Opinion
For Opinion on Hearing, see 47 Cal.Rptr. 564, 407 P.2d 868.
McLaughlin & Russell, by Jerome M. McLaughlin, Sacramento, for appellant.
Clarence N. Riggins and John T. Rossi, Napa, and George Nye, Oakland, for respondent.
SPARKS, Justice pro tem.
Defendant Indemnity Company appeals from a judgment in the sum of $34,358.25 awarded against it by reason of certain provisions contained in policies issued to its assured, California Aluminum Products,
The first trial of the instant action resulted in a judgment for St. Paul, the judge being of the opinion that it was not bound by the judgment against California Aluminum and holding that the evidence failed to show an accident within the meaning of the policies. Appeal was taken from this judgment, and the case heard in the Supreme Court. A decision was rendered therein which reversed the judgment of the lower court 'for further proceedings in accord with the views herein expressed.' (Geddes & Smith, Inc. v. St. Paul Mercury Indemnity Co., 51 Cal.2d 558, 334 P.2d 881.) The case was then returned to the trial court and 'further proceedings' had which resulted in the said judgment of $34,358.25, the subject of this appeal.
The background of facts developed at the first trial, and upon which the Supreme Court predicated its decision, was the following: 'Plaintiff, a building contractor, ordered 760 aluminum doors, door jambs, and attached hardware from Aluminum Products in November, 1950. The doors were to be used in 76 houses being constructed by plaintiff in the cities of Napa and Fairfield. The deliveries of the doors occurred from December, 1950, to February, 1954. The doors were kept in storage for some time, and plaintiff began to install them in May, 1951, and installed all of them within a few months. After installation, defects appeared in some of the doors within a few days and others after various periods of time ranging up to six months. Some of the doors sagged on their hinges and dragged on the floors. Some went out of shape. Parts of some of the doors fell out. Some doors could not be closed and others that were closed became locked in place and could not be opened. Plaintiff notified Aluminum Products, which undertook to supply other doors. Many of the new doors had the same defects as the old. Some were found damaged when received by plaintiff. Some could not be used because they were unsuitable; for example, 22 doors shipped as replacement-bathroom doors were equipped with chimes and letter drops. Aluminum Products shipped a total of 2,604 doors before enough suitable doors were obtained, and plaintiff was engaged in handling, storing, repairing, removing and installing doors for over a year.
'In May, 1952, plaintiff brought an action against Aluminum Products alleging breach of warranty and negligence. Plaintiff alleged that by reason of expenses incurred in removing, installing, repairing, storing, and shipping doors, expenses incurred in office overhead during the time it was engaged in settling disputes arising out of the installation of the doors and loss of profit, it was damaged in excess of $100,000. Aluminum Products notified defendant and asked it to defend the action. Defendant refused to do so on the ground that damage to the doors was excluded from coverage under the policy issued to Aluminum Products. Aluminum Products then undertook the defense of the action. It denied the allegations of the complaint and filed a cross-complaint for some $8,000 alleged to be unpaid on the doors. When that action came on for trial, counsel for both parties stipulated findings of fact and conclusions of law. Pursuant thereto, the court found that the allegations of the complaint were true, that nothing was unpaid on the doors, entered judgment on the complaint for plaintiff in the sum of $100,000 and costs, and entered judgment against Aluminum Products on the cross-complaint. 'Plaintiff then brought this action against defendant to recover the amount of the judgment under the insurance policy issued by defendant to Aluminum Products. The judgment roll of the prior action was admitted into evidence.
'The policy in question was issued for the period from May 1, 1951, to May 1, 1952. Under the terms of the policy defendant was obligated to defend any actions against Aluminum Products alleging damages within the policy coverage. * * *' (Geddes & Smith, Inc. v. St. Paul Mercury Indemnity Co., supra, pp. 560-561, 334 P.2d p. 883.)
Before considering ad seriatim the several arguments for reversal urged by appellant, we observe first that the decision of the Supreme Court in Geddes, supra, established the law of the case (Allen v. California Mutual B. & L. Assn., 22 Cal.2d 474, 139 P.2d 321; Hard v. Hollywood Turf Club, 134 Cal.App.2d 174, 285 P.2d 321) and was as binding on the trial court as it now is on us. (Hard v. Hollywood Turf Club, supra.) Where a judgment is reversed with directions, the law set forth in the opinion is just as binding a limitation on the trial judge's power as a flat direction for judgment. The trial court, under such circumstances, is without authority to proceed other than in accordance with the directions, and any substantial deviation therefrom would constitute error. (Rice v. Schmid, 25 Cal.2d 259, 153 P.2d 313; Estate of Baird, 193 Cal. 225, 223 P. 974.)
In the instant proceeding the law of the case as established by the Supreme Court in its decision, supra, embraced and disposed of three material issues: (1) Liability of defendant under its policy; (2) the adjudicatory effect of the judgment against defendant's assured; and (3) the proper measure of damages to be followed by the trial court in its further proceedings.
On the first issue the Supreme Court held that there was 'an accident' within the meaning of the policy definition and that the installation of the defective aluminum doors and the subsequent failure of the doors constituted an injury to physical property and property damage to the houses in which the doors had been installed. In reaching this decision it cited with appproval and followed the holding in the case of Hauenstein v. Saint Paul-Mercury Indem. Co., 242 Minn. 354, 65 N.W.2d 122. There, defective plaster had been sold by the insured, which after application to the walls and ceilings of a building shrank and cracked to such an extent as to be valueless and had to be removed so the surfaces could be replastered with a different material. Under a clause identical with that in the present case, the court held that although injury to the plaster itself was excluded from coverage, nevertheless, an injury to the house had occurred. '* * * 'No one can reasonably contend that the application of a useless plaster, which has to be removed before the walls can be properly replastered, does not lower the market value of a building. Although the injury to the walls and ceilings can be rectified by removal of the defective plaster, nevertheless, the presence of the defective plaster on the walls and ceilings reduced the value of the building and constituted property damage. * * *'' (Geddes, supra, 51 Cal.2d p. 565, 334 P.2d p. 885.)
In applying the rule of the Hauenstein case to the instant situation of defective aluminum doors, the Supreme Court, speaking through Mr. Justice Traynor, held that the failure of each door constituted 'an accident' and came within the policy definition thereof. '* * * The door failures were unexpected, undesigned, and unforeseen. They were not the result of normal deterioration, but occurred long before any properly constructed door might be expected to wear out or collapse. Moreover, they occurred suddenly. * * * Thus, although it may have taken many months for all of the doors to fail and fall apart, it is clear that each door, when it failed, failed suddenly. At one moment it was a usable door, at the next it was not.' (51 Cal.2d P. 564, 334 P.2d pp. 884-885.) The court then held that such failures resulted in injury to The second law of the case established by the decisiion concerned the effect properly to be given to the judgment in the action against California Aluminum in which defendant had declined to participate. The adjudicatory effect of such judgment was, in Mr. Justice Traynor's words, as follows: '* * * An insurer that has been notified of an action and refuses to defend on the ground that the alleged claim is not within the policy coverage is bound by a judgment in the action, in the absence of fraud or collusion, as to all material findings of fact essential to the judgment of liability of the insured. The insurer is not bound, however, as to issues not necessarily adjudicated in the prior action and can still present any defenses not inconsistent with the judgment against the insured.' (51 Cal.2d p. 561, 334 P.2d p. 883.)
The trial law of the case defined measure of damages. Again, the Supreme Court followed Hauenstein, supra, and adopted with approval the rule therein set forth, i. e., that the measure of damages is the diminution in market value of the building, or the cost of removing the defective plaster (doors) and restoring the building to its former condition, plus any loss from deprival of use, whichever is the lesser. Plaintiff's judgment against California Aluminum, however, included additional items of damage, namely, damages to its business and goodwill. The Supreme Court rejected the contention that these were damages because of injury to or destruction of property, or that they came within the liability clause of the insurance policy.
It stated at page 566 of 51 Cal.2d, at pp. 885-886, of 334 P.2d: '* * * Defendant did not undertake to insure against all breaches of contract caused by accident. It required an injury to or destruction of property and excluded injury to or destruction of goods or products sold by the insured. The significance of this exclusion would be obvious had the defects appeared before any of the doors had been installed. In such event it could not be seriously contended that an injury to property other than the doors had occurred within the meaning of the policy even though plaintiff's inability to use them seriously interfered with its business and injured its goodwill. Such damages are no less outside the coverage of the policy because there was also damage to the houses.'
Upon the return of the case to the trial court for further proceedings, plaintiff, over the objection of the defendant, introduced into evidence the judgment roll in the California Aluminum case. It also introduced the testimony of one witness, Samuel R. Geddes, president of plaintiff-company. Mr. Geddes testified as to the continued corporate status of plaintiff and its possession of a license to contract. Plaintiff then rested. Defendant offered in evidence a summary of certain questions and answers which had been given as written interrogatories. (Exhibit A.) Defendant contended that the answers to the interrogatories established that the houses in Fairfield were offered for sale for $9,250 and each was sold within a short time after completion; that the same was true of the houses in Napa; that no person purchased a house and thereafter refused to consummate the purchase by reason of the condition of the doors; that plaintiff was not compelled and did not reacquire title to any of the houses by reason of the condition of the doors. Upon objection to admission of the said summary, the document was marked for identification with ruling thereon reserved by the court. So far as the record shows, no ruling was subsequently made. The failure to make a formal ruling must be construed to be an implied ruling against the objection and in favor of admissibility. The point may be raised on appeal without the necessity of a motion to strike. (Clopton v. Clopton, 162 Cal. 27, 121 P. 720; Alocco v. Fouche, 190 Cal.App.2d 244, 11 In rendering his decision, the trial judge attempted to follow the law of the case by first eliminating the items of damage included in the $100,000 judgment which clearly were not within the coverage of defendant's policy. The items so eliminated, and over which there is no controversy on this appeal, are the following: $63,957.42, damage to plaintiff's business and loss of profits and goodwill; $1,625 for storage of defective doors; $59.33 for freight charges on doors not used. The total of these items found by the court to be nonrecoverable damage amounted to $65,641.75, which, when deducted from the total judgment, left a residue of $34,358.25. This latter sum was found by the court to be the proper amount of damages to be awarded plaintiff and for which defendant was liable under its policy. Judgment was entered accordingly. The crux of this appeal is whether or not the law of the case was correctly interpreted and applied. We give our views on the question in the following consideration of alleged errors.
Appellant St. Paul contends that the trial court erred in refusing to admit in evidence defendant's Exhibit A and in failing to make any finding of fact whatever with respect to diminution of market value. It argues that the rule of damages established by the Supreme Court required that the court find which was the lesser of two amounts, that is, the diminution in the market value of the building or the cost of removing the defective doors and restoring the buildings to their former condition, plus any loss from deprival of use. It is true that plaintiff offered no evidence tending to show depreciation of the houses in market value by reason of the installation of the defective doors. To have been of any assistance to the court in ascertaining damages such evidence ordinarily would have consisted of appraised valuations of the various houses after the installation of the doors but before their failure, as compared with the subsequent market value of the houses with the doors in a deteriorated condition. Each house, according to the record, was equipped with ten doors. The doors did not fail simultaneously but at various intervals of time, varying from one week to six months. Some doors had to be removed and replaced as many as three times. The difficulty, or even the impracticability, of attempting to apply a reduction-in-market-value formula to each of the 76 houses involved in the litigation should be apparent.
It is true that generally the measure of damages to be applied for injury to realty is the difference in value of the real property before and immediately after the injury. However, this is not the exclusive rule and will yield to meet particular circumstances. In the case of a reparable injury, a frequent measure of damages is the cost of making repairs plus the value of the use of the premises for the period during which the owner proximately has been deprived of its use. (Linforth v. San Francisco Gas & Electric Co., 156 Cal. 58, 103 P. 320; Natural Soda Prod. Co. v. City of Los Angeles, 23 Cal.2d 193, 143 P.2d 12; Kell v. Jansen, 53 Cal.App.2d 498, 127 P.2d 1033; LeBrun v. Richards, 210 Cal. 308, 291 P. 825, 72 A.L.R. 336.) The cost of repairs or of restoration may be considered as evidence of the extent of damage to buildings, and, in the absence of evidence to the contrary, be equated with diminution in market value. (Linforth v. San Francisco Gas & Electric Co., supra; Natural Soda Prod. Co. v. City of Los Angeles, supra; Frustuck Rhodes v. Firestone Tire etc. Co.,
Pfingsten v. Westenhaver, Konda v. Frumpkin,The record discloses no offer of proof of this type on defendant's part. Instead, as we have noted, it offered in evidence the said Exhibit A containing a summary of certain interrogatories. Even assuming that by stipulation it had been made competent as to form, it added no material weight to appellant's contentions. There was no dispute in the evidence that after the defective doors had been removed from the houses sufficient suitable ones were finally obtained, although in doing so plaintiffs handled some 2,604 doors. Since the houses were fully restored, evidence that there had been no reduction in sales price would be meaningless on the issue of whether or not they had depreciated prior to restoration. Likewise, evidence that there had been no rescissions by purchasers, or defaults in payments requiring foreclosure, would be of negligible value on the question of depreciation. The fact of the matter was, as shown by the evidence, that when a door failed plaintiff removed it and replaced it with another, and kept on doing so for more than one year, until each of the 76 houses was equipped with ten suitable doors. We conclude that under the circumstances there was no prejudicial error in failing to make a specific finding in respect to diminution in market value.
The next point raised by appellant is that there was no evidence in the record to support a finding of fact that plaintiff was damaged by spending any sum for the cost of removing the doors. In the sense that the evidence showed no segregation or itemization of removal costs alone, the statement is correct. If the law of the case restricted plaintiff to recover from defendant, under its policy, only the cost of removing the defective doors, it is obvious that a reversal of the judgment would be required, since the trial court construed the law of the case to include in the measure of damage not only the cost of removing the doors but also the cost of installing new ones. Since the latter point is appellant's next assignment of error (i. e., that the trial court erred in including in the judgment the cost of replacing the doors) and actually is the heart of the case, the two contentions will be considered jointly.
The argument that defendant was only liable for the cost of removing the defective doors necessarily equates removal with restoration. It assumes that removal of a deleterious product terminates its power to injure a structure, and that with removal there has been an ipso facto restoration to its former condition. This proposition, although true in some situations, seems entirely too broad and rigid to admit of universal application, considering the infinite number and variety of types of products for which liability insurance might be written. It would also tend to convert issues into matters of law which properly should repose in the realm of facts. Appellant claims support for its equationary formula of removal equals restoration from the Hauenstein case, supra, for the reason that in that case it was held the presence of the defective plaster on the walls and ceilings of the buildings constituted damage and reduced the value of the building. It laid down the measure of damages set forth above, one of the alternatives being 'the It is our conclusion that the court in Hauenstein did not intend that removal of a harmful product would, under all circumstances, instantly result in the restoration of a building to its former condition within the meaning of the insuring clause. Nor do we find in the Geddes case language of our Supreme Court which would require appellant's interpretation. On the contrary, we are of the opinion that the relation of removal to restoration is a question of fact to be determined in each case from the nature of the product sold and the type of property damage sustained by the building.
It has been said that product liability insurance is specially designed to protect the producer or manufacturer of goods against loss by reason of injury to the person or property of others caused by the use of the products. This insurance represents the application of liability coverage to the specialized situation presented by persons who, in the course of their business, are exposed to claims by third persons on the ground that their products caused injury or damage after they were no longer in the possession of the insured. (1 Couch on Insurance 2d (Anderson) sec. 1:85, p. 92.) Injury and damage to the product itself is not within the ambit of coverage. An illustrative comparison in the field of motor vehicle insurance is the difference between collision damage as contrasted with property or public liability coverage.
In some instances, such as in the Hauenstein case, it would be most difficult to award damages for restoration without violating the provisions of the exclusionary clause, since the product, that is plaster, constitutes an integral part of replastering. However, in other situations, the product may be a complete unit in itself, and its removal from a building and the installation cost of a suitable replacement may be found, as a fact, to be compensation for injury to the building itself and not to the product.
We hold then that after excluding all injury and damage to the product itself and restricting the coverage of defendant's policy to the injury or destruction of physical tangible property, the judgment in the case at bench can be upheld as to those portions which reimburse plaintiff for the cost of removing the defective doors and for the further cost of repairing and restoring its houses to the condition they were in prior to the accidents, namely, the cost of installing the new doors, but excluding, of course, the cost of the doors themselves.
We believe that this holding is not without precedential support. In Bundy Tubing Co. v. Royal Indemnity Co., 6 Cir., 298 F.2d 151, a case involving defective tubing used for radiant heat, the court held that the value of the defective tubing or the cost of new tubing cannot be included as part of the damage, but 'The cost of removing defective tubing and the cost of installing new tubing is recoverable.' (298 F.2d P. 154.) In Meiser v. Aetna (Casualty & Surety Co., 8 Wis.2d 233, 98 N.W.2d 919, recovery was allowed for the expense and Haerens v. Commercial Cas. Ins. Co.,
It is also interesting to note in this case that the court first quoted the Hauenstein case, then cited the Geddes case, and stated: 'In the latter case, recovery was allowed for the cost of removal of defective aluminum doors and the cost of installation of new doors.' (298 F.2d P. 153.)
In the instant case there was ample evidence for the trial court to conclude that the accidents resulting in property damages to the houses did not occur at the moment of the installation of the defective doors but at some later time, which varied from one week to six months, depending upon when the doors deteriorated. It was also a valid conclusion that the phrase 'restoration to its former condition' did not, in the situation before the court, mean return to doorless buildings but rather to houses complete with suitable doors, as they existed prior to the door failures. The word 'replacement' used by the trial court in its findings, and repeated in the briefs on file herein, is perhaps not sufficiently precise. It might be interpreted in meaning to include the cost of new doors, which, of course, was not the case here. No claim was made by plaintiff for the value of the doors themselves as the record shows they were furnished prefabricated by California Aluminum without cost to plaintiff, in fact, some 2,604 doors in all. By replacement the court obviously meant the cost incurred by plaintiff in removing the defective doors and the costs of installing the new doors as part of the process of restoring the premises to their former condition. These costs were specified as follows: labor charges for transporting, inspecting, repairing and replacing defective doors $14,560.47.
Appellant argues that the inclusion of labor costs for 'repairing' doors would constitute the allowance of damages for injury to the doors themselves, the very liability excluded by the policy. However, as we read the record there was evidence from which the trial court could have found that all of the old doors were substituted with prefabricated new ones, and that on old doors had been repaired, or were even capable of being repaired. The word 'repair' is defined in Webster's New International Dictionary (2d ed. 1960): 'To restore to a sound or good state after decay, injury, dilapidation, or partial destruction; as, to repair a house * * *.' Even if the evidence were conflicting on the point, it is our duty in review to uphold the finding if supported by any substantial evidence. (Purdy v. Purdy, 138 Cal.App.2d 402, 291 P.2d 1005; Arsenian v. Meketarian, 138 Cal.App.2d 627, 292 P.2d 293.)
In conclusion on this point we are of the opinion that the evidence was sufficient to support the court's implied finding that all of the items reflected in said amount of $14,560.47 were costs incurred by plaintiff in the removal of the defective doors and in repairing and restoring the houses themselves to the condition they were in prior to the accident and hence within the coverage of defendant's policy.
The final point raised by appellant is that the judgment of $34,358.25 awarded to plaintiff included $18,373.96 in officers' salaries and clerical expenses. It contends that under the law of the case the only obligation of defendant was to indemnify plaintiff with respect to damage to physical tangible property, to wit, the houses. This item of damage, it argues, was clearly a business expense of the company of Geddes and Smith Inc. and in no sense could be construed as damage to the physical tangible property. It further contends that as a part of the judgment roll introduced in evidence by plaintiff there was a bill of particulars verified by plaintiff, with an explanation of the $18,373.96 item as follows: 'Office overhead and expenses during the time of over a year when plaintiff was engaged referred to in paragraph XII in the first cause of action set out in the complaint: The full time of both Geddes and Smith has been devoted to door replacement and to keep seventy-six families from bringing legal action against us. Office salaries, Office rents, Office expenses, Office telephone & telegraph, Travel and auto expenses, Insurance, Warehouse-Lawrence.' (Emphasis added.) Respondent cites the Millet v. Bradbury,
The judgment roll in the California Aluminum case relied upon by plaintiff as evidence and proof of its damage included a finding of fact that paragraph XII of the first cause of action of plaintiff's complaint was true. Said paragraph (referred to in the bill of particulars above quoted) contained, among others, the following allegations:
'* * * That the plaintiff was threatened with damage suits by the purchasers and occupants of said houses by reason of said defects.
'That many of said occupants complained to the plaintiff as builder and demanded repairs and replacements of said doors and that this condition continued throughout the entire time of over a year that defendants took to replace said doors, as herein set forth, and plaintiff was put to the expense of repairing and replacing said defective doors.
'That by reason of said defective doors and the delays that ensued by reason thereof, the plaintiff was unable to complete the houses in time to meet the plaintiff's contracts on promised delivery dates. That this plaintiff had constant complaints about said defective doors from purchasers, government and building inspectors, and lending institutions, from whom plaintiff and Cordelia Village Corporation had borrowed money to erect said 76 houses. The plaintiff was threatened with proceedings to revoke its contractor's license; its credit was impaired; it took the entire time of its office staff and its managing directors, SAMUEL R. GEDDES and JAMES J. SMITH, for over a year to meet the demands made upon the plaintiff by reason of the installation of said defective doors in said premises, and it was unable to engage in any other business during said time.
'That the plaintiff expended the sum of * * * 'Eighteen Thousand Three Hundred and Seventy-three and 98/100 Dollars ($18,373.98) for office overhead and expense during the time of over a year when it was engaged in the disputes and troubles caused to it by the installation of said defective doors * * *.'
We conclude that appellant's contention that the item of $18,373.98 represented business expense outside the scope of its policy coverage should be upheld. The expenses making up this item were indeed a detriment to respondent's business. Certainly they were allowable against California Aluminum for breach of warranty; but under the law of the case such items of business expense could not constitute damage to the physical tangible property, that is, the houses themselves, within the meaning of defendant's products liability policy. As said in Geddes, supra, at page 566 of 51 Cal.2d, at page 885 of 334 P.2d: 'Defendant did not undertake to insure against all breaches of contract caused by accident. It required an injury to or destruction of property and excluded injury to or destruction of goods or products sold by the insured.' The fact that there was actual property damage caused by the defective doors would be no warrant for the inclusion of other damages outside of the policy coverage and not within the measure of damages as ruled by the Supreme Court to be the law of the case.
We are, therefore constrained to hold that the allowance of said sum of $18,373.98 as office overhead and expenses of plaintiff company was not in conformity with the views expressed by the Supreme Court in the law of the case and was erroneously granted. Since the item of $18,373.98 is separately stated in both the pleadings and the findings and may be readily segregated from the judgment, we are of the opinion that the judgment need not be reversed but The judgment is hereby modified accordingly by reducing the sum of $34,358.25 entered in favor of plaintiff to the sum of $15,984.27, plus interest, and as so modified is affirmed. Each side shall bear its own costs on appeal.
PIERCE, P. J., and FRIEDMAN, J., concur.