This is an appeal from a judgment of the Grand Forks County District Court which held that Northland Chemical Company [hereinafter Northland] was not protected by its liability insurance policy from judgments rendered against it for the failure of its products to perform as expeсted, and that the Insurance Company of North America [hereinafter INA] had no duty to defend Northland in actions brought by customers of Northland who were displeased with the performance of North-land’s products.
In May of 1968 the Kyllos, plaintiffs in the primary action, purсhased a pre-emer-gent herbicide known as Dacthal W-75 from the defendant and third-party plaintiff, Northland Chemical Company. The Kyllos relied' on the representations of a salesman for Northland that the Dacthal W-75 would control the weeds in their pinto bеan fields.
The Kyllos had the Dacthal W-75 applied to their fields by means of aerial spraying, following the directions on the container of Dacthal W-75 for such application and the directions given to them by Northland’s salesman. Despite such application of Dacthal W-75, weeds grew in the Kyllos’ pinto bean fields, causing decreases in the yields expected by the Kyllos from their fields.
Because of the decreased yields, the Kyl-los brought action against Northland to recover the difference between thе profits anticipated and the profits actually received. In their complaint, the Kyllos referred to their damage as “property damage” and prayed for damages in the amount of their lost profits.
In this action Northland impleaded its liability insurer, Insuranсe Company of North America, as third-party defendant, and claimed that INA should indemnify Northland for the amount of any judgments rendered against Northland in the primary action and should defend North-land in the action. INA refused to defend Northland, urging that the allegations contаined in the complaint in the primary action were not covered by the insurance policy issued to Northland. The Kyllos recovered judgments in varying amounts from Northland. The district court, pursuant to a judgment dated June 28, 1972, held that INA was under no duty to defend Northland in the actiоn and that the Kyllos’ judgments were not covered by the liability insurance policy because such policy did not cover claims for lost profits nor passive malfunction claims.
*632 Northland appeals from the judgment dated June 28, 1972, and charges as error the district сourt’s failure to find that INA breached its contract by refusing to defend Northland; and the district court’s failure to find that the Kyllos suffered damage to tangible personal property and that INA was therefore obligated to indemnify Northland.
In this appeal Northland prays for reversal of the judgment below and for remand to the district court for a hearing to determine the costs, disbursements, and attorneys’ fees to which it claims to be entitled.
We are first confronted with the issue of whether INA should indemnify North-land for the judgment rendered against Northland and in favor of the Kyllos. That is: were the injuries suffered by the Kyllos covered under the liability policy issued by INA to Northland? We conclude that the Kyllos’ judgment was not covered by the policy of insurance.
The allegations in the Kyllos’ complaint are in the nature of рroducts liability claims, with the loss of anticipated profits being the measure of damages. The insurance policy, however, is intended to indemnify Northland for damages it is legally obligated to pay for physical damage done to a claimant’s body or prоperty. This is evidenced by Exclusion (h) of the policy in question, Policy No. LAB 1 81 73, which provides:
“This insurance does not apply:
“ (h) to bodily injury or property damage resulting from the failure of the Named Insured’s products or work completed by or for the Named Insured to perform the function or serve the рurpose intended by the Named Insured, if such failure is due to a mistake or deficiency in any design, formula, plan, specifications, advertising material or printed instructions prepared or developed by any Insured; but this exclusion does not apply to bodily injury or property damage resulting from the active malfunctioning of such products or work; ”
Though the Dacthal W-75 weed spray involved in this case was made for North-land by an out-of-State corporation, the spray still comes within the purview of the definition of “Named Insurеd’s Products” given in the policy:
“Named Insured’s, Products — ‘Named Insured’s products’ means goods or products manufactured, sold, handled or distributed by the Named Insured or by others trading under his name, including any container thereof (other than a vehicle) . . . . ”
The position that the pоlicy covers only physical damage is buttressed by reference to Hartford Accident & Indemnity Co. v. Olson Bros., Inc.,
*633 The conclusion that the liability insurance policy in question does not cover products liability claims, but covers only actual physical damage is supported by a treatise known as Long, The Law of Liability Insurance, Volume 2, Appendix B, at § 13, where it is stated:
“This provision is commonly known as the ‘business risk’ exclusion. Its purpose is to exclude bodily injury or property damage claims resulting from fаilure of the insured-manufacturer’s products to perform the function or serve the purpose intended by the manufacturer, if such failure arises out of ‘a mistake or deficiency in any design, formula, plan, specification, advertising material or printed instructiоns prepared or developed by any insured.’ If the manufacturer distributes a faulty product that will not work properly or at all, he must bear the loss himself.
“The exclusion does not apply if injury or damage results ‘from the active malfunctioning of such product or wоrk.’ . The example of the application of this exclusion most commonly given by committees of the Bureaus has been the manufacturer of a bug killer. If the bug killer, when sprayed on a crop merely fails to kill the bugs, there is no coverage for the destruction of the crop by bugs. But if the bug killer, when sprayed on the crop, caused harm to the crop, the loss would be covered.”
We believe this reasoning applies equally to a distributor of products, such as North-land in the instant case, because, as defined in the policy, the named insured’s products include those “sold, handled or distributed” by the named insured. Exclusion (h) in the policy in the case at bar excludes products liability claims based on deficient products, and places recourse for the distributor against the manufаcturer or other dealer higher in the chain of distribution.
The type of insurance contract which we are considering here was rewritten prior to the accrual of the claim for relief herein in order to eliminate future decisions awarding coverаge to insureds for products liability claims based on breach of warranty where no active malfunctioning of the product caused actual physical damage.
Case holdings previous to the rewriting of this type of liability insurance policy reached conclusions contrary to the decision in the instant case. For example, in St. Paul Fire and Marine Insurance Co. v. Northern Grain Co.,
“ . . . the cases squarely recognize that consequential damages, including the diminution in value of property, caused by the use or application of a deficient or inferior product, fall within the coverage provisions оf an insuring agreement such as that in the case at hand.”
For cases to the same effect, see Dakota Block Co. v. Western Casualty & Surety Co.,
We are next confronted with the issue of whether INA should have defended the actions brought by the Kyllos against Northland and whether INA is liable for costs, disbursements, and attorneys’ fees for fаiling to so defend.
The general rule on a liability insurer’s duty to defend its insured is that “the insurer is under an obligation to defend only if it would be held bound to indemnify the insured in case the injured person prevailed upon the allegations of his complaint”.
“ ‘The insurer’s obligation to defend must be measured by the terms of the insurance policy and the pleading of the claimant who sues the insured. .
If the аllegations of the claimant’s complaint would support a recovery upon a risk covered by the insurer’s policy, then the duty to defend is present.’ ”
Different phraseology of the same rule may be found in the following cases: Republic Vanguard Insurance Co. v. Buehl,
Generally, where there is doubt as to whether the duty to defend exists, such doubt is resolved in favor of the insured. Pow-Well Plumbing & Heat. v. Merchants Mut. Cas. Co.,
supra.
In Hartford Accident & Indemnity Co. v. Pacific Indemnity Co.,
“ ‘We have presented to us, therefore, an action based upon a claim that may or may not be coverеd by the policy. In such a situation the insurer is obligated to undertake the defense of the action and to continue such defense at least until it appears that the claim is not covered by the policy.’ ”
To the same effect, see Blackfield v. Underwritеrs at Lloyd’s, London,
supra
The Kyllos’ complaint in the instant case alleges the failure of North-land’s product, Dacthal W-75, to kill weeds, resulting in diminished yields of pinto beans. Even though the Kyllos referred to this as property damage in paragraph X of their complaint, they made no allegation that the weed spray, Dacthal W-75, actively malfunctioned and caused any actual physical damage to their pinto bean plants.
Without a factual allegation in the complaint that alleges actual physical damage to the pinto bean plants, we believe that the Kyllos did not bring their cause of action within the coverage of their liability policy. We compare the allegations of the complaint with the coverage and exclusions of the liability insurancе policy. In making this comparison we find that Exclusion (h), quoted previously, specifically excludes coverage for the Kyllos’ claimed in *635 jury due to the product’s failure to perform as expected.
Because our examination of the complaint filed by the injured parties shows no allegation of actual physical damage, we hold that INA was under no duty to defend Northland in the actions brought by the Kyllos. As a result, INA is not liable to Northland for the costs, disbursements, and attorneys’ fees expended by Northland in its own defense.
The judgment of the district court is affirmed in all respects.
not being a member of this court at the time of submission of this case, did not participate.