Sentry Ins. Co. v. S & L Home Heating Co.

• Decision Date: 09 December 1980
• Docket Number: No. 79-1476,79-1476
• Court: United States Appellate Court of Illinois
• Parties: , 47 Ill.Dec. 102 SENTRY INSURANCE CO., Plaintiff-Appellee, v. S & L HOME HEATING CO., Defendant-Appellant.

Page 1218

414 N.E.2d 1218

91 Ill.App.3d 687, 47 Ill.Dec. 102

SENTRY INSURANCE CO., Plaintiff-Appellee, v. S & L HOME HEATING CO., Defendant-Appellant.

No. 79-1476.

Appellate Court of Illinois, First District, Second Division.

Dec. 9, 1980.

Robert A. Handelsman and Richard J. Hollander, Chicago, for defendant-appellant.

Charles R. Purcell, Chicago, for plaintiff-appellee; Bernard J. Hennessy, Chicago, of counsel.

STAMOS, Justice:

Defendant S & L Home Heating Co. was named third party defendant in an indemnity action filed by the general contractor for an industrial plant. The owner of the plant had sued the contractor for damages resulting from a deficient ventilation system, and the contractor impleaded S & L, sub-contractor for the ventilation work. The instant case arose when plaintiff Sentry Insurance Co. filed an action for declaratory judgment, seeking to establish that it is not liable for the claimed loss, and not bound to defend its policyholder S & L in the third party action. The trial court granted summary judgment for Sentry, and S & L appeals.

In 1967, Farley and Boettcher engaged Cable Kamerman and Co. to design and build an industrial plant in Des Plaines, Illinois. Operations in the plant were expected to produce abrasive dust and vaporous solvents and oils, and the specifications called for a heating, ventilation, and air conditioning system (HVAC system) adequate to cope with these substances. Cable engaged S & L to design and install the plant's HVAC system. After the plant began operations, deficiencies in the system became apparent. Noxious vapors in the air impaired the performance of employees, and caused corrosion in some components of the system, notably the heat exchangers and air conditioning compressors.

In 1975, Farley and Boettcher filed an action against Cable, who impleaded S & L on the basis of an indemnification clause in S & L's contract with Cable. S & L carried a "Comprehensive General Liability Insurance" policy with Sentry, and demanded that Sentry provide its defense in the third party action. Sentry refused, maintaining that Farley's and Boettcher's complaint (and, derivatively, Cable's third party complaint) stated a claim not within the coverage of the policy. Cable subsequently settled its third party complaint against S & L.

S & L's policy covered two general types of loss. The general liability insurance covered damage amounts S & L became legally obligated to pay on account of bodily injury or property damage caused by an "occurrence." S & L's contractual liability insurance covered its losses incurred under contracts to indemnify another party for damages relating to bodily injury or property damage caused by an "occurrence." The general liability and contractual liability coverages were subject to nearly identical lists of exclusions. In granting summary judgment for Sentry in its declaratory judgment action, the trial court relied on the "loss of use" exclusion, which states that no coverage is provided for

"loss of use of tangible property which has not been physically injured or destroyed resulting from

(1) a delay in or lack of performance by or on behalf of the named insured of any contract or agreement, or

(2) the failure of the named insured's products or work performed by or on behalf of the named insured to meet the level of performance, quality, fitness or durability warranted or represented by the named insured."

This exclusion does not apply to a loss of use resulting from the "sudden and accidental" injury to or destruction of the insured's property or work product.

S & L contends that the trial court erred in finding that the insurance policy provided no coverage for the claimed loss. S & L also argues that Sentry is liable for the cost of defending and settling the third party indemnity action. We consider S & L's second contention first. The insurer's duty to defend is measured by the allegations contained in the complaint against the insured. If the complaint alleges facts that are potentially within the policy's coverage, the insurer must provide the defense. (Maryland Cas. Co. v. Peppers (1976), 64 Ill.2d 187, 193, 355 N.E.2d 24.) Recent cases stress the liberality with which the complaint must be construed; any doubt must be resolved in favor of the insured, as the duty to defend is broader than the duty to pay. (See, e. g., La Rotunda v. Royal Globe Ins. Co. (1980), 87 Ill.App.3d 446, 451, 42 Ill.Dec. 219, 408 N.E.2d 928 (collecting cases and summarizing the law on this point).) In the instant case, the trial court's summary judgment in favor of Sentry must be evaluated by this standard. The relevant complaint is the one filed by Farley and Boettcher, since any liability that might devolve on S & L through the third party indemnity action necessarily flows from the original complaint. The result below can be affirmed only if the allegations of Farley's and Boettcher's complaint, taken as true, provide no basis for coverage under the Sentry policy. See Associated Indemnity Co. v. Insurance Co. of North America (1979), 68 Ill.App.3d 807, 817, 25 Ill.Dec. 258, 386 N.E.2d 529. Farley's and Boettcher's complaint sounds in contract and alleges that Cable and its sub-contractor (i. e., S & L) failed to follow specifications, and failed to provide an adequate HVAC system. The complaint relates that the results of Cable's breach of contract include: deterioration and corrosion of the system's heat exchangers and air conditioning compressors, irritation to the eyes and nostrils of the plant's employees, and reduced productivity by the plant's employees. As noted above, S & L's policy provides coverage for bodily injury and property damage. No one contends that the discomfort experienced by the plant's employees amounted to bodily injury. The policy defines "property damage" as "injury to or destruction of tangible property." The claimed loss of productivity (and, inferentially, profits) is economic loss and not property damage. (See also Hartford Accident & Indem. Co. v. Case Foundation Co. (1973), 10 Ill.App.3d 115, 123-24, 294...