Hartford Fire Ins. Co. v. St. Paul Surplus Lines Ins. Co.

The full case caption appears at the end of this opinion.

Posner, Circuit Judge. This diversitysuit, governed all agree by Californialaw, involves a dispute between twoinsurance companies over the scope andapplicability of the form of insuranceknown as a “vendor’s endorsement.” Amanufacturer will often add to itsproducts liability insurance anendorsement extending coverage todistributors of its product who may besued for breach of warranty or for strictproducts liability should the productturn out to be defective or unreasonablydangerous and cause an injury. “When amanufacturer produces a product whichcontains a defect in design or one causedby faulty workmanship and it is sold to adistributor who in turn sells it to aretailer, the latter two links in thechain to the ultimate consumer ordinarilyare merely conduits in the stream ofcommerce which ends at the ultimateconsumer. The manufacturing or designdefect, as to which they had no creativerole, was in existence when each of themreceived the product and each is merely anonculpable accessory in the eventualsale. Nevertheless, each, in that role,is strictly liable to the injuredultimate user. . . . The nonculpabledistributor or retailer is not, however,without remedy and has ‘an action overagainst the manufacturer who should bearthe primary responsibility for puttingthe defective products in the stream oftrade.’ . . . Since, in the ordinarycase, the liability trail eventuallyleads back to the manufacturer, andconsequently to his insurer, it is amatter of common sense and fair dealingthat the coverage of the manufacturershould be extended to the distributor andthe insurance of the distributor in turncover the retailer.” American White CrossLaboratories, Inc. v. Continental Ins.Co., 495 A.2d 152, 155-56 (N.J. App.1985) (citations omitted); see alsoHartford Accident & Indemnity Co. v.Bennett, 651 So. 2d 806, 808 (Fla. App.1995); Dominick’s Finer Foods, Inc. v.American Manufacturers Mutual Ins. Co.,516 N.E.2d 544, 546 (Ill. App. 1987);Peter J. Kalis, Thomas M. Reiter, & JamesR. Segerdahl, Policyholder’s Guide to theLaw of Insurance Coverage sec.19.06[B][4][a], pp. 19-37 to 19-38(1997). We don’t think “fair dealing” hasmuch to do with anything, but one canperceive the economic logic of this formof insurance easily enough; it allows theinsurer to coordinate the defense ofmultiple suits arising out of the sameinjury and spares the distributor theexpense of hiring a lawyer to defendagainst a suit arising out of a design ormanufacturing defect with which thedistributor had nothing to do.