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08/09/89 Adman Products Company, v. Federal Insurance Company

August 9, 1989

ADMAN PRODUCTS COMPANY, PLAINTIFF-APPELLANT

v.

FEDERAL INSURANCE COMPANY, DEFENDANT-APPELLEE



APPELLATE COURT OF ILLINOIS, FIRST DISTRICT, THIRD DIVISION

543 N.E.2d 219, 187 Ill. App. 3d 322, 134 Ill. Dec. 936 1989.IL.1218

Appeal from the Circuit Court of Cook County; the Hon. Roger Kiley, Judge, presiding.

APPELLATE Judges:

JUSTICE CERDA delivered the opinion of the court. RIZZI and WHITE, JJ., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE CERDA

This is an appeal from summary judgment for the defendant in a declaratory judgment action. The issue presented for review is whether the defendant, Federal Insurance Co. (Federal), is obligated to defend a property damage action on behalf of the plaintiff, Adman Products Co. (Adman), pursuant to a comprehensive general liability insurance policy issued by Federal to Adman. The trial court ruled that Federal does not have a duty to defend Adman on the ground that two exclusion clauses preclude coverage of the damaged property. We affirm.

Adman is an Illinois corporation engaged in the business of assembling advertising displays. Between 1975 and June 1, 1984, Adman contracted with National Creative Merchandising Corp. to assemble displays. Throughout their business relationship, NCM delivered display materials owned by NCM or its customers to Adman for assembly. On June 1, 1984, a fire at Adman's facility located at 4444 West Chicago Avenue damaged or destroyed displays and display materials owned by NCM or its customers. NCM filed an amended three-count complaint against Adman on October 8, 1985, which Adman tendered to Federal. Federal declined Adman's request to provide a defense against NCM's complaint, prompting Adman to file a declaratory judgment action against Federal. Federal in turn filed a counterclaim and third-party complaint against Adman and NCM seeking a declaratory determination that Federal is not obligated to defend Adman and is not liable under the policy to Adman or NCM for the property damage.

The policy contains the basic coverage provision that "[t]he company will pay on behalf of the insured all sums which the insured shall become obligated to pay as damages by reason of liability . . . for bodily injury, property damage or personal injury caused by an occurrence." Federal also promised to "defend any suit against the insured seeking damages on account of such bodily injury, property damage or personal injury, even if the allegations of the suit are groundless, false or fraudulent." In dispute, however, are two exclusionary clauses which the trial court found were in the nature of a "care, custody or control" exclusion. They state as follows:

"Nor does this insurance apply to:

14. property damage to:

b. property held by the insured for sale or property entrusted to the insured for storage or safekeeping;

c. property while on premises owned or occupied by or rented to the insured for the purpose of having operations performed on such property by or on behalf of the insured . . .."

After submission of briefs and a hearing, the trial court accepted Federal's contention that the damaged displays and display materials were property for which coverage was excluded under clauses 14(b) and 14(c).

As a general rule, the duty to defend is determined by comparing the allegations of the complaint with the terms of the policy. (International Minerals & Chemical Corp. v. Liberty Mutual Insurance Co. (1988), 168 Ill. App. 3d 361, 366, 522 N.E.2d 758.) It is often stated that in determining whether there is potential coverage, only the allegations contained in the complaint may be considered. (Consolidated Rail Corp. v. Liberty Mutual Insurance Co. (1981), 92 Ill. App. 3d 1066, 1070, 416 N.E.2d 758.) The insurer must defend the insured if the complaint alleges facts within, or potentially within, policy coverage. (Tuell v. State Farm Fire & Casualty Co. (1985), 132 Ill. App. 3d 449, 452, 477 N.E.2d 70.) It is also well settled that where the allegations fall within policy ...


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