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Chambers Gasket & Mfg. v. Gen. Ins. Co. of Amer.

JUNE 13, 1975.

CHAMBERS GASKET & MANUFACTURING COMPANY, PLAINTIFF-APPELLANT,

v.

GENERAL INSURANCE COMPANY OF AMERICA, DEFENDANT-APPELLEE.



APPEAL from the Circuit Court of Cook County; the Hon. RAYMOND K. BERG, Judge, presiding.

MR. JUSTICE LORENZ DELIVERED THE OPINION OF THE COURT:

Plaintiff appeals from a judgment entered in favor of defendant contending the trial court erred in finding that defendant was not obligated to: (1) pay, within the policy limits, any damages assessed against plaintiff in an action brought by Thrush Products, Inc., (2) defend the action brought by Thrush, and (3) reimburse plaintiff for expenses and attorney's fees incurred in defending the action brought by Thrush.

Plaintiff is in the business of manufacturing gaskets and sold some of its product to Thrush Products, Inc. (hereinafter referred to as Thrush). Thrush purchased the gaskets for installation in pressure reducing valves which it manufactured. The gaskets proved to be defective, and Thrush sued plaintiff in three counts, alleging in Count I the breach of an express warranty of failure to conform to samples and in Count II, breach of implied warranties of merchantability and fitness for purpose. Both counts asked judgment for $15,813.61 which included $4,078.56 for the value of the gaskets and an additional sum of $11,737.05 for the cost of repairing the valves in which these gaskets had already been installed. In Count III, Thrush charged plaintiff with negligence in failing to inspect and test to discover the latent defects in the gaskets to the damage of Thrush in the sum of $15,813.61.

Plaintiff tendered the defense of the Thrush action to defendant under its blanket liability insurance, but defendant refused the tender on various grounds. Plaintiff then filed the instant action seeking a declaratory judgment that defendant must defend the Thrush action and pay any damages awarded Thrush within the policy limits. Defendant answered denying coverage because the claim did not show damage to property other than insured's as required by the policy and the policy excluded the cost of withdrawal or replacement of the named insured's products.*fn1

The matter was tried on a stipulation of facts including, in addition to the pleadings, the insurance policy, the Thrush complaint, and various correspondence between the parties and from Thrush. The court entered judgment for defendant holding there was no obligation to defend, or to pay any judgment rendered in the Thrush action.

OPINION

Plaintiff contends that defendant was obligated to pay any judgment entered against plaintiff in the Thrush action. It argues that when the defective gaskets were installed in Thrush's valves, property damage resulted to the valve and that since the valve was property of a party other than the insured, Thrush's claim comes within the scope of the policy.

Thrush's claim is composed of two elements of damages: (1) the cost of the gaskets, and (2) the cost of replacing the defective gaskets already installed in the valves.

• 1 In regard to the cost of the gaskets themselves, it is important to note that the policy is a liability policy, not one insuring the property or work of the insured. A liability policy is not intended to cover customer dissatisfaction or refunds made on the defective product itself. (Goodyear Rubber & Supply Co. v. Great American Insurance Co. (9th Cir. 1973), 471 F.2d 1343; Hauenstein v. St. Paul-Mercury Indemnity Co. (1954), 242 Minn. 354, 65 N.W.2d 122.) The claim for the value of the defective gaskets was clearly not within the scope of the policy coverage and refusal to pay this portion of the claim is justified.

The second element of Thrush's claim is the cost of replacing the defective gaskets already installed in the valves. Plaintiff principally relies on Goodyear Rubber & Supply Co. v. Great American Insurance Co. (9th Cir. 1973), 471 F.2d 1343, 1344, to support its theory of recovery. This was a declaratory judgment action seeking an interpretation of an insurance policy. Goodyear had fabricated and sold hatch gasket material to Northwest Marine which installed it on an ocean-going vessel. On the ship's next voyage the material was found to be defective and the vessel was returned to Portland where Northwest removed and replaced the gaskets. Northwest then sued Goodyear for the cost of replaced gasket material and also for the cost of removing the defective material and installing the new material. The exclusion in the insurance policy recited:

"Exclusions.

This policy does not apply * * *

(j) under coverage D, to injury to or destruction of * * *

(4) any goods, products or containers thereof manufactured * * * by the named insured, * * *, out of which ...


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