Anderson, Circuit Judge. Smith, Circuit Judge.
This is a suit on a judgment which Palardy, the appellee, had obtained in a prior tort action in the United States District Court for the District of Vermont against the Moulton Ladder Manufacturing Company, which was the insured under a products liability policy of Canadian Universal Insurance Company, the defendant-appellant in the present action. The District Court entered judgment in favor of Palardy and the insurance company appeals.*fn1
Canadian had issued a "Manufacturers and Contractors Liability" policy to Moulton for the year July 1, 1961 to July 1, 1962. Other than for a somewhat lower premium, which resulted from the fact that Moulton had advised the carrier that it anticipated a sharp decline in sales during the 1961-1962 period, the policy was in all respects identical with one which had been issued for the previous one year period.
On February 8, 1961 Moulton sold a sixteen foot wooden extension ladder, which it had manufactured, to Lowe Brothers Paint Company, a retail outlet, in Burlington, Vermont. On January 20, 1962 Lowe Brothers sold the ladder to Palardy. While Palardy was using it on June 21, 1962, the ladder broke and he fell and suffered injuries. Subsequently he commenced the tort action against Moulton in the District Court, and recovered a judgment of $13,500 and costs.
As soon as Moulton had been served with the summons and complaint in that suit, it forwarded them to Canadian. But on October 3, 1962 Canadian returned them to Moulton with a notice that it denied coverage under the policy and refused to defend the tort action. Later, after Palardy obtained a judgment in his favor in the tort case, Canadian refused to satisfy it. The present suit was commenced to collect the amount of the tort judgment from Canadian, which denied the liability on the ground that Moulton, by its letter of April 5, 1962, had cancelled the policy.
That letter, which led to the controversy in this suit read as follows:
"This is to advise you that the Moulton Ladder Manufacturing Company, Inc., 2-40 Harding Street, Somerville, Massachusetts, insured by you under policy No. NMCL-6478, has ceased to manufacture and sell its products. Accordingly, under the terms of said policy in paragraph 20 thereof, the insured, the Moulton Ladder Manufacturing Company, Inc. hereby gives written notice to you that it has cancelled and terminated said policy of insurance, effective forthwith, upon receipt of this notice.
"Your company, having been paid its required premium on all products manufactured from July 1, 1961, to date, and under previous yearly policies issued by your company, we wish to make it clear to you that your existing policies of insurance are to continue applicable to all products of Moulton, described in said policies, manufactured, sold and delivered prior to the effective date of cancellation. Any attempt to terminate your liability on products so manufactured, sold & delivered will be treated by Moulton as a breach of its contract with you and due report thereof shall be made to the State Department of Insurance, in addition of pursuing all other legal rights."
On April 25, 1962 Canadian, without specifically stating that the policy had been cancelled, wrote to Moulton saying,
"We acknowledge receipt of your letter of April 5, 1962, enclosing Policy No. NMCL-6478 for cancellation as at April 1, 1962.
"With reference to the last paragraph of your letter, we respectfully refer you to Insuring Agreement VI of the policy and entitled 'Policy Period, Territory.' Said Insuring Agreement is quoted below:
'VI Policy period, Territory: This policy applies only to accidents which occur during the policy period within the United States of America, its territories or possessions, or Canada.'
"It is quite clear that this policy only covers accidents that occur within the policy period. Thus, if any accident occurs subsequent to the termination of this ...