Shields v. Hiram C. Gardner, Inc. , 92 Idaho 423 ( 1968 )

SPEAR, Justice.

Plaintiffs-respondents, the insureds, will be referred to as Shields, and defendant-appellant, the insurer, as Manufacturers.

Shields, a partnership, was sued by certain residents of Mexico and a Mexican corporation seeking judgment for damages occasioned by failure to germinate of certain seed beans purchased from Shields. Shields brought this third party action against Manufacturers to force it to defend and to pay any judgments within the policy limits of its insurance policy issued to Shields. Summary judgment was entered in favor of Shields, and Manufacturers has appealed.

The undisputed facts show that one Coughran, with other Mexican residents, placed by telephone from Mexico, an order with Shields at Buhl, Idaho, for a quantity of seed beans, of which Shields is a processor and dealer. The seed beans, ordered on January 5, 1965, were shipped by Shields to Nogales, Arizona, where payment was made by a bank on behalf of the Mexican residents and delivery of the beans made to them in Arizona. The seed beans were taken into Mexico and planted, but failed to germinate properly, with resulting loss. The loss suffered resulted from the loss of a crop, or the use of the land. The damages were aggravated by the fact that the plaintiffs could not reseed for a period of three to four weeks because of a Mexican governmental regulation concerning permits. The Mexican residents instituted suit against Shields and others for their damages. The seed beans had been treated by Shields at their .Buhl plant with a chemical that had destroyed their viability because of an error in mechanical mixture.

Shields had an insurance policy issued by Manufacturers for the period of September 1, 1964, to September 1, 1965, denominated as a “Blanket Liability Policy.” Shields contends this policy required Manufacturers to defend the action brought by the Mexican residents, and to pay, within the policy limits, any judgment obtained. Manufacturers, on the other hand, asserts that this transaction was not within the terms of the policy and hence it is not liable thereunder.

Shields, on this appeal, asserts the trial court correctly granted the summary judgment primarily on two theories: first, because the provisions of the policy protect Shields from the liability claimed in the action by the purchasers of seed beans; and secondly, that the record discloses Manufacturers had waived certain policy provisions or was estopped to deny coverage. Manufacturers contends, however, that the only basis under which the summary judgment could be upheld is on the theory that construction of the policy does not involve resolutions of factual issues; Manufacturers claims, however, that there are genuine issues of material fact which are unresolved as to the estoppel or waiver theory advanced by Shields and therefore the judgment was improperly entered.

The trial court in its summary judgment held that Manufacturers is obligated under the terms of the insurance policy to defend Shields in the main action; that Shields have the protection of the policy limits and that Manufacturers was liable for attorney fees and costs Shields incurred in defending the main action and also in prosecuting this third party action.

Pertinent provisions of the printed portion of Manufacturers’ “Blanket Liability Policy” include the following:

“PART I LIABILITY INSURING AGREEMENTS

“1. Coverage A — Bodily Injury Liability

Coverage B — Property Damage Liability

To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of injury to or destruction of property, including the loss of use thereof.

EXCLUSIONS — PART I

This policy does not apply:

(a) to liability assumed by the insured under any contract or agreement except (1) a contract as defined herein or (2) as respects the insurance which is afforded for the Products Hazard as defined, a warranty of goods or products;

(f) as respects the insurance which is afforded for other than automobile under coverage B, to injury to or destruction of * * * (4) any goods, products or containers thereof manufactured, sold, handled or distributed or premises alienated by the named insured, or work completed by or for the named insured, out of which the occurrence arises.

SPECIAL CONDITIONS APPLICABLE ONLY TO PART I

1. Definitions * * *

(g) Products Hazard. The term ‘products hazard’ means

(1) goods or products manufacturer-ed, sold, handled or distributed by the named insured or by others trading under his name, if the occurrence arises after possession of such goods or products has been relinquished to others by the named insured or by others trading under his name and if such occurrence arises away from the premises owned, rented or controlled by the named insured; provided such goods or products shall be deemed to include any container thereof, other than a vehicle, but shall not include any vending machine or any property, other than such container, rented or located for use of others but not sold ;

(2) operations, if the occurrence arises after such operations have been completed or abandoned and occurs away from premises owned, rented or controlled by the named insured; provided, operations shall not be deemed incomplete because improperly or defectively performed or because further operations may be required pursuant to an agreement; provided further, the following shall not be deemed to be ‘operations’ within the meaning of this paragraph: (a) pickup or delivery, except from or onto a railroad car, (b) the maintenance of vehicles owned or used by or in behalf of the insured and (c) the existence of tools, uninstalled equipment and abandoned or unused materials.

‡ % sjc

GENERAL CONDITIONS— PARTS I AND II

16. Policy Period, Territory This policy applies only to occurrences which arise during the policy period within the United States of America, its territories or possessions, or Canada. * * * >j

General Change Endorsement No. 1, which is a typewritten endorsement later added to the printed portion of the policy, provides in pertinent part:

“PROVISION NUMBER II Insofar as Seeds are concerned, it is further understood and agreed that the word, ‘accident’ shall be substituted for the word ‘occurrence’ wherever used with respect to coverages afforded for ‘Property Damage Liability — Losses resulting from Products as afforded hereunder.

“It is further understood and agreed that the definition of Products insofar as Seeds are concerned is amended to include the following: ‘To Protect the Insured against liability imposed by the erroneous delivery of seeds, errors in mechanical mixtures, cross-pollination, germination .failure, or the presence of noxious weed :seed.’ ”

In summary the policy is a standard lia'bility policy. It is broken down into two 'parts. Part I contains the liability insuring agreements, to which there are certain exclusions applicable solely to Part I, as well as special conditions applicable only to Part I. Part II insures against automobile physical damage, and to which there are certain exclusions and special conditions. Part II of the policy is not in issue here.

Part I, the liability insuring agreement, Is divided into two coverages. Coverage A insures against bodily injury liability, which is not before the court. Coverage B, of which we are primarily concerned, insures against property damage liability. The exclusionary provision applicable to Part I •(the liability insuring agreement) states: '“This policy does not apply: (a) to liability assumed by the insured under any contract * * * except (1) a contract as defined herein or (2) as respects the insurance which is afforded for the Products Hazards .as defined, a warranty of goods, or products.” Other exclusionary provisions hereunder are not applicable herein. Exclusion •(f) (4) excludes coverages for injury to or destruction of goods or products sold, '.handled or distributed by the insured.

Certain special conditions are made applicable to Part I of the policy, including a definition of terms. Under these special conditions applicable to Part I is the definition of the “Products Hazard” quoted above, (g) (1) and (2), supra. It is to be noted that this term is defined to include damages caused by goods handled by the insured if the “occurrence arises after possession * * * has been relinquished and if such occurrence arises away from premises * * * ” of the insured.

Both Part I [Liability Insuring Agreement] and Part II [Automobile Physical Damage Insuring Agreements] are by the printed terms of the policy made subject to the various General Conditions of the policy which include conditions as to other insurance, premium, inspection and audit, assistance and cooperation of the insured, subrogation, etc., and also paragraph 16, which is set out verbatim hereinbefore, and makes the policy applicable only to “occurrences which arise during the policy period within the United States * *

> On rehearing, this court is called upon to consider whether General Change Endorsement No. 1 constitutes an additional insuring agreement, which, by its terms, is intended to provide coverage for specified named perils irrespective of the place of “occurrence” which appellant contends must be construed to be the place of loss (Mexico), that is, the place where damages arose.

It must be emphasized that General Change Endorsement No. 1 is a typewritten endorsement attached to the main body of the printed policy and provides in pertinent part:

“Provision Number II

“Insofar as Seeds are concerned, it is further understood and agreed that the word ‘accident’ shall be substituted for the word ‘occurrence’ wherever used with respect to coverages afforded for ‘Property Damage Liability — Losses resulting from Products as afforded hereunder.

“It is further understood and agreed that the definition of Products insofar as Seeds are concerned is amended to include the following: ‘To Protect the Insured against liability imposed by the erroneous delivery of seeds, errors in mechanical mixtures, cross-pollination, germination failure, or the presence of noxious weed seed.’ ” (Emphasis supplied)

The major thrust of this provision directs itself to coverage and protection: that insofar as seeds are concerned the word “accident” shall replace the word “occurrence” wherever used with respect to “coverages afforded for * * * Losses resulting from Products as afforded hereunder;” and immediately thereunder the definition of “Products” (as it relates to “coverages afforded for Losses resulting from Products”) is amended to include protection for the insured “against liability imposed by * * * errors in mechanical mixtures.”

Appellants contracted specifically “To Protect the Insured against liability imposed by * * * errors in mechanical mixtures.” This interpretation is supported by the principle, long adhered to by this court, that contracts of insurance are to be construed in view of their general objects and strict, technical interpretation is to be avoided. Where language may be given two meanings, one of which permits recovery and the other does not, it is to be given the construction most favorable to the insured. Mayflower Ins. Exchange v. Kosteriva, 84 Idaho 25, 367 P.2d 572 (1961); Scharbach v. Continental Cas. Co., 83 Idaho 589, 366 P.2d 826 (1961); Penrose v. Commercial Travelers Ins. Co., 75 Idaho 524, 275 P.2d 969 (1954); O’Neil v. New York Life Ins. Co., 65 Idaho 722, 152 P.2d 707 (1944); Rauert v. Loyal Protective Ins. Co., 61 Idaho 677, 106 P.2d 1015 (1940); Watkins v. Federal Life Ins. Co., 54 Idaho 174, 29 P.2d 1007 (1934).

Stated somewhat differently, an insurance contract is to be construed most favorably to the insured and in such a manner as to provide full coverage of the indicated risks rather than to narrow protection. This court will not sanction a construction of the insurer’s language that will defeat the very purpose or object of the insurance.

After General Change Endorsement No. 1 was added specifically providing protection for certain named additional perils', incidental to the insured’s seed business, it is only reasonable to expect that coverage was afforded against the type of liability growing out of the particular circumstances of the transaction under consideration.

Where the insurer issues this kind of endorsement, he is presumed to know the nature of his insured’s business and that it is one wherein liability may be imposed from erroneous mixtures in seed preparation. Normally, a businessman who takes out such a “Blanket Liability Policy” with express coverage for “liability imposed by * * * errors in mechanical mixtures” would expect this sort of transaction to be covered; for it was exactly that contingency (error) which has given rise to the principal action.

The reason the pinto bean seed involved' failed to germinate is explained, without being refuted, in an affidavit of James T_ Shields, one of the third party plaintiffs,, contained in the transcript, the pertinent portion being:

“ * * * The treatment applied to the bean seed was an insecticide-fungicide preparation manufactured by Morton Chemical Company, one of the parties to this suit and sold to us by C K Brown and Associates Inc a corporation. The chemical treatment applied to the seed beans is known by the trade name Penodrin A-13. The seed beans in question were-treated with said chemical by means of a mechanical mixer which likewise was; purchased through C K Brown and Associates Inc but manufactured by Morton Chemical Company and such chemical treater is known by the trade name of a. Penogen treater.

“Affiant further states that if there was: a failure of germination as contended by the plaintiffs in the above captioned' case, it was by reason of the error in mechanical mixtures of said bean seed.”

Admittedly, such an error as herein contemplated did (and could only) occur at the Shields plant in Buhl, Idaho.

Moreover, it is a matter of common knowledge that insurance contracts are not entered into as other contracts generally are; the company fixes the terms and limits of the contract and must be held, in the absence of plain, unequivocal exceptions and provisions to the contrary, to intend what the insured party is likely to understand by its terms. Rauert v. Loyal Protective Ins. Co., 61 Idaho 677, 106 P.2d 1015 (1940). As this court stated in the Rauert case, supra, 61 Idaho at pages 685-686, 106 P.2d at page 1018, quoting with approval from Browning v. Equitable Life Assur. Soc., 94 Utah 532, 72 P.2d 1060, 1073 (1937), and also quoted in O’Neil v. New York Life Ins. Co., 65 Idaho 722, 729-730, 152 P.2d 707, 710 (1944):

“ ‘Insurance policies, while in the nature of written contracts, are not prepared after negotiations between the parties, to embrace the terms at which the parties have arrived in their negotiations. They are prepared beforehand by the insurer, and the company solicitors then sell the insurance idea to the applicant. Normally, the details and provisions of the policy are not discussed, except that the particular form of policy is best suited to give the applicant the protection he seeks. If he reads the policy he is generally not in a position to understand its details, terms, and meaning except that, in the event against which he seeks insurance, the company will pay the stipulated sums. He seldom sees the policy until it has been issued and is delivered to him. He signs an application blank in which the policy sought is described either by form number or by a general designation, pays his premium, and in due course thereafter receives, either from the agent or through the mails his policy. Many of its terms and all of its defenses and super-refinements he has never heard of and would not understand them if he read them. Such fact is evident from the fact that cases like this arise where lawyers and courts disagree as to what such provisions mean. In fact, there are about as many different constructions by the courts of terms such as those involved here as there are insurance companies issuing such policies. For this reason the rule of strictissimi juris has been applied almost universally to insurance contracts, and this jurisdiction, like many others, has declared in favor of a liberal construction in favor of the insured to accomplish the purpose for which the insurance was taken out and for which the premium was paid.’ ”

In applying this principle to the facts at hand, it is well to note that we are construing the terms of an insurance policy which has been in effect, through repeated renewals, for over twenty-five years. Its various terms, conditions and endorsements require fifteen pages of the transcript lodged in this appeal. That it is ambiguous relative to the coverage afforded by its “General Change Endorsement No. 1” is amply illustrated by the fact that the members of this court have been almost equally divided on the proper interpretation thereof, both on the original hearing and after the rehearing.

To me it is abundantly clear that the liability of respondents which was caused by the error in mechanical mixtures is precisely the protection against which the appellant insured the respondents in the General Change Endorsement No. 1, and particularly under the principle of law of Watkins, Rauert, O’Neil, Penrose, and Scharbach, supra.

Additionally, the record discloses that the executive vice-president of Manufacturers recognized that this was the intent of the parties, for in a letter replying to an inquiry by James H. Shields, one of the respondents, John G. DeVore, replied in part as follows :

“Also, Mr. Shields, we should have no problems differentiating between ‘occurrence’ and ‘accident’. Your policy at M & W reads occurrence throughout except for property damage liability applicable to seed products. For seeds only, the policy is changed to cover named perils (erroneous delivery, mechanical mixture, cross pollination, non-germination and noxious weeds) or, if otherwise, seed product losses caused by accident.” It is to be noted that this executive vice-president recognized that the policy had been changed to cover certain named perils which included liability for damages resulting from mechanical mixture. This is exactly what occurred and, as pointed out hereinbefore, this occurrence was at Buhl, Idaho. Therefore, it is not within the exclusionary provisions concerning the territorial condition of the policy contained in General Condition No. 16.

As further supporting the interpretation that this type of occurrence was afforded coverage by General Change Endorsement No. 1, we quote from an October 23, 1961 letter from James H. Shields to Manufacturers, in which he advised the latter as follows:

“To sum up, what we mean by ‘all liability’ protection is to be ready when the big one comes along and one thing we want to do is to be sure as we possibly can be that we are covered and covered properly when and if this ever happens. We are not able to read these insurance policies fine print and the writers opinion is that one never knows until the thing is taken into court and then the interpretation is sometimes rather dubious but what we want is coverage for the big deal even if we have to pay more for it and we know that you must understand the risk that is attached and will undoubtedly, in all cases, keep yourself protected by spreading the coverage through other concerns. We realize that this is a mutual set-up and one takes some risk when they operate under a concern of this kind and it all depends on the ability and integrity of the people that are running it. As stated before, we don’t mind the cost but we want the coverage, without a lot of ‘whereas’s’ and ‘wherefores’.”

There is no question but what this loss for which respondents were sued in the original cause of action for loss of crops was “the big one,” because the prayer demanded reimbursement for damages allegedly suffered in the sum of $301,890.77 together with costs of suit.

Manufacturers should be held responsible for any and all liabilities, within the policy limits, incurred by respondents to the plaintiffs in the original cause of action together with respondents’ attorney fees and court costs as set out in the amended summary judgment, which is affirmed.

As previously noted herein, appellants also contend error by the trial court because there are disputed questions of fact, i. e., whether appellants had waived or were estopped to deny coverage under the terms of the policy. This contention is without merit, for the motion for summary judgment by respondents was made entirely on the grounds that appellants were obligated under the terms of the policy to defend Shields in the original cause and that respondents would have the protection, within the policy limits, for any liability imposed upon them as the result of such cause of action; and thirdly, that they were entitled to attorney fees and costs incurred in defending the original suit and prosecuting their third party claim against appellants. In neither the original nor the amended judgment did the trial court so much as even mention the theories of waiver or estoppel. The summary judgment is based wholly and entirely upon the grounds urged in the motion and to remand this cause to the trial court for a hearing on issues of fact raised by these theories would constitute error on the part of this court.

Judgment affirmed with costs to respondents, including attorney fees in the sum of $3,250.00 in accordance with stipulation entered into by the parties that in event’ respondent should prevail a reasonable attorney fee would be in this sum. I. C. § 41— 1839; Heath v. Utah Home Fire Ins. Co., 89 Idaho 490, 406 P.2d 341 (1965); Halliday v. Farmers Ins. Exchange, 89 Idaho 293, 404 P.2d 634 (1965); Coburn v. Fireman’s Fund Ins. Co., 86 Idaho 415, 387 P.2d 598 (1963).

TAYLOR and McQUADE, JJ., concur.