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Bouton v. Litton Industries Inc.

decided: March 19, 1970.

DAVID K. BOUTON, ARTHUR W. BUTTENHEIM, CARL W. SHATTUCK, JOHN C. SMALTZ AND G. ROBERT COMPTON, AS TRUSTEES IN LIQUIDATION OF M-T LIQUIDATION CORPORATION (FORMERLY MCKIERNAN-TERRY CORPORATION) (PLAINTIFF)
v.
LITTON INDUSTRIES, INC., AND LIBERTY MUTUAL INSURANCE COMPANY (DEFENDANT). LITTON INDUSTRIES, INC., A DELAWARE CORPORATION (PLAINTIFF) V. DAVID K. BOUTON, ARTHUR W. BUTTENHEIM, CARL W. SHATTUCK, JOHN C. SMALTZ AND G. ROBERT COMPTON, AS TRUSTEES IN LIQUIDATION OF M-T LIQUIDATION CORPORATION (FORMERLY MCKIERNAN-TERRY CORPORATION, A CORPORATION OF THE STATE OF NEW JERSEY) LITTON INDUSTRIES, INC., (ONE OF THE DEFENDANTS), APPELLANT



Freedman, Aldisert and Gibbons, Circuit Judges.

Author: Gibbons

Opinion OF THE COURT

GIBBONS, Circuit Judge.

This is an appeal from an order of the district court for the District of New Jersey which granted summary judgment to the plaintiffs against the defendant Litton Industries and which denied Litton's cross-motion for summary judgment against the plaintiffs. A second defendant, Liberty Mutual Insurance Company, in whose favor summary judgment was entered against the plaintiffs, is not involved in this appeal. The case was removed from the Superior Court of New Jersey, Chancery Division, for diversity of citizenship. At least one claim asserted by the plaintiffs has not been fully adjudicated, but the district court, pursuant to Rule 54(b), Federal Rules of Civil Procedure, directed that final judgment be entered in favor of the plaintiffs, and the order is, therefore, appealable.

Plaintiffs are the trustees in liquidation of M-T Liquidation Corporation, a New Jersey corporation formerly known as McKiernan-Terry Corporation (hereinafter called M-T). Until September 21, 1962, M-T was engaged in the design, manufacture and sale of heavy machinery, including radar pedestals for the Defense Department's Distant Early Warning System, and arresting engines used to halt airplanes landing on carriers. On that date, pursuant to the terms of a contract dated July 12, 1962, defendant, Litton Industries, (hereinafter called Litton) acquired all of the assets, business and good will of M-T in exchange for Litton stock and the assumption by Litton of certain M-T liabilities. The disputed liabilities are in two categories:

1. The claim of General Electric Company against M-T for breach of contract because a number of radar pedestals furnished by M-T for the D.E.W. System failed to perform in accordance with contract specifications resulting in damage to G.E. This claim is in suit against both M-T and Litton.*fn1 The G.E. dispute had arisen prior to September 21, 1962, but it did not result in a lawsuit until November 14, 1966.

2. Two personal injury claims, both of which arise out of accidents which took place after September 21, 1962, and in both of which the accident is alleged to have been caused by the failure at sea of aircraft arresting engines made and sold by M-T in 1958. One claimant, Sevits, was injured on August 19, 1963. The other, Baldwin, was injured on September 12, 1964. Both claims have resulted in suits against M-T and Litton.*fn2

At the time of the M-T to Litton closing on September 21, 1962, M-T was the insured under a comprehensive general liability policy issued by defendant, Liberty Mutual Insurance Company. The term of this policy was from November 1, 1961 to November 1, 1962. Apparently neither M-T nor Litton continued similar coverage after November 1, 1962. Plaintiffs sought in the complaint a declaratory judgment that Liberty Mutual insured against both the G.E. and the personal injury claims. The district court granted Liberty Mutual a summary judgment that it does not insure against the Sevits and Baldwin claims because the accidents arose after the expiration of the policy. M-T and Litton concede that this determination was correct, since product liability insurance coverage is written on the basis that the carrier on the risk at the time of the accident affords coverage.

The G.E. claim is being defended by Liberty Mutual pursuant to a reservation of rights agreement. The district court dismissed the complaint against Liberty Mutual without prejudice to the claim of M-T or Litton that Liberty Mutual is an insurer against the G.E. claim.

Plaintiffs' complaint and its motion for summary judgment against Litton sought a declaratory judgment that Litton is obliged to assume the defense of both the G.E. and the personal injury actions and to pay any judgment arising therefrom. Plaintiffs also sought injunctive relief and damages consistent with such a declaration. In support of its motion it filed affidavits which identified for the district court the M-T to Litton contract of July 12, 1962 and the exhibits thereto, the pleadings in the G.E. and the personal injury actions, and the assumption agreement which Litton furnished to M-T at the September 21, 1962 closing.

Litton filed no answering affidavits, but made a cross-motion for summary judgment in which it relied "upon the exhibits annexed to plaintiffs' notice of its pending motion for summary judgment."*fn3 Litton made these contentions:

1. The agreement between the parties is only an undertaking of indemnity and no liability arises on Litton's part until after M-T pays a judgment, and then only in the amount paid on account of the judgment.

2. Its liability on the G.E. claim is in the contract limited to $150,000.

3. It did not assume any liability to M-T with respect to product liability claims resulting from accidents occurring after ...


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