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Ludwig Candy Co. v. Iowa Nat'l Mutual Ins.





APPEAL from the Circuit Court of Cook County; the Hon. RICHARD L. CURRY, Judge, presiding.


Ludwig Candy Company (Ludwig) brought suit against Iowa National Mutual Insurance Company (Iowa National) seeking a declaratory judgment to require Iowa National to indemnify and defend Ludwig pursuant to a policy of insurance issued by Iowa National. Motions for judgment on the pleadings were filed by both parties. The trial court initially granted Iowa National's motion for judgment on the pleadings. On rehearing, the court vacated its prior order and granted Ludwig's cross-motion for judgment on the pleadings. Iowa National appeals.

Iowa National's position is that it owes no duty to indemnify or defend Ludwig in an action brought against Ludwig by Seaway Candy Company (Seaway). Iowa National contends that Seaway's complaint fails to allege "property damage" or "an occurrence," each of which is a prerequisite to its duty to indemnify and defend under the policy. Iowa National further contends that certain policy exclusions also relieve it from this duty. Ludwig contends that Seaway's complaint did sufficiently assert "property damage" and "an occurrence," as those terms are defined in the policy, and there are no exclusions that relieve Iowa National of its duty to indemnify and defend Ludwig. Ludwig also contends Iowa National waived its defense of no "occurrence" and its defense of the applicability of one of the exclusions of the policy.

Under the view we take of this case, the issue of whether "property damage" is asserted in the Seaway complaint is dispositive. We need not consider the other contentions of the parties.

On June 19, 1975, Ludwig was served with a complaint and summons in an action in the circuit court of Kankakee County brought by Seaway. The complaint alleged Ludwig is an Illinois corporation which manufactures and packages various types of candy products. One of Ludwig's customers is Seaway, which markets candy products throughout the United States. In the latter months of 1974 and through the early months of 1975, Seaway received many complaints from consumers of their candies. The consumers complained the candy was "of an inferior and unacceptable quality, in that the candy was impregnated with a plastic taste." A high-impact plastic tray that Ludwig used to package its products "impregnated" the candy with this plastic taste. Seaway thereafter ceased marketing the candy products purchased from Ludwig.

The complaint alleged that Ludwig breached its implied warranties and representations to Seaway that the candy products were adequately contained and packaged, fit for human consumption, of a general merchantable quality, and fit for Seaway's particular purpose of resale to its customers. In addition, Seaway charged that Ludwig was negligent in using the high-impact plastic tray which impregnated the candy products with a plastic taste.

Finally, Seaway alleged that, as a result of Ludwig's carelessness, negligence and breach of implied warranties and representations, Seaway suffered a loss of profits, damage to its business reputation, and loss of good will. Seaway was also forced to incur warehousing and other incidental expenses.

The general insuring clause of the Iowa National policy issued to Ludwig provides:


The Company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury or property damage to which this insurance applies, caused by an occurrence and arising out of the ownership, maintenance or use of the insured premises and all operations necessary or incidental to the business of the named insured conducted at or from the insured premises 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, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but the Company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the Company's liability has been exhausted by payment of judgments or settlements."

The policy also defines "property damage" as "injury to or destruction of tangible property."

• 1 In Maryland Casualty Co. v. Peppers (1976), 64 Ill.2d 187, 193, 355 N.E.2d 24, the court held:

"In determining whether the insurer owes a duty to the insured to defend an action brought against him, it is the general rule that the allegations of the complaint determine the duty. If the complaint alleges facts within the coverage of the policy or potentially within the coverage of the policy the duty to defend has been established."

Therefore, our inquiry in this case is whether the Seaway complaint alleges facts within or potentially within the coverage of the above quoted insuring clause. There are three recent ...

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