Beckwith Machinery Company v. Travelers Indemnity Company

638 F. Supp. 1179 (1986)

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Nature of the Case

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Facts

P is in the business of selling, leasing, and repairing Caterpillar earthmoving equipment. D is an insurance company. D contracted with P to provide P with comprehensive general liability insurance. D agreed to pay all sums which P became obligated to pay by reason of liability imposed by law, or assumed by P under any contract, 'for damages because of bodily injury, personal injury or property damage to which the policy applied.' The policy provided that D 'agreed to defend any suit brought against P within the United States, even if any of the allegations of the suit were groundless if said suit alleged bodily injury, personal injury or property damage.' P sold equipment to Trumbull. The tractor scrapers supplied by P broke down from time to time due to engine and transmission problems; thus, hampering the progress of Trumbull's construction project. Warranty, maintenance, and other repairs were performed on the tractor scrapers. Counsel for Trumbull formally notified P by a letter dated September 27, 1976, of its claim that the Caterpillar tractor scrapers were defective and that their failure to perform caused Trumbull to suffer damages in excess of three million dollars. P informed D of the possibility of a claim by Trumbull. On April 15, 1977, Trumbull initiated a lawsuit against P and Caterpillar. The case included claims against P for breach of warranties and misrepresentation of quality (i.e., failure to inform Trumbull of design defects) in thirteen (13) earthmoving tractor scrapers that were manufactured by Caterpillar and sold or rented to Trumbull. D, through the law firm of Stein & Winters, assumed the defense with respect to all claims except those pertaining to punitive damages. In response to D's refusal to provide a defense for the claim for punitive damages, P retained the law firm of Thorp, Reed and Armstrong, which notified D that P was holding Travelers responsible for coverage and defense of Trumbull's punitive damages claim. D said nothing about not covering other types of claims in the suit. In an internal memorandum, D noted the possibility that P, as a joint tortfeasor, could be liable for as much as 50% of the Trumbull claims. Several other internal memoranda and/or letters were circulated at D, which reflected the insurer's vacillation and confusion over potential coverage of the Trumbull claims. By letter dated May 19, 1978, D suddenly denied coverage and withdrew its defense of P. D stated that it 'can no longer afford you defense for any of the causes of action sued upon.' At one point, D proposed to resume the defense without providing coverage, if P, in turn, would waive its claim of 'prejudice' against D. P rejected this offer, believing it was owed both defense and coverage. D was put on notice that P intended to proceed against Travelers for all costs and expenses it incurred in the defense of the Trumbull lawsuit. The Trumbull case was eventually settled on November 12, 1982, with P's portion of the settlement being $100,000.00. P sued D. P alleged breach of contract and also an estoppel theory. P alleged that since D assumed the complete defense of all compensatory damage claims for over one year, prevented P from discovering witnesses, documents, and facts relevant to its defense for that time period, and that P had relied on D to defend those claims for the entire duration of the Trumbull case and to pay any damage claims or settlements. Both parties moved for summary judgment.