Appeal from the Circuit Court of Cook County; the Hon. CHARLES
S. DOUGHERTY, Judge, presiding. Judgment affirmed.
MR. JUSTICE LYONS DELIVERED THE OPINION OF THE COURT.
The parties to this litigation are the insured and the insurer, respectively, under a products liability insurance contract. In a declaratory judgment action brought by the insured against its insurer, the trial court entered a judgment order finding that the London & Edinburgh Insurance Company, Ltd., the insurer, had no duty to defend an action for personal injuries commenced against Swift & Company, its insured. Swift & Company appeals, urging that coverage was provided by its products liability policy with the defendant and hence, the trial court erred in holding that the insurer had no duty to defend.
This case was submitted to the trial court on the basis of the pleadings, a written stipulation of facts, and the following five exhibits: (1) the products liability policy between the parties which insured against both bodily injury and property damage; (2) the complaint for personal injuries filed against Swift & Company; (3) Swift's operations insurance policy with another insurer; (4) Swift's written contract with A. Cramer and Company; and (5) the defendant insurer's letter to Swift disclaiming coverage under its products liability policy and refusing to defend the personal injury action.
The pleadings and written stipulation indicate that while its products liability policy with London & Edinburgh was in full force and effect, Swift & Company manufactured calcium stearate, a chemical compound, in bulk, at its Chicago soap plant and delivered it to A. Cramer Corporation for further processing. This product was delivered to Cramer only after it had hardened, cooled, broken into lumps, and been packaged by Swift in drums, boxes, or other containers. Although Cramer was given temporary custody of the calcium stearate, title was retained by Swift. In effect, the product was bailed to Cramer for the mutual benefit of both parties.
The services of A. Cramer Corporation were needed because Swift's milling facilities were not equipped to grind calcium stearate to the mesh or fineness required for sale to Swift's customers. A written contract existed between Swift and A. Cramer Corporation under the terms of which Cramer was to grind and package the calcium stearate, for a certain price per pound, and either ship the ground calcium stearate directly to Swift's customers, as directed by Swift, or return it to Swift to be inventoried and eventually sold by Swift from its Chicago plant. During the three-year period covered by the London & Edinburgh policy, Swift sold close to two million pounds of calcium stearate to its customers, all of which was ground by Cramer Corporation, except for two thousand pounds shipped in bulk by Swift to its United Kingdom subsidiary. Calcium stearate in its ground form is used in the manufacture of dental preparations, cement, and salt.
While a batch of calcium stearate was being ground on Cramer's premises, an explosion and fire occurred injuring two of Cramer's employees who were participating in the grinding process at the time. These employees filed a complaint against Swift & Company in the Circuit Court of Cook County charging Swift with many specific acts of negligence and alleging that the calcium stearate was the cause of the explosion and fire. The calcium stearate being ground at the time of the explosion and fire was to be shipped by A. Cramer Corporation directly to one of Swift's customers.
Swift & Company tendered defense of this suit to London & Edinburgh, who disclaimed coverage and refused to defend on the ground that the accident was not a products liability risk in that, at the time of the explosion and fire, the calcium stearate was a product being manufactured by Swift and hence was not within the meaning of the words used in the insuring clause "products or merchandise heretofore or hereafter manufactured, sold or distributed" by Swift & Company. Swift carried operations or public liability insurance with another insurer at the time of this incident.
The insurer's duty to defend in this case depends, of course, upon whether or not the personal injuries alleged in the complaint filed by the two employees of Cramer Corporation were caused by an accident falling within the coverage of the products liability policy. That policy's insuring clause, which is at issue in this case, provides that London & Edinburgh is:
"To Indemnify the named Assured against loss by reason of the liability imposed by law upon the Assured:
"(a) on account of bodily injuries, . . . caused, or alleged to have been caused, by accident to any person or persons, . . . and damages, by whomsoever sustained, consequent upon such injuries, . . . sustained during the period of this Insurance arising out of the possession, consumption, employment, use or handling, . . . elsewhere than upon the premises of the Assured but within the United States of America or the Dominion of Canada, of the products or merchandise heretofore or hereafter manufactured, sold or distributed by the Assured."
In this appeal Swift & Company points out that the term "manufactured" is not defined in the products liability policy and contends that coverage is provided for three alternative reasons: (1) when Swift shipped the bulk calcium stearate to A. Cramer Corporation for further processing which was only to change the form of the stearate and not its basic properties, Swift had completed its manufacturing operations so that, as to Swift, this bulk calcium stearate was a "manufactured product" within the wording of the policy; (2) the use of the words "products . . . hereafter manufactured . . ." in the policy's insuring clause is said to include those products of Swift which are in existence after the policy's inception and which are still in the process of being manufactured so that the accident in this case, alleged to have occurred when the calcium stearate was being manufactured, is within the coverage of this particular products liability policy; and (3) since the policy's insuring clause extends coverage to "products . . . hereafter manufactured, distributed or sold" by Swift and the policy does not define "distributed" nor requires that the product be in a completed form before it can be distributed, Swift had, in fact, distributed the calcium stearate to A. Cramer Corporation at the time of the accident and coverage was provided by the products liability policy.
The insurer contends that: (1) since products liability insurance is intended to protect a manufacturer from liability to third persons after its finished products or manufactured products have entered the channels of trade, whereas the accident in this case occurred when the product was being manufactured, which risk is normally covered by public liability or operations insurance, no coverage is provided by the products liability policy; (2) when the words "products . . . hereafter manufactured . . ." are considered in the context of the entire sentence in the insuring clause, they are not the equivalent of "products being manufactured" which Swift & Company urges, but rather, their obvious purpose is to provide protection to the insured for all liability arising out of its marketed products no matter when the finished product or manufactured product was made whether before or after the inception date of the policy; and (3) within the normal and usual context of a products liability policy, the term "distributed" is meant to apply only when a product has been put into the channels of commerce, which did not occur here when Swift & Company did not sell its bulk calcium stearate to A. Cramer Corporation but only delivered it there for grinding as a continuation of Swift's manufacturing operation.
This case is unique in that it does not involve the typical instance of an insurer under a comprehensive public liability or operations policy seeking to avoid coverage due to a "products liability completed operations" exclusion in the policy (see the cases collected in the annotation at 54 ALR2d 518 et seq.), but rather, we are called upon to consider, not an exclusion in an insurance policy, but the insuring clause itself. Both parties agree that there are no cases in Illinois dealing with the term "manufactured" as employed in a products liability insurance policy. Our independent research has disclosed none, either in this jurisdiction or any other jurisdiction.
The insured asserts that the insuring clause does not require that a product be finished or have completed all possible stages of the manufacturing process before it is deemed "manufactured" or before there is coverage, and if the insurer intended this, it could have so provided by defining the term "manufactured product" which it did not do. It is urged that any ambiguity in this contract should be construed liberally in favor of the insured and against the insurer, citing Pierce v. Standard Accident Ins. Co., 70 Ill. App.2d 224, 216 N.E.2d 818 (1966); Sally Chain Stores, ...