Goodyear Rubber & Supply Company, Inc., a Corporation v. Great American Insurance Company, a Corporation

This declaratory judgment action, based on diversity of citizenship, was tried on stipulated facts. The plaintiff below, Goodyear, sought an interpretation of a policy of liability insurance issued to it by the defendant Great American and an adjudication that a damage claim made against Goodyear by a third party was within the coverage of the policy. Goodyear also sought a ruling that Great American had an obligation to defend a suit brought on that claim and that, because of its failure to do so, Great American was liable for the costs of the defense of the original suit. The district court entered judgment for the defendant, concluding that there was no obligation on the part of Great American to defend the original suit or to pay any portion of the settlement. Goodyear appeals and we reverse.

The parties have stipulated that Goodyear fabricated and sold hatch gasket material to Northwest Marine which installed it in Portland, Oregon on the S. S. Arizona, an ocean going vessel. On the next voyage of the Arizona, the material was found to be defective. The vessel was returned to Portland and Northwest removed and replaced the gaskets.

Northwest then sued Goodyear for the cost…