Opinion
Rehearing Denied March 31, 1967.
For Opinion on Hearing, see 63 Cal.Rptr. 382, 433 P.2d 174.
Popleka, Graham, Hanifin, Van Loucks & Allard and H. T. Faaland, San Jose, for appellant.
Harold A. Parichan and R. W. Levy, Fresno, for respondents.
GARGANO, Associate Justice.
The facts as construed most favorably to the respondents are as follows:
Respondent, Electronic Purification Company, Inc., hereinafter referred to as Electronic, Early in April of 1962 Mr. Elliott Cheek, Electronic's general manager, negotiated a one-year lease of a water purification machine to respondents Robert L. Puccinelli and Mary K. Puccinelli (hereafter referred to as the Puccinellis), doing business as Canal Farm Inn and Motel, for use in connection with their motel swimming pool. At Cheek's suggestion, Seals was engaged to clean and acid wash the pool, and to install the machine. Although Cheek testified that Mr. Puccinelli was already interested in having someone acid wash the pool (for there was evidence of black algae), he admitted that it was necessary to do in order to get the 'desired results' from the machine. He also acknowledged that the acid washing service, when performed in connection with the installation of a machine, was billed to the customer through Electronic.
The work of acid washing the pool and of installing the water purification machine was performed by Seals and his assistant, Fred Call, over the three-day period commencing April 10 and ending April 12, 1963. The first two days were devoted primarily to acid washing the pool. On the second day the floodlight in the pool blew out (due to the low water level), and was replaced by Call. Earlier Seals had done some tracing or wiring in regard to this fixture, which had nothing to do with the water purification machine. Around noon of the third day Call left the job and returned to Fresno. When he left Seals was either filling or about to fill the pool with water. At that time the acid washing work had been completed, and insofar as Call could remember the purification machine had been or was being installed. In this respect Seals (by deposition) testified that he did the work of installing the water purification machine by himself, and that it took him about an hour or an hour and a half to do so. He further testified that this work, as well as the acid washing of the pool, was completed when he started to fill the pool with water on the third day.
On April 13 Kevin Thompson, a 12-year-old guest at the motel, was swimming in the motel swimming pool; he sustained a fatal electric shock when his body came into contact with an object along side of the pool. (The apparent cause of Kevin's death was the defective wiring which led to the submerged floodlight fixture.) Thereafter, respondents Robert E. Thompson and Joanna E. Thompson, the parents of the deceased child, filed a complaint for wrongful death in the Superior Court of Merced County. The complaint named Electronic and the Puccinellis as defendants and alleged that they 'negligently, carelessly and recklessly maintained and installed the electronic wiring leading to the submerged pool flood-light fixture * * * in such a way as to cause the said submerged pool floodlight fixture to become highly charged with electricity along its frame and exterior surfaces * * *' The complaint further alleged that this negligence was the proximate cause of the death of Kevin Thompson.
At the time of Kevin Thompson's death Electronic carried a policy of insurance issued by appellant insurance company. The original policy had been issued to Scott G. Moore and Evelyn J. Moore (hereafter referred to as the Moores), doing business as Central California Oral Ceramics Studio. But, on November 2, 1962, in consideration of an additional premium to be determined
The numerous and extensive principles governing the construction of insurance policies have been enunciated time and time again by the appellate courts of this and other states. However, they were succinctly and ably expressed by Justice Schauer in McConnell v. Underwriters at Lloyds, 56 Cal.2d 637, 640, 16 Cal.Rptr. 362, 364, 365 P.2d 418, 420, as follows:
'As delineated in Continental Cas. Co. v. Phoenix Constr. Co. (1956), 46 Cal.2d 423, 437-438 [4b, 11, 12] 296 P.2d 801, 57 A.L.R.2d 914, the following principles govern construction of insurance policies: '[A]ny ambiguity or uncertainty in an insurance policy is to be resolved against the insurer. [Citations.] If semantically permissible, the contract will be given such construction as will fairly achieve its object of securing indemnity to the insured for the losses to which the insurance relates. [Citation.] If the insurer uses language which is uncertain any reasonable doubt will be resolved against it; if the doubt relates to the extent or fact of coverage, whether as to peril insured against [citations], the amount of liability [citations] or the person or persons protected [citations], the language will be understood in its most inclusive sense, for the benefit of the insured.' (See also Freedman v. Queen Ins. Co. (1961), 56 Cal.2d 454, [456-457] [1-3], 15 Cal.Rptr. 69, 364 P.2d 245; Prickett v. Royal Ins. Co. Ltd. (1961), 56 Cal.2d 234, [237-238], 14 Cal.Rptr. 675, 363 P.2d 907[4-6].) However, if there is a conflict in meaning between an endorsement and the body of the policy, the endorsement controls. Likewise, under the provisions of section 1651 of the Civil Code, the written or specially prepared portions of the policy control over those which are printed or taken from a form. (Continental Cas. Co. v. Phoenix Constr. Co. (1956), supra, at pages 430-431 [4a, 5, 6] of 46 Cal.2d, at page 805 of 296 P.2d.'
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Thus, we will consider the questions raised in this appeal with these broad principles in mind.
I
The first critical question presented is whether appellant's policy includes coverage for 'products hazard' as defined in condition 3(g) of Division I thereof. This is so for appellant apparently concedes that if such coverage is provided, it is obligated to defend the wrongful death action which was brought by the Thompsons on account of the death of their son, and that it would be obligated to pay within the limits of its policy liability any judgment rendered against Electronic. Condition 3(g) reads as follows:
'* * * The term 'products hazard' means
(1) goods or products manufactured, sold, handled or distributed by the named insured or by others trading under his name, if the occurrence or accident takes place after possession of such goods or products has been relinquished to others by the named (2) operations, if the occurrence or accident takes place after such operations have been completed or abandoned and takes place away from premises owned, rented or controlled by the name insured; provided, operations shall not be deemed incomplete because improperly or defectively performed or because further operations may be required pursuant to an agreement; * * *'
Respondents readily concede that the policy as originally issued to the Moores did not include coverage for 'products hazard.' The words 'NOT APPLICABLE' in the 'LIMITS OF LIABILITY' column for aggregate products as indicated on the declaration page show that 'products hazard' is not provided. This is stated by means of an asterisk footnote. Moreover, in the premium computation schedule (see Footnote 3, Infra.) Which contains the description of insurable hazards, the 'products-completed operations' hazard is shown as not covered. So, it is manifest that 'products hazard' coverage was not included in the original policy.
Respondents contend, however, that the coverage was furnished by endorsement No. 8 when the name of Electronic was added to the policy in the following manner:
'THE FOLLOWING CLASSIFICATION AND CODE IS ADDED TO THE POLICY:
INSTALLATION OF 'NION GENERATORS' RATED AS: PLUMBING--N.O.C.--GAS, STEAM, HOT WATER OR OTHER PIPE FITTING--INCLUDING HOUSE CONNECTIONS, SHOP AND RETAIL STORES OR DISPLAY ROOMS.
CODE 3434u
BI RATE PD
CODE 3434u .323 .36
u .13'
In other words, relying on Meyer v. Pacific Employers Ins. Co., 233 Cal.App.2d 321, 43 Cohen v. Jacoby (Jacoby v. United States Fidelity & Guaranty Co.),
We do not agree with respondents on this point. The term N.O.C. does not mean 'not otherwise covered.' It is a standard insurance abbreviation for 'not otherwise classified' or 'no other classification' (Standard Acc. Ins. Co. v. Roberts, 8 Cir., 132 F.2d 794). Hence, as we understand the term, it is a rating term used by insurance underwriters when the insured's business activity is not specifically mentioned in underwriting tables. Consequently, the use of the term in endorsement No. 8 obviously was not intended to change the type of coverage already provided in the original policy when the name of the additional insured was added thereto. This is incontrovertibly established by the absence of any alteration of the declaration page where 'products hazard' coverage is excluded, and by the second page which contains the premium computation schedule.
The pertinent portions of the premium computation schedule page of the insurance policy appear as follows:
The first column of this schedule entitled 'Description of Hazards,' contains the description of several insurable activities in alphabetical order. The first hazard or The remaining columns of the schedule deal with premium bases, rates, and advance premiums. These columns are all filled in with appropriate figures and other designations, typewritten as to the Moores and in handwriting as to Electronic. From this, it is evident that premises-operations coverage was provided for both the Moores' dental laboratory and for Electronic. The fourth hazard described in the description of hazards column, opposite the letter (d) in the box provided therefor, is 'Products--Completed Operation.' However, in this box appear the typewritten words 'NOT COVERED,' ostensibly entered there when the policy was first issued. Significantly, no handwriting of any kind appears in the box. Moreover, the remaining columns dealing with premium bases, rates and advance premiums are blank. This conclusively demonstrates that not only had 'products-completion' coverage not been provided in the original policy, but that such additional coverage was not intended or contemplated when the name of Electronic was added to the policy.
The cases cited for the proposition that the endorsement provides products hazard coverage are distinguishable. In Meyer v. Pacific Employers Ins. Co., supra, 233 Cal.App.2d 321, 43 Cal.Rptr. 542, the court was not concerned with the meaning of the term 'N.O.C.' or whether certain coverage clearly not provided in the original policy was subsequently provided by an endorsement in which the activity of the added insured was classified. The court was interpreting the meaning of certain language used in an exclusion clause which was susceptible to more than one meaning. The insured had procured comprehensive insurance in connection with its business activities as a well driller. The policy contained an exclusion clause which excluded liability for 'injury * * * or destruction caused intentionally by or at the direction of the insured.' Accordingly, the insurance carrier sought to avoid liability for damages resulting from vibrations caused when the insured drilled a water well. The court held that, viewed in light of the insured's business activities as a well driller, which was known to the insurance company, the phrase 'intentionally by or at the direction of the insured' did not include within is meaning damages resulting from vibrations caused by the drilling of a water well even though the vibrations caused thereby were intentional in the strict sense of the word. Thus, the court simply held that the damages were accidentally caused within the coverage provided.
The case of Cohen v. Jacoby (Jacoby v. United States Fidelity & Guaranty Co.), supra, 199 N.Y.Supp.2d 537, is also of little help to the respondents. First, the court interpreted the term 'N.O.C.' to mean 'not otherwise covered,' which is not our understanding of its meaning. Secondly, there was an exception to the completed operations exclusion (not present in the instant case) which, when tied with the court's understanding of the term 'N.O.C.,' influenced its decision.
II
Having determined that 'products hazard' coverage is not available to Electronic under the policy, we must next decide what effect, if any, this omission has had on the liability which may have arisen against Electronic as a result of the fatal accident to Kevin Thompson. To this end, appellant contends that although the policy provides coverage for bodily injury, including death, the failure to include 'products hazard' coverage limits its liability in the instant case. Briefly, it urges that the installation of the water purification machine was an Respondents, on the other hand, contend that the 'completed operation' portion of the policy has no application where the insured is performing a service rather than selling a product. Thus, they argue that Electronic was performing a service when it installed the water purification machine for the Puccinellis and is protected under the policy. They further contend that in any event the trial court found that the acid washing job, the floodlight repair and the purification device installation was a single operation which was not completed when the accident occurred, and that there is substantial evidence to support its finding in this respect. Finally, they contend that even if the operation was completed the 'negligent act' rather than the time of the accident is the significant event, and clearly this took place prior to the completion of the operation. We will consider these contentions in the order presented herein.
1) Respondents state that the instant case is a case of first impression in California. They assert, however, (citing 18 cases from other jurisdictions) that the great majority of the courts have held that the ordinary insured would understand 'products hazard' to refer to products and not to completed operations where no product is involved, and that because of this ambiguity in the policy the insured gets the benefit of the doubt and coverage must be afforded.
We do not agree with respondent's contention. In the first place, there is absolutely no testimony or other evidence in the record that the insured (Electronic) was misled by any ambiguity in the policy, nor is it so asserted in this appeal. In fact, as far as we are able to ascertain from the record, no one on behalf of Electronic has testified, contended or argued, either before the trial court or in this appeal, that the insured was misled in any manner by the terms of the policy. In the second place, the nature of Electronic's business is listed in the policy as involving the installation of 'nion' generators. Thus, the policy itself discloses that the insured's business was inextricably tied in with products and not services. Furthermore, even if it is conceded that the acid washing of the pool and the floodlight repair were a part of the installation of the water purification machine, it is also clear from the evidence that Electronic was not engaged in the pool cleaning business and that these operations were performed strictly in connection with the lease of its product and as an incident thereto. Consequently, it is clear that all of this work constituted an operation within the meaning of condition 3g(2) of Division I of the policy. As stated by the court in Inductotherm Corp. v. New Jersey Mfrs. Cas. Ins. Co., 83 N.J.Super. 464, 200 A.2d 358, where the 'product' was a leased furnace and products hazard insurance similarly excluded by the terms of the policy, "Operations,' * * * clearly applies to We do not deem it necessary to analyze herein all of the cases cited by respondents in support of their contention. The 18 cases are distinguishable from the instant case on either the facts, the coverage involved or because the terms of the policy were ambiguous and the ambiguity was resolved in favor of the insured. For example, in St. Paul Fire & Marine Insurance Company v. Coleman, 8 Cir., 316 F.2d 77 (cert. den. 375 U.S. 903, 84 S.Ct. 191, 11 L.Ed.2d 143), the court found that the accident had occurred on the premises within the meaning of the 'premises--operations' coverage provided by the policy, and that the 'completed operations' coverage was coverage relating to "away from premises' exclusion.' So, this case turned on 'premises-operations' coverage which was not provided in our case.
There is no specific definition of the term 'operations' in the policy, but the term as used in this context has been the subject of judicial interpretation. In Pan American Insurance Co. v. Cooper Butane Co., 157 Tex. 102, 300 S.W.2d 651, the Supreme Court of Texas held that the term 'operation' should be given its usual and accepted meaning and that it was synonymous to the word work.
In Swillie v. General Motors Corp., La.App., 133 So.2d 813, the court was faced with a 'services only' situation. The court considered the applicability of 'products hazard' coverage and concluded as follows:
'* * * In other words, as we understand the Kendrick case, it is clear authority for the proposition that both part (1) and part (2) of the products hazard definition apply only to an insured who is handling products and has no application whatever to an insured who is only performing work, that is, simply selling services.' (133 So.2d 813, 823.)
But, in our case it has been conclusively shown that products, not services, where involved.
Similarly, in Kissel v. Aetna Casualty & Surety Company, Mo.App., 380 S.W.2d 497, the insured contractor had purchased a comprehensive general liability policy which did not contain 'products hazard' coverage. The insured damaged abutting property as a result of alleged negligent excavations made in connection with the building it had contracted to build and the insurance company disclaimed liability.
The policy, however, clearly stated the insured's business as contracting, and the court, in holding that there was coverage under the policy, stated as follows:
'* * * By no stretch of legalistic nomenclature or business language or understanding can it be said that the plaintiffs either manufactured, sold, handled or distributed any products. Their business was clearly stated in the insurance policy as that of 'contracting.' From the very nature of their business one can only conclude that they performed services. To the average person the term products hazard can only mean a hazard arising out of the use of or the existence of any condition in goods or products manufactured, sold, handled or distributed by the insured * * *.' (380 S.W.2d 497, 506.)
In Bituminous Casualty Corporation v. R. & O. Elevator Co., 8 Cir., 293 F.2d 179, the insured was in the business of servicing elevators and no product was involved. In Vito v. General Mutual Insurance Company, 15 A.D.2d 289, 223 N.Y.S.2d 431, where the insured contracted with the injured party to fill, service and inspect his tanks, services were the entire subject matter of the contract.
On the other hand, the factual situations presented in Standard Acc. Ins. Co. v. Roberts, 8 Cir., 132 F.2d 794, and United States Sanitary Specialities Corp. v. Globe Indemnity Co., 7 Cir., 204 F.2d 774, which respondents have relegated to the minority view, are substantially similar to the instant case. In Roberts the insured, who was engaged in the business of the sale and installation of furniture and fixtures, sold a refrigerator and installed it in the purchaser's premises. The night following the installation the purchaser's wife and children were injured due to gas leaking from the defective installation. The court held that the insured was not covered because of an exclusion clause which stated that the policy In United States Sanitary Specialties Corp., the insured's salesman had placed some wax on the floor in a county building as a demonstration in order to induce county officials to purchase the wax. After the demonstration the salesman neglected to remove the wax from the floor, and a third party was injured as the result of a fall. In that case the term 'products hazard' was defined in language substantially similar to the language used in the appellant's insurance policy. The court, after finding that 'products hazard' coverage had not been provided, held that there was no coverage for the accident. So, in these two cases the courts recognized situations much like our own as involving products, and coverage was denied because
Significantly, in United States Sanitary Specialties Corp. v. Globe Indem. Co., supra, 204 F.2d 774, the insurance company had agreed to pay, within the limits of its policy, on behalf of the insured, all sums which the insured would be 'obligated to pay as damages because of bodily injury.' However (similar to the instant case), on the face of the policy there were listed the various hazards which might be covered by the policy if the assured desired such coverage and paid the premium therefor. The various hazards named included: (a) Premises--Operations, (b) Elevators, (c) Independent Contractors--Let or Sublet Work, (d) Products (Including Completed Operations), and (e) Contractual. Opposite each of the hazards for which the assured here had purchased coverage there was typed in the amount of advance premium which the assured had paid for such coverage. Under the hazard, 'Products (Including Completed Operations),' there had been typed in the word 'Excluded,' and opposite this hazard the space in which to show the payment of advance premium was left blank.
2) Respondents take the position that even if it is assumed that Electronic was dealing with a product and not a service, still the operation was not completed when the accident occurred and thus coverage is provided under the policy. This view is also without merit.
Specifically, the trial court found that the acid wash job, the floodlight fixture repair and the water purification machine installation were one operation which was not completed when the accident occurred. It also found that this work was accomplished between April 10 through April 12, and that the boy was killed on April 13. This apparent inconsistency, however, is explained by the court's finding of fact which is designated as Finding of Fact No. 7, and by its memorandum of decision. In its finding of fact the court found:
Finding of Fact No. 8 reads:
'* * * defendant ELECTRONIC PURIFICATION CO., INC. orally agreed to and did in fact maintain said electronic purification device.'
In its memorandum of decision the court stated:
'* * * The operation was not complete in the sense that maintenance, though by lease agreement not promised, was actually done.'
It is settled that a trial court's opinion as expressed in its decision which is part of the record may be considered for the purpose of understanding and interpreting the court's findings. (Trans-Oceantic Oil Corp. v. City of Santa Barbara, 85 Cal.App.2d 776, 194 P.2d 148; Williams v. Puccinelli, 236 Cal.App.2d 512, 46 Cal.Rptr. 285.) Thus, when all of the findings of fact are read in conjunction with the court's memorandum of decision it is evident that the court decided that while all of the work connected with the installation of the water purification machine had been completed on April 12th (the day before Kevin Thompson was fatally injured), the operation was not complete within the meaning of condition 3g(2) because maintenance by Electronic was actually promised or done thereafter.
The evidence plainly reveals that all of the work connected with the acid washing of the pool, the floodlight fixture repair and the installation of the machine was completed when Kevin Thompson was killed on April 13, 1963. Call testified that, when he left the job around noon of the third day (April 12th), the acid wash and the floodlight repair had been completed, and he believed that the pool was being filled with water. Seals (by deposition) testified that it took him approximately one hour to one and one-half hours to install the machine, and that this work, as well as the acid washing and floodlight fixture repair, was completed on April 12th when he started to fill the pool on that afternoon. Moreover, the pool was apparently filled when Kevin Thompson went swimming on the following day. Finally, although it is true that Call testified that he was not present when the machine was installed, and that he did not know whether the installation was complete before the accident, or whether anything was done regarding the installation after the accident, he also testified that no complaint about faulty operation of the installed machine had ever been brought to his attention and that when he inspected it after the accident it was functioning properly. This indicated that the installation of the machine had been completed when the pool was filled with water.
The floodlight fixture was submerged at the time of the accident and Fred Call's testimony indicates that it was one-half way down the depth of the pool.
It is essential to keep in mind that under the express terms of condition 3g(2), an operation involving a product is not deemed to be incomplete 'because improperly or defectively performed * * *' In fact, this same result was reached by judicial interpretation in Berger Bros. Electric Motors v. New Amsterdam Cas. Co., 293 N.Y. 523, 58 N.E.2d 717, 156 A.L.R. 1281. Consequently, since it is established by the evidence that the installation of the insured's product (including the incidental work connected therewith), although defective, was finished when the accident occurred, the only remaining question is whether the 'operation' was nevertheless incomplete because of Electronic's agreement to repair the equipment and/or its alleged oral agreement to maintain it. We believe it was not.
Electronic did not agree in its leasing agreement to provide maintenance service during the term of its lease, and it was not required to make periodic equipment inspections. The lease simply provided that Electronic as lessor was obligated to make repairs and replacements unless they were necessitated by improper operation or actions by the lessee. This agreement to repair, Respondents, however, (citing Larsen v. General Cas. Co. of Wisconsin, D.C., 99 F.Supp. 300, affirmed, 8 Cir., 196 F.2d 170; Bituminous Casualty Corp. v. R. & O. Elevator Company, supra, 293 F.2d 179; McNally v. American States Insurance Company, 6 Cir., 308 F.2d 438; and Vito v. General Mutual Insurance Company, supra, 223 N.Y.S.2d 431) point to Cheek's oral agreement to maintain the machine, and they argue that it is this oral agreement which made the operation incomplete. It is true that Cheek testified: 'Well, when we leased a machine we agreed to maintain the machine, to keep it working.' Cheek also testified, however, that by this he meant that the customer was instructed on what to look for and told that if he noticed anything wrong with the operation of the machine he was to call Electronic and report it. In addition, he indicates that customarily spasmodic inspections were made by the employees of Electronic (particularly the employee who made the sale or negotiated a lease if he happened to be in the area) to make sure that the red light was on and that the machine was working; he added that no oiling or other work on the machine was required or performed. Thus, as indicated by Cheek's testimony, Electronic did not orally agree to provide maintenance for the machine in the strict sense of the word, and this service did not prevent the operation from becoming complete within the meaning of condition 3g(2). Moreover, the facts presented in the cases relied on by respondents are not precisely in point.
Mr. Cheek testified as follows:
In Larsen, supra, the contract between the parties was for the cleaning, inspection and servicing of an oil furnace. The employee improperly put the furnace back together after cleaning it. Several days later, before the final inspection, the furnace was unexpectedly used and a fire resulted. There the court found that the operation was not completed because, first, the inspection service and maintenance constituted the entire subject of the agreement; and, second, the inspection and servicing of the oil burner after the cleaning of the furnace was for the very purpose of placing the oil burner in order for the fall and winter use.
In Bituminous, supra, the subject matter of the contract itself was the servicing, maintenance and inspection of elevators, and the court found coverage under the policy which specified the insured's business as servicing elevators. The facts in McNally are similar to the facts of Bituminous, and it is noteworthy that in both cases the maintenance involved, constituting as it did the entire subject matter of the contract, went far beyond the mere inspection of equipment to see that it was functioning properly.
In Vito the insured contracted with the insured party to fill, service and inspect the party's tanks. Here again the major subject matter of the contract was to inspect and service.
3) Respondents' third contention is that, under California law, it is the time of the negligent act and not the time of the accident which controls. In other words, respondents assert that even if the operation was complete when the accident occurred, the negligent act took place before the machine was installed and therefore coverage is provided under the policy. We cannot agree with this contention for the language of section 3g(2) forecloses such a conclusion. That is, when 'products hazard' coverage is offered, coverage thereunder is provided after the operation has been completed even though the work is defective. As we have already indicated, under condition 3g(2) an operation involving a product is not deemed to be incomplete 'because improperly or defectively performed * * *.' Conversely then, if 'products hazard' coverage is not offered, there would be no coverage for a completed operation even though the work was defective. Hence, the time of the negligent act would not control. Moreover, although we have been unable to discover any California decision squarely in point, the decisions from other jurisdictions are contrary to respondents' position. (Peerless Insurance Company v. Clough, 105 N.H. 76, 193 A.2d 444; Nielson v. Travelers Indemnity Company, D.C., 174 F.Supp. 648, affirmed, 8 Cir., 277 F.2d 455; Berger Bros. Electric Motors v. New Amsterdam Cas. Co., 293 N.Y. 532, 58 N.E.2d 717, Neumann v. Wisconsin Natural Gas Company, 27 Wis.2d 410, 134 N.W.2d 474; and Bitts v. General Accident Fire & Life Assur. Corp., 9 Cir., 282 F.2d 542.)
In Peerless the court stated the rule as follows:
'* * * the majority--and we believe the better rule--is that the time of the occurrence resulting in the loss or damage, and not the time of the negligence, determines whether there is coverage under the policy * * *' (193 A.2d 444, 446.) In Berger Bros., supra, the court, in construing language similar to that used in the appellant's insurance policy, had this to say:
'* * * If that be not the meaning of the plain language used, the insurer would remain liable indefinitely for defective workmanship upon theory that defective work is never complete until the defect is discovered and corrected. But this is a risk which the parties intended to exclude from the coverage of the policy, and we cannot read these policies as intended to cover such risks, for the language is plain and unambiguous.' (58 N.E.2d 717, 718-719.)
Once again, the cases cited by respondents are not dispositive of the issue we face. In Miesen v. Bolich, 177 Cal.App.2d 145, 1 Cal.Rptr. 912, the insurance policy provided complete coverage for the maintenance and operation of the insured's premises for the purpose of an auto dealer repair shop and similar activities. An exclusion specified that the policy did not apply to any automobile or truck rented to others. A third party was injured while the insured's truck was rented to others, and the insurance company sought to deny coverage. In holding that there was coverage, the court found that the cause of the accident was faulty maintenance of the truck by the insured on the premises and not the rental to others. Thus, the court held that the exclusion was inapplicable.
Chrysler Motors of California v. Royal indemnity Co., 76 Cal.App.2d 785, 174 P.2d 318, is distinguishable for substantially the same reasons. In fact, both this case and Miesen were distinguished in Bitts v. General Accident Fire & Life Assur. Corp., supra, 282 F.2d 542 at 543, as follows:
'* * * Bonell contends that * * * since California law must control here, the Tidewater case [Tidewater Associated Oil Co. v. Northwest Casualty Co., 9 Cir., 264 F.2d 879] cannot apply. As establishing California law, appellant relies upon Miesen v. Bolich, 1960, 177 Cal.App.2d 145, 1 Cal.Rptr. 912, and Chrysler Motors of California v. Royal Indemnity Co., 1946, 76 Cal.App.2d 785, 174 P.2d 318. In both of these cases under the exclusionary clauses there involved, the court was concerned with the cause of the accident: with the act or omission which was the source of the potential liability of the insured and with whether such act or omission fell within the provisions of the clause. The cases held generally that the hazard arose when the negligent act was committed and not when the accident occurred. The fact 'These cases cannot apply, as authority, to the clause with which we are concerned. Here the excluded hazard is not the negligent act proximately causing injury. It is, by express definition, 'the handling or use of' the product sold * * *'
The third case cited by respondents, McConnell v. Underwriters at Lloyd, 56 Cal.2d 637, 642, 16 Cal.Rptr. 362, 365 P.2d 418, does not affect the 'negligent act' v. 'accident issue.' The court found that coverage was afforded under the general clause which covered the insured for 'Operations and work undertaken by the Assured applicable to the business of the Assured * * *.' This decision was based on the finding that another clause excluding coverage for off-premises automobile operation rendered the policy ambiguous in light of the 'operations and work' clause just quoted.
III
The final question is whether appellant waived its right to deny coverage in the instant case by undertaking to defend the wrongful death action against Electronic without an appropriate reservation of rights agreement. Respondents assert that no evidence whatever was introduced by appellant as to an alleged reservation of rights agreement, and the rule is well settled that an insurance company undertaking the defense of an action against the insured without such an agreement is deemed to have waived any policy defenses it might have had.
Generally speaking, where an insurer with full knowledge of the fact of non-coverage or a policy defense, nevertheless defends an action brought against the insured without notice of disclaimer of liability or a reservation of rights, it is thereafter estopped in an action upon the policy from asserting non-coverage or the policy defense. (J.Frank & Co. v. New Amsterdam Cas. Co., 175 Cal. 293, 165 P. 927; McDaniels v. General Ins. Co., 1 Cal.App.2d 454, 36 P.2d 829; Rodgers v. Pacific Coast Casualty Company, 33 Cal.App. 70, 164 P. 1115.) It is interesting to note, however, that this contention is raised by respondents Puccinelli, and that the claim of waiver or estoppel is not available to these respondents. As stated in Ann. 38 A.L.R.2d 1148 at page 1157
'It seems well established that, if a liability insurer's defense of an action against the insured is to work an estoppel barring the insurer from subsequently raising the defense of non-coverage, or some other defense existing at the time of the accident, it must be shown that prejudice resulted from the insurer's conduct in defending the action against the insured.'
By no stretch of the imagination can the Puccinellis show prejudice from the fact that appellant has undertaken to defend Electronic in the wrongful death action.
We are advised by Mr. Vernon E. Bjorklund, Esq., who represented Electronic in the court below, that this respondent did not file a brief in this appeal because of lack of funds. We are further advised by Mr. Bjorklund that Electronic's position is identical for the purposes of this appeal with the position of the respondents Puccinellis, as presented by their attorneys. Hence, although it is not clear from Mr. Bjorklund's letter whether Electronic is now asserting a waiver, we will nevertheless consider the point.
Appellant alleged in paragraph VIII, of its complaint for declaratory relief, that it was providing a defense to respondent Electronic in the wrongful death action under an appropriate reservation of rights agreement. Although this allegation was denied by respondent Electronic in its answer, the issue of waiver was apparently Consequently, we do not find it necessary to decide whether the appellant adequately preserved its rights to deny liability by an appropriate reservation of rights agreement before it elected to defend Electronic in the wrongful death action instituted by the Thompsons, and whether Electronic was prejudiced thereby. This necessarily follows for the issue was removed from the case by the pretrial order, and it is settled that the pretrial order supercedes the issues raised by the pleadings. (Windiate v. Moore, 201 Cal.App.2d 509, 19 Cal.Rptr. 860; Teixeira v. Verissimo, 239 Cal.App.2d 147, 48 Cal.Rptr. 496). As stated in People ex rel. Dept. Public Works v. Valley Drive-In Theater Corp., 206 Cal.App.2d 309, 314, 23 Cal.Rptr. 626, 629.
'* * * Under rule 216, California Rules of Court, in reference to the effect of a pretrial conference order, it is said that when filed such order becomes a part of the record in the case and where inconsistent with the pleadings, controls the subsequent course of the case unless modified at or before trial to prevent manifest injustice. The parties and the court were therefore bound by the agreed statement of facts and issues and were not authorized to make findings contrary thereto without proper modification of the agreement and pretrial order. * * *'
For the foregoing reasons, the judgment is reversed.
CONLEY, P. J., and STONE, J., concur.
'That during the period from April 10, 1963, to April 12, 1963, Melvin Seals, acting as the agent of defendant ELECTRONIC PURIFICATION CO. INC. did certain work in connection with the installation of said electronic water purification device, including the acid washing of the swimming pool at Canal Farm Inn and Motel and the removal and replacement of the pool floodlight fixture in said swimming pool.'
Conclusions of Law I and 2 read:
'1. That the acid washing of the swimming pool at the Canal Farm Inn and Motel, the installation of the electronic water purification device in said pool and the removal and replacement of the pool floodlight fixture in said pool were one operation within the meaning of the word 'operation' as used in plaintiff's policy of liability insurance.
'2. That said operation was not completed prior to the alleged wrongful death of Kevin Thompson.'
These conclusions contain mixed conclusions of fact and law, but nevertheless they are valid and effectual findings. (Petersen v. Cloverdale Egg Farms, 161 Cal.App.2d 792, 327 P.2d 127; Howard Townsite Owners, Inc. v. Progressive Oil Company, 188 Cal.App.2d 24, 9 Cal.Rptr. 856.)
'Well, we would usually instruct the lessee what to look for. In other words, if the light went off, the red light wasn't burning, that would probably indicate that the machine needed attention. Some of them even would smell it at the end of the little tube to see if the ozone was producing. In most cases they would call us when the red light was not working.'