Appeal from the Circuit Court of Cook County; the Hon. Arthur
A. Sullivan, Judge, presiding.
JUSTICE CAMPBELL DELIVERED THE OPINION OF THE COURT:
Rehearing denied July 11, 1983.
Plaintiff, CMO Graphics, Inc., appeals from the dismissal of its complaint alleging breach of a policy of insurance by defendant CNA Insurance Company. On appeal, plaintiff contends: (1) that the loss suffered by its client Chase/Ehrenberg & Associates as a result of a defective product produced by plaintiff is covered by the "tangible property damage" provision of the comprehensive general policy issued by defendant; (2) that the pleadings filed by Chase/Ehrenberg against CMO adequately establish that its claim against CMO is covered in part by the policy; and (3) that the "tangible property damage" suffered by Chase/Ehrenberg is not subject to the various exclusions in the policy.
The parties are in agreement as to the basic facts. The pleadings establish that CMO Graphics, Inc. (hereinafter CMO), is in the business of producing artwork for use in printed advertisements. In May 1975, CMO agreed to produce for Chase/Ehrenberg & Associates graphics for use in toy advertising supplements to be inserted into newspapers during the 1975 Christmas season. CMO agreed to supply "camera ready art work" including designing the format, providing photographs and pencil drawings of the products and typesetting all pages of copy from manuscripts provided by Chase/Ehrenberg. Plaintiff did not finish producing the graphics until October 1975.
In December 1975, Chase/Ehrenberg notified plaintiff that the graphics provided were defective. Subsequently, in its third amended complaint against CMO, Chase/Ehrenberg sought damages of $200,000. The Chase/Ehrenberg complaint sought two types of damages. First, Chase/Ehrenberg sought to recover damages caused by the fact that CMO delivered the artwork two months late. Second, Chase/Ehrenberg sought to recover damages suffered as a result of CMO's defective product as follows: the artwork for the advertising inserts, when ready, did not conform with the copy draft layout which Chase/Ehrenberg had, on or about July 15, 1975, supplied to CMO. Said non-conformities included, but were not limited to the following: improper price information; omission of various items that were to be included; and improper photography. Chase/Ehrenberg further alleged that as a result of CMO's breach of contract it paid money to printers for the printing of inserts that were unusable because of CMO's errors in preparing the artwork.
In its original complaint Chase/Ehrenberg had also alleged that as a result of CMO's delayed and defective production: Chase/Ehrenberg had to pay $15,000 to appease each of two sellers whose products had been omitted from the insert or mispriced; Chase/Ehrenberg had to deliver inserts, which cost $31,751 to print, to a seller at no charge; Chase/Ehrenberg had to spend $46,000 to obtain additional advertising inserts to correct erroneous prices in the insert produced by CMO; and Chase/Ehrenberg suffered lost profits of $5,000.
In April 1980, the Chase/Ehrenberg suit against CMO was settled for $20,000. CMO alleges to have spent $9,000 in legal fees and expenses for its defense against Chase/Ehrenberg's claim.
For the period of January 1, 1975, through January 1, 1976, plaintiff had a "Commercial Casualty Policy" with defendant CNA Insurance Company (hereinafter CNA). Included in the policy was a "comprehensive general liability" section, which provided in pertinent part:
"The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of * * *
To which this insurance 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 * * * property damage, even if any of the allegations of the suit are groundless, false or fraudulent * * *." (emphasis in the original)
The policy defined property damage as:
"(1) physical injury to or destruction of tangible property which occurs during the policy period, including the loss thereof * * *, or (2) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period."
CMO referred the claim to CNA but CNA declined to accept the claim. In a letter dated March 18, 1976, CNA informed plaintiff that CNA did not consider the loss suffered by Chase/Ehrenberg to be a loss to tangible property. Further, CNA asserted that if the loss was considered to be property damage, such loss was not covered by the policy ...