against Murray. III alleges Murray warranted to McPhillips that the cycle was reasonably fit and safe for the use intended and that this was not so. IV charges Murray with negligence for failure to exercise reasonable care "in the design and manufacture of the bicycle in question, V claims Murray is strictly liable because the bicycle "as designed, manufactured, assembled and sold was defective", and Murray failed to warn of its (unnamed) defect. Counts VI, VII and VIII run against Allied. VI claims a breach of warranty that "the brakes and braking system" for the bicycle were reasonably fit and safe for the use intended. VII says Allied was negligent in designing, making and selling its brakes and braking system. VIII alleges Allied is strictly liable for producing an unsafe brake and braking system without warning of its dangers.
Continental argues that, under this complaint, only Allied may be found liable because of a defect in the brake. If Murray is liable it will not arise out of the products of Allied. It notes the brake is named only in the counts against Allied and not in the counts against Murray. The argument must have been made tongue in cheek. The claims against Murray cover the entire bicycle -- there was no need to mention the brakes -- they are part of the entire bicycle. The brakes are specifically mentioned in the Allied counts because that is all Allied made. It is quite clear that the allegations of the complaint against Murray are potentially covered by the policy. Continental does raise briefly further technical objections
to summary judgment on the duty to defend:
(a) Continental suggests the disposition of this matter ought to await resolution of the McPhillips case which will determine the facts upon which questions of coverage depend. Some cases may well require such deferral (See Thornton v. Paul 74 Ill. 2d 132, 384 N.E.2d 335, 23 Ill. Dec. 541 (1978); Green v. Aetna Insurance, 349 F.2d 919, 926-27 (5th Cir. 1965)), but this is not one of them. The duty to indemnify depends on facts agreed to or found; the duty to defendant depends on the potential existence of those facts, or more precisely, on whether or not those facts are clearly absent. Since the duty to defend is extinguished only when the complaint does not allege or the case does not contain facts potentially within the policy coverage, it is usually possible to decide whether the duty exists without waiting for the underlying case to be tried. The duty to defend is clear now, only the duty to indemnify remains to be seen.
(b) Continental notes that Murray has not responded to its various affirmative defenses (some of which involve other exclusions). Nor does Continental believe that the evidence on summary judgment establishes that the brake in McPhillips was an Allied brake or that it was installed without change or alteration, or that it was sold in the regular course of Murray's business. But Continental does admit that its policy contained a vendor's endorsement naming Murray as the insured and that Allied manufactured a "certain coaster brake" sold by Allied to Murray. Much of what Continental relies upon is mere denial in its answer. But even if it were correct that all the defenses were still available to it and all the facts were uncertain it would not extinguish the duty to defend. That duty rests on potential coverage of the loss, not actual coverage.
(c) Continental objects that a proper tender of the defense was not made and cites ambiguities in the letter tendering the defense. The question need not be decided because the filing of this suit is an adequate tender and the answer a refusal.
(d) Continental claims its acceptance of the defense would place it in conflict with Murray because it would be motivated to defend only those theories which would affect its coverage and not those theories, if any, which would relieve it of coverage. Illinois law does not recognize this as a conflict (See Nandorf, Inc. v. CNA Insurance Co. 134 Ill. App. 3d 134, 479 N.E.2d 988, 88 Ill. Dec. 968, 971 (1985), and even were it to do so the conflict has yet to arise and the question need not be decided.
Murray is granted declaratory judgment against Continental on the issue of Continental's duty to defend Murray. Continental Insurance Company is legally obligated to defend Murray Ohio Manufacturing Company against the claims of Sean and James McPhillips presently pending in the Superior Court of Providence, State of Rhode Island and Providence Plantations (C.A. No. 83-5205).
Date February 10, 1989