APPEAL from the Circuit Court of Cook County; the Hon. EDWARD
F. HEALY, Judge, presiding.
MR. JUSTICE MCNAMARA DELIVERED THE OPINION OF THE COURT:
Rehearing denied April 7, 1977.
The plaintiff, Elco Industries, Inc. brought this declaratory judgment action against defendant, Liberty Mutual Insurance Company, to seek a declaration defining the scope of coverage of an insurance policy issued to Elco by Liberty Mutual. Elco seeks a determination that its policy requires Liberty Mutual to defend and indemnify Elco in a suit initiated by the Kohler Company against Elco for damages. Kohler's suit resulted from Elco's alleged failure to properly heat treat and case harden governor regulating pins manufactured by Elco for Kohler. Kohler's action is pending in Wisconsin.
Elco and Liberty Mutual filed a stipulation of facts with the trial court in the present case and each moved for summary judgment. The trial court granted Elco's motion for summary judgment, and Liberty Mutual appeals.
The stipulated facts before the trial court were as follows. Elco entered into a contract with Kohler, a manufacturer of internal combustion engines, whereby Elco agreed to manufacture and supply Kohler with 30,000 "governor regulating pins." The agreement between Elco and Kohler required Elco to utilize a certain manufacturing process to heat treat and case harden the pins. Subsequent to the installation of 10,000 pins in various Kohler engines, Kohler discovered that the pins had not been case hardened as specified in the contract with Elco. Kohler recalled those engines containing defective pins and replaced the pins.
Kohler filed suit against Elco seeking damages in the amount of $282,853.88. In its amended complaint Kohler alleged that Elco's failure to case harden the pins created an "unreasonably dangerous defect in the unhardened product." Kohler claimed that such a defect necessitated it to "develop testing and replacement techniques, identify, locate, reinspect, rip out, replace or repair" the pins which it had installed in those Kohler engines and electric plants already assembled for shipment and those which had been shipped or were in the hands of original equipment manufacturers.
Liberty Mutual had issued a general liability policy to Elco covering the period during which the Kohler contract was executed. The policy contained the following provisions pertinent to this appeal:
"The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of
Coverage A. bodily injury or
Coverage B. property damage
to which this policy applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage. * * *"
The policy also contained the following exclusion:
"Exclusion: This policy does not apply: (n) to damages claimed for the withdrawal, inspection, repair, replacement, or loss of use of the named insured's products or work completed by or for the named insured or of any property of which some products or work form a part, if such products, work or property are withdrawn from the market or from use because of any known or suspected defect or deficiency therein."
The policy defined "property damage" as injury to or destruction of tangible property. It defined "occurrence" as accident, event or happening, including injurious exposure to conditions which result during the policy period in bodily injury or property ...