclusions:
This insurance does not apply . . .
(l) to property damage to the named insured’s products arising out
of such products or any part of such products;
(m) to property damage to work performed by or on behalf of the
named insured arising out of the work or any portion thereof, or
out of materials, parts or equipment furnished in connection
therewith;
(n) to damages claimed for the withdrawal, inspection, repair,
replacement, or loss of use of the named insured’s products or
work completed by or for the named insured or of any property
of which such products or work form a part, if such products, work
or property are withdrawn from the market or from use because of
any known or suspected defect or deficiency therein.
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Applying Michigan law, the district court concluded that these exclusions “are broad,
unambiguous, and all-inclusive,” they “limit the circumstances under which completed
operations coverage exists,” and therefore they “preclude coverage for the catastrophic
failure of the two engine conversions completed by Turbine for Cartillar.” We agree.
Given the structure of the policy, we think it clear that these exclusions apply to
each of the coverage parts disclosed on the declarations page and its attachments.3
Accord Hawkeye-Security Ins. Co. v. Vector Const. Co., 460 N.W.2d 329, 335 (Mich.
Ct. App. 1990). This construction is consistent with the purposes of both the products
liability and completed operations coverages, and the business risk exclusions.
The products hazard and completed operations provisions are not
intended to cover damage to the insured’s products or work project out
of which an accident arises. The risk intended to be insured is the
possibility that the goods, products or work of the insured, once
relinquished or completed, will cause bodily injury or damage to property
other than to the product or completed work itself, and for which the
insured may be found liable.
Fresard, 327 N.W.2d at 292 (quotation marks and citations omitted). The business risk
exclusions serve to limit the products and completed operations coverages in this
manner. See generally 9 RUSS & SEGALLA, COUCH ON INSURANCE § 130:8, at 130-19
(3d ed. 1997). Thus, when applicable, these exclusions limit the coverages
affirmatively provided by the completed operations and products liability coverage part
on which Turbine and Cartillar rely.
3
For example, another attachment to the declarations page, policy form AV 00
P042 00 1193, stated that “the exclusion of ‘property damage’ to the insured’s
products . . . shall not apply” to the products described in schedule (e) of Form 38/39,
a schedule that did not include the T45 conversion and PT6 engine products. Form 42
was superfluous if the business risk exclusions did not otherwise apply to the
completed operations and products coverages listed on Form 38/39.
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Like the district court, we are not persuaded by appellants’ efforts to avoid
application of these business risk exclusions. Turbine argues that the exclusions do not
apply because the completed operations hazard specifically included damages arising
from reliance on a Turbine warranty, such as Cartillar suffered, whereas the business
risk exclusions did not refer to breach-of-warranty damages. However, the business
risk exclusions unambiguously applied to all property damage to Turbine’s products
and completed work. That all-inclusive exclusionary language may not be ignored
simply because a coverage part referred specifically to one particular cause of that kind
of property damage. Turbine further argues that the district court improperly ignored
controlling Michigan precedent -- the Michigan Court of Appeals decision in Fresard
v. Michigan Millers Mut. Ins. Co., 296 N.W.2d 112, 114-15 (Mich. Ct. App. 1980),
that the interaction of the business risk exclusions was ambiguous and therefore must
be construed in favor of the insured. However, after Fresard was affirmed by an
equally divided Supreme Court of Michigan, 327 N.W.2d 286, the Michigan Court of
Appeals declined to follow Fresard, holding that “the exclusions are not to be read
cumulatively, but individually [and] each, standing alone, is clear and unambiguous.”
Hawkeye, 460 N.W.2d at 337. Therefore, we conclude Fresard is not controlling.
Cartillar argues that its catastrophic engine losses are covered because they were
caused by a defective engine component, namely, gear failures. We disagree. The
exclusions apply to property damage to Turbine’s products, both the engines and their
defective components. “The words ‘product’ and ‘work’ in the exclusion refer to the
insured’s entire product or work, not just to the component part from which the loss
arose.” 9 COUCH ON INSURANCE § 129:13, at 129-26. This argument might well have
merit had there been property damage to the airplanes in which the engines were
installed, because the airplanes were not Turbine product or work. But all property
damage to the engines themselves is subject to the business risk exclusions. Cartillar
further argues that the “active malfunctioning” exception in another business risk
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exclusion4 conflicts with exclusions (l), (m), and (n), creating an ambiguity that must
be resolved in favor of the insured. However, Hawkeye established that the exclusions
must be read individually, and that an exception to an exclusion cannot be construed
as a grant of additional coverage. See 460 N.W.2d at 336-37. As the damages
recovered by Cartillar were unambiguously excluded by exclusions (l), (m), and (n),
Reliance’s policy did not cover Turbine’s loss.
The judgment of the district court is affirmed.
BYE, Circuit Judge, dissenting.
The majority holds that the business risk exclusions apply to the additional
"completed operations" and "products" coverages purchased by Turbine. Given the
particular structure of this policy, I cannot agree. The only insuring agreement, or grant
of coverage, that can be found within this policy for those coverages appears in an
endorsement — an endorsement that should prevail over the business risk exclusions,
not vice versa.
The analytic force of the majority opinion rests on how "completed operations"
and "products" coverage is supposed to work, not on how this disputed policy actually
works. In its rush to interpret the policy as if it were standard, the majority overlooks
the plain fact that this policy is unusual. The tragedy is that, in so doing, the majority
ignores several bedrock principles of policy interpretation, particularly the rule that
4
Exclusion (k) provides in relevant part: “This insurance does not apply . . . to
bodily injury or property damage resulting from the failure of the named insured’s
products or work completed . . . if such failure is due to a mistake or deficiency in any
design, formula, plan, specifications, advertising material or printed instructions
prepared or developed by any insured; but this exclusion does not apply to bodily
injury or property damage resulting from the active malfunctioning of such products
or work” (emphasis added).
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coverage endorsements override contrary exclusions in the policy. Thus, I cannot join
the majority's approach and respectfully dissent.
My analysis of this policy leads me to conclude that Reliance failed to attach the
"coverage part" form for the optional "completed operations" and "products" coverages
that Turbine purchased. As a result, this policy does not set forth, in a straightforward
manner, an insuring agreement for those coverages. Nor does the policy exclude from
coverage any property damage to the insured's product or completed work — damages
typically excluded under "completed operations" and "products" coverages. Instead,
this policy actually triggers coverage for all property damage described in the
definitions of "completed operations hazard" and "products hazard." Those broad
definitions encompass the engine damage suffered by Cartillar.
I begin by referring to the standard rules of construction followed in Michigan
when examining the language of an insurance policy:
(1) The contract should be viewed as a whole;
(2) The intent of the parties should be given effect;
(3) An interpretation of the contract which would render it unreasonable
should be avoided;
(4) Meaning should be given to all terms;
(5) Ambiguities should not be forced;
(6) Conflicts among clauses should be harmonized;
(7) The contract should be viewed from the standpoint of the insured; and
(8) The insurer bears the burden of proving an absence of coverage.
See Fresard v. Michigan Millers Mut. Ins. Co., 327 N.W.2d 286, 288-89 (Mich.
1982). With these principles in mind, I consider whether this particular policy covers
Cartillar's engine damage.
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I start with an examination of the basic policy that Turbine purchased, including
the general insuring agreement contained therein; followed by an examination of the
pertinent exclusions that limit the general insuring agreement and that might preclude
coverage for the engine damage; and finally, conclude with an examination of the
endorsements attached to the basic policy that might set forth additional grants of
coverage (or exclusions) that might apply to Cartillar's engine damage.
The general insuring agreement located in the Comprehensive General Liability
(CGL) section of the policy provides that "[t]he company will pay on behalf of the
insured all sums which the insured shall become legally obligated to pay as damages
because of [] bodily injury or [] property damage to which this insurance applies."
Joint Appendix (JA) 118. The policy further provides that "'Property damage' means
injury to or destruction of tangible property." JA 113.
If my analysis stopped here, Cartillar's engine damage would be covered. The
engine damage is "injury to or destruction of tangible property," and thus falls within
the policy's broad definition of "property damage." Absent an exclusion, Cartillar's
breach of warranty judgment would be covered by the CGL insuring agreement,
because the judgment is a sum "which the insured shall become legally obligated to
pay."
I move on to an examination of any pertinent exclusions that might remove
Cartillar's engine damage from the realm of "property damage" to which the insurance
applies. Exclusions (l), (m) and (n), the so-called "business risk" exclusions, do
remove Cartillar's engine damage from the realm of "property damage" covered by the
policy. Cartillar's damage consists solely of property damage to the engines
themselves (i.e., Turbine's product or completed work). The standard business risk
exclusions specifically exclude coverage for "property damage to the named insured's
products" and "to work performed by or on behalf of the named insured." JA 118.
Cartillar's engine damage would not be covered if my analysis ended here.
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Knowing, however, that Turbine purchased additional "completed operations"
and "products" coverage, as evinced by the declarations page of the policy, I must next
examine the endorsements attached to this policy to determine whether any additional
insuring agreement restores coverage for Cartillar's engine damage. It is axiomatic that
when an insured pays an additional premium for an endorsement or rider, the insured
does so to receive coverage for something that would otherwise be excluded, or that
was never originally covered, by the basic policy itself. Cf. Meridian Mut. Ins. Co.
v. Morrow, 443 N.W.2d 795, 797-98 (Mich. Ct. App. 1989) (discussing an
endorsement purchased for a specific motorcycle for coverage that would otherwise be
excluded under the policy); Porter v. Michigan Mut. Liab. Ins. Co., 293 N.W.2d 799,
284 (Mich. Ct. App. 1980) (noting that an insured could have purchased an
endorsement for an additional premium that would have eliminated certain limitations
on the policy's coverage).
At this point in the analysis, something seems amiss about this particular policy.
The policy's declarations page reflects that Turbine purchased the optional "Coverage
Part" for "Completed Operations and Products Liability Insurance" and paid an
increased premium for that coverage. See JA 109. The policy's schedule of
coverages/limits of liability also describes certain specific "Completed Operations" and
"Products" hazards covered by the policy. See JA 116, 131. In addition, one of the
endorsement forms attached to the policy sets forth four separate exclusions (elevator,
independent contractor, completed operations, and products) that can be triggered by
checking a box next to the applicable exclusion. See JA 121. Here, the endorsement
form was used to trigger an elevator exclusion, and that box was checked.
Significantly, however, the boxes next to the "completed operations exclusion" and
"products exclusion" were not checked — a further indication that Turbine purchased
those coverages. See JA 121.
Yet, despite all these indications that Turbine purchased "Completed Operations
and Products Liability Insurance," a search of the entire policy fails to reveal a
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"coverage part" for that additional coverage. The only provisions that appear to refer
to this additional coverage are contained in the definitions section, where the terms
"completed operations hazard" and "products hazard" are defined.
When an insured has purchased coverage for the "completed operations" and
"products" hazards, I would normally expect the policy to contain a separate "coverage
part" that sets forth the terms and provisions of that additional coverage. I base that
expectation primarily upon my understanding of the structure utilized in the standard
policy forms promulgated by the Insurance Services Offices, Inc., (ISO) and widely
used in the insurance industry. The policy considered in National Union Fire Ins. Co.
of Pittsburgh v. Structural Sys. Tech., Inc., 756 F. Supp. 1232, 1237-1241 (E.D. Mo.),
judgment amended, 764 F. Supp. 145 (1991), aff'd, 964 F.2d 759 (8th Cir. 1992),
exemplifies that structure.
A standard ISO policy typically contains a general insuring agreement in the
CGL section of the policy (as does this Reliance policy), providing that the insured
"will pay those sums that the insured becomes legally obligated to pay as damages
because of 'bodily injury' or 'property damage' to which this insurance applies." See,
e.g., Structural Systems, 756 F. Supp. at 1237.
The typical policy also contains (as does this Reliance policy) the standard
business risk exclusions for property damage to the insured's product and completed
work. See id. at 1238-39.
When an insured purchases the optional coverage for completed operations and
products hazard (as Turbine did), a standard ISO policy contains a separate insuring
agreement for that additional coverage. See id. at 1241 ("We will pay those sums that
the insured becomes legally obligated to pay as damages because of 'bodily injury' or
'property damage' included within the 'products-completed operations hazard' to which
this insurance applies."). Despite the presence of the business risk exclusions in the
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CGL section of the policy, this separate "completed operations" insuring agreement
contains its own exclusions that specifically apply to property damage to the insured's
product and completed work. See id.
Secondarily, I base my expectation that this Reliance policy should contain a
separate "coverage part" for the "completed operations" and "products" hazards upon
my examination of this particular contract as a whole — something I am required by
Michigan law to do, see Fresard, 327 N.W.2d at 289.
A few examples will explain. The declarations page indicates that Turbine
purchased an additional "Coverage Part" for "Hangarkeepers' Liability Insurance." See
JA 109. Not surprisingly, there is a separate "coverage part" included in the policy
that contains a separate "hangarkeepers' liability" insuring agreement (and separate
exclusions) applicable to that additional coverage. See JA 125.
The declarations page also indicates that Turbine purchased two other optional
"Coverage Parts" for "Owners' Landlords' and Tenants' Liability Insurance" and
"Contractual Liability Insurance." See JA 109. Not surprisingly, a separate
endorsement (Form AV 00 P033 00 1193) applies to those two additional "coverage
parts," and specifically sets forth the corresponding changes made to the CGL section
of the policy. See JA 110.
Thus, of the four additional coverages purchased by Turbine, the only one
lacking a corresponding "coverage part" in the policy is the one for "Completed
Operations and Products Liability Insurance."
If my analysis stopped at this point, I would conclude that the missing "coverage
part" (and therefore the lack of a clearly-set-forth insuring agreement) for "completed
operations" and "products" coverages, when coupled with the undisputed fact that
Turbine actually purchased those coverages, renders this policy hopelessly ambiguous.
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Michigan law requires that the policy be viewed from the standpoint of the insured, and
that the insurer bears the burden of proving an absence of coverage. See Fresard, 327
N.W.2d at 289. Reliance charged an increased premium for "completed operations"
coverage and listed "T45 Conversions" (the completed work at issue) as the
"operations" covered by the policy. See JA 116. Yet the absence of a "coverage part"
in the policy, explaining what exactly that additional coverage encompasses, leaves me
unable to locate any unambiguous provision excluding coverage for the engine damage
at issue. Under those circumstances, and in view of the insurer's burden, I would be
constrained by Michigan law to interpret the policy in a manner favoring coverage.
A Louisiana court faced a nearly identical situation. See Mike Hooks, Inc. v.
Jaco Services, Inc., 674 So. 2d 1125 (La. Ct. App. 1996). There (as here) the insurer
acknowledged that the insured had purchased "completed operations" coverage, but the
policy contained only a general insuring agreement (to which applied a standard
business risk exclusion for damage to the insured's completed work), with no separate
provisions regarding the "completed operations" coverage other than those contained
in the definitions. See Mike Hooks, 674 So. 2d at 1126-1127. The court concluded
that the "missing" provisions for the "products-completed operations hazard" rendered
the policy ambiguous, and construed the policy in favor of coverage.
We are unable to find an unambiguous provision in this policy addressing
what the products-completed operations coverage, as found on the
declarations page, encompasses. As such, we find that the portions of the
policy covering products-completed operations to be ambiguous.
Therefore, we are constrained to interpret these terms in a light favoring
coverage.
Id. at 1127; accord Kidd v. Logan M. Killen, Inc., 640 So. 2d 616, 620-22 (La. Ct.
App. 1994) (superseded by statute on other grounds); Gaylord Chem. Corp. v.
Propump, Inc., 753 So. 2d 349, 356-57 (La. Ct. App. 2000); but see Hawkeye-Security
Ins. Co. v. Davis, 6 S.W.3d 419, 425 n.4 (Mo. Ct. App. 1999) (acknowledging the
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force of the Louisiana cases, but choosing to ignore them to the extent that they could
not be distinguished).
My analysis of the Reliance policy must not stop with the discovery of the
missing "coverage part," however. Michigan law requires us to give meaning to all
terms within the policy, if possible. See Fresard, 327 N.W.2d at 289. An examination
of the entire policy reveals that meaning can be given to the additional "completed
operations" and "products" coverages purchased by Turbine, despite Reliance's failure
to attach the proper "coverage part."
As previously noted, the policy's schedule of coverages/limits of liability (Form
38/39) describes certain specific "Completed Operations" and "Products" hazards
covered by the policy. See JA 116. "T45 Conversions" are specifically listed in the
hazard schedule under hazard (d) for "Completed Operations." See JA 116.
A second endorsement (Form 42) refers to the hazard schedule in the first
endorsement, and provides, in pertinent part, that
[t]his insurance does not apply to damages because of bodily injury or
property damage included within the completed operations hazard or
included within the products hazard unless the operations or products
are described in the schedule under hazards (d) and (e) - Completed
Operations or Products.
JA 122 (emphasis in original).
By necessary implication, this second endorsement provides that the policy does
apply to property damage included within the completed operations hazard or products
hazard if the operations or products are described in the schedule under hazards (d) or
(e). "T45 Conversions" are indeed listed under hazard (d) in the schedule.
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These two endorsements, read together, contain an insuring agreement for the
additional "completed operations" and "products" coverages purchased by Turbine.
My careful analysis of the entire policy satisfies me that these are the only provisions
within this policy that can possibly be construed as the insuring agreement for those
additional coverages.
Thus, having finally identified an insuring agreement for the "completed
operations" and "products" coverages, I continue my analysis. Endorsement Form 42
refers to "completed operations hazard" and "products hazard" in bold letters, meaning
those terms are defined elsewhere in the policy. I therefore proceed to the definitions
of those terms to determine the scope of the "property damage" included within them.
The definition of "Completed operations hazard" provides that
"[C]ompleted operations hazard" includes bodily injury and property
damage arising out of operations or reliance upon a representation or
warranty made at any time with respect thereto, but only if the bodily
injury or property damage occurs away from premises owned by or rented
to the named insured. "Operations" include materials, parts, or equipment
furnished in connection therewith.
JA 112.
The definition of "Products hazard" in the policy provides that
"[P]roducts hazard" includes bodily injury and property damage arising
out of the named insured's products or reliance upon a representation or
warranty made at any time with respect thereto, but only if the bodily
injury or property damage occurs away from premises owned by or rented
to the named insured and after physical possession of such products has
been relinquished to others.
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JA 113.
These definitions of "completed operations hazard" and "products hazard"
compel the conclusion that this policy covers Cartillar's engine damage. In this policy,
Endorsement Form 42 gives life to the entire definitions of "completed operations
hazard" and "products hazard" as a grant of coverage. The only limitations placed on
that coverage are those already contained within the definition of "completed operations
hazard," which provides that
The completed operations hazard does not include bodily injury or
property damage arising out of
(a) operations in connection with the
transportation of property, unless
the bodily injury or property
damage arises out of a condition
in or on a vehicle created by the
loading or unloading thereof,
(b) the existence of tools, uninstalled
equipment or abandoned or
unused materials, or
(c) operations for which the
classification stated in the policy
or in the company's manual
specifies "including completed
operations."
JA 112. Although property damage arising out of certain operations is specifically
excluded by this definition, conspicuously absent is any exclusion for property damage
to the insured's products or completed work.
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Furthermore, the "property damage" covered by the policy includes all "injury
to or destruction of tangible property." "Destruction of tangible property" can "arise
out of operations" or "reliance upon a representation or warranty" with respect to both
(1) damages to the product or completed work itself, and (2) damages to other
property. Thus, the broad grant of coverage in this policy necessarily encompasses the
engine damage at issue.
I acknowledge that many cases and secondary authorities have addressed the
typical scope and limits of "completed operations" and "products" coverages. Those
authorities indicate that
[t]he products hazard and completed operations provisions are not
intended to cover damage to the insured's products or work project out of
which an accident arises. The risk intended to be insured is the
possibility that the goods, products or work of the insured, once
relinquished or completed, will cause bodily injury or damage to property
other than to the product or completed work itself, and for which the
insured may be found liable.
Henderson, Insurance Protection for Products Liability and Completed Operations —
What Every Lawyer Should Know, 50 Neb. L. Rev. 414, 441 (1971) (citation omitted)
(emphasis added); see also Fresard, 327 N.W2d at 292 (citing the above law review
article for the proposition that "completed operations" coverage is not intended to cover
damages to the insured's products or completed work). But that reasoning does not
apply here, because this policy is atypical.
As I discussed above, when an insurer grants additional coverage for all bodily
injury and property damage included within the definitions of "completed operations
hazard" and "products hazard," the insurer typically re-excludes (if you will) coverage
for damage to the insured's product and completed work. See, e.g., Structural Systems,
756 F. Supp. at 1239, 1241. Typical "completed operations" coverage requires separate
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damage-to-the-product and damage-to-the-work exclusions precisely because the
additional grant of coverage would otherwise encompass damage to the insured's
product and completed work.
The Reliance policy contains no separate damage-to-the-product and damage-to-
the-work exclusions applicable to the additional coverage. Undoubtedly, those
separate exclusions would have been contained in the "coverage part" that Reliance
failed to attach to this policy. The policy that Reliance actually issued is the only one
with which the court can be concerned, however, and any exclusions that appear in that
policy must be strictly construed against the insurer. See Farm Bureau Mut. Ins. Co.
of Michigan v. Moore, 475 N.W.2d 375, 377 (Mich. 1991).
The majority holds that the additional "completed operations" and "products"
coverages are subject to the business risk exclusions in the CGL section of the policy.
Given the particular nature and structure of this policy, that holding is unsound. In this
policy, the only grant of coverage for "completed operations" and "products" insurance
is located within an endorsement. The broad grant of coverage in that endorsement
conflicts with the business risk exclusions to the extent that the endorsement provides
coverage for all property damage included within the definitions of "completed
operations hazard" and "products hazard." "When a conflict arises between the terms
of an endorsement and the form provisions of an insurance contract, the terms of the
endorsement prevail." Hawkeye-Security Ins. Co. v. Vector Constr. Co., 460 N.W.2d
329, 334 (Mich. Ct. App. 1990) (citing Peterson v. Zurich Ins. Co., 225 N.W.2d 776,
779 (Mich. Ct. App. 1975)). Under this universally accepted rule of construction, the
business risk exclusions in this policy should and must be viewed as subject to the
endorsement, not vice versa.
The fact that Endorsement Form 42 merely incorporated definitions already
found within the form provisions of the policy does not change my conclusion. The
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form definitions, incorporated into the endorsement, still prevail over the inconsistent
business risk exclusions. Two Michigan cases support my conclusion.
In Jones v. Philip Atkins Const. Co., 371 N.W.2d 508 (Mich. Ct. App. 1985)
and Tiano v. Aetna Cas. & Sur. Co., 301 N.W.2d 476 (Mich. Ct. App. 1981), the
Michigan Court of Appeals addressed insurance policies with definitions of "completed
operations hazard" and "products hazard" identical to the form definitions at issue in
this particular policy. In those cases, however, the form definitions were incorporated
into exclusion endorsements, rather than coverage endorsements. See Jones, 371
N.W.2d at 510-11; Tiano, 301 N.W.2d at 478-79.
Both Jones and Tiano held that the form definitions of "completed operations
hazard" and "products hazard," when incorporated into an endorsement, prevailed over
inconsistent form provisions in the policy. See Jones, 371 N.W.2d at 512 ("The
completed operations exclusion appears on a separate endorsement. This Court has
previously held that endorsements or riders prevail over form provisions of a contract");
Tiano, 301 N.W.2d at 480 ("If the language of an endorsement and the general
provisions of the policy conflict, the endorsement will prevail, and the policy remains
in effect as altered by the endorsement").
An endorsement overrides inconsistent form provisions in the policy whether it
grants, or excludes, coverage. Even though the coverage endorsement in this policy
merely incorporated definitions of "completed operations hazard" and "products
hazard" from within the policy itself, the resulting grant of coverage is not subject to
the business risk exclusions.
The flaw in the majority's reasoning is its failure to identify an insuring
agreement for Turbine's "Completed Operations and Products Liability Insurance." The
majority refers only to the policy's definitions of "completed operations hazard" and
"products hazard" when discussing this issue, implying that those definitions comprise
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the additional "coverage part." It is axiomatic, however, that a definition, standing
alone, cannot constitute an insuring agreement. See, e.g., Hawkeye-Security Ins. Co.
v. Davis, 6 S.W.3d at 423. If the additional grant of coverage for "completed
operations" and "products" insurance is not within Endorsement Form 42, the
endorsement I have identified, then the insuring agreement for those additional
coverages appears nowhere within this policy.
The majority and I may disagree about whether or not a "coverage part" is
missing from this policy, but I do not believe that the majority may side with Reliance
in that dispute. Michigan law requires us to resolve ambiguities in favor of the insured,
not the insurer.
For the above reasons, I dissent.
A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.
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