Liberty Building Co. v. Royal Indemnity Co.

FOX, P. J. Plaintiff seeks to recover on a products liability insurance policy. A general demurrer was sustained with leave to amend, to each cause of action in plaintiff’s amended [585]complaint but plaintiff declined to further amend. As a consequence, a judgment of dismissal was duly entered from which plaintiff appeals.

Plaintiff is a subdivider and building contractor. At all times relevant to this action, plaintiff was covered by a products liability insurance policy issued by defendant Royal Indemnity Company. Plaintiff constructed a large number of dwelling houses upon its own property, which were sold prior to completion. After the buyers took possession, many of the houses developed defects in the outside stucco walls. The buyers then brought suit (or made claims) against plaintiff alleging breach of warranty, and plaintiff gave notice to defendant to defend the suits. Defendant refused to defend and plaintiff settled the claims out of court. Plaintiff thereupon brought this action to recover the costs of defense and compromise and also to recover the amounts paid in settlement of the buyers’ claims.

Plaintiff’s amended complaint is framed in two separate causes of action. After pleading the policy of insurance, the first cause of action is in substance as follows:

That the plaintiff constructed and sold the subject dwellings and that after completion, the outer stucco covering became cracked, discolored and flaked away; that the property owners brought suit or lodged claims against plaintiff; that defendant refused to defend the suits; that plaintiff settled the claims upon advice of counsel that the claimants had substantial evidence that the defects in the stucco were due to an improper mixture which allowed water absorption into the stucco; that plaintiff was therefore justified in settling; and, that defendant refused to pay the amounts incurred in settlement and defense of the claims.

The crux of the purchasers’ claims against plaintiff is found in paragraph XII of its first cause of action which reads, in part, as follows: "That the third cause of action alleged in said Complaint so filed and maintained against plaintiff herein was founded upon the grounds: that plaintiff had, as a matter of law, impliedly warranted to said ‘ Suing Purchasers’, and each of them that, among other things, upon the completion of the Dwelling Unit purchased by each said ‘Suing Purchaser’, the exterior stucco thereof would and did conform, as to mix and application, to the standards and requirements provided by law, and that such Dwelling Unit had been and would be constructed in conformity with good building practices as practiced within the County of