APPEAL FROM THE CIRCUIT COURT OF COOK COUNTY. HONORABLE ROBERT D. ERICSSON, JUDGE PRESIDING.
Presiding Justice Hoffman delivered the opinion of the court: Johnson and Cahill, JJ., concur.*
The opinion of the court was delivered by: Hoffman
PRESIDING JUSTICE HOFFMAN delivered the opinion of the court:
Plaintiff, Sportmart Inc., brought this declaratory judgment action seeking a determination that defendants, Continental Casualty and Continental's insured, Daisy Manufacturing, were required to defend and indemnify Sportmart in a personal injury suit involving a Daisy product. Following cross-summary judgment motions, the trial court granted judgment for defendants. On appeal, plaintiff raises the following issues: (1) whether the court erred in determining that Continental had no duty to defend plaintiff; and (2) whether Continental is estopped to deny coverage under its policy by its improper refusal to defend plaintiff.
The following facts are substantially undisputed. Sportmart operates a retail sporting goods chain in the Chicago area. Daisy manufactures "BB" guns and the .177-caliber pellets used as ammunition in them. Through its subsidiary Olympic Distributors, Sportmart contracted with Daisy to sell the guns and pellets in a local retail store. As part of this contract, a certificate of insurance was issued to Olympic on Daisy's behalf. Daisy then procured a comprehensive general liability policy issued by Continental, which was effective from November 15, 1987, through November 15, 1988. Continental's policy contained an "Additional Insured - Vendors" endorsement, which provided coverage for vendors of products manufactured by Daisy, "but only with respect to 'bodily injury' or 'property damage' arising out of '[Daisy's] products' *** which are distributed or sold in the regular course of the vendor's business ***." The vendor's endorsement also contained the following exclusion:
"The insurance afforded [Sportmart] does not apply to:
e. Any failure to make such inspections, adjustments, tests or servicing as [Sportmart] has agreed to make or normally undertakes to make in the usual course of business, in connection with the distribution or sale of the products ***."
On or about November 17, 1989, Anthony Miceli, through his father Frank Miceli Jr., brought a negligence action against Sportmart and another sporting goods store. The complaint charged that on December 2, 1987, fifteen-year-old Anthony Miceli was shooting a BB gun near his home using pellets he purchased from Sportmart. A pellet ricocheted off of a light pole and penetrated his left eye, causing him to partially lose his sight. The complaint alleged Sportmart and its employees were negligent in that they (a) sold ammunition to plaintiff who was under 21 years old, in violation of Ill. Rev. Stat. 1987, ch. 38, par. 83-1 et seq.; (b) sold the ammunition to a minor under 16 years of age in contravention of established store policy; (c) sold the ammunition to the minor plaintiff when it knew or should have known that his use of the ammunition could result in injury; and (d) failed to determine plaintiff's age prior to selling the ammunition to him. There were no allegations of product liability. Sportmart filed an answer denying each of these allegations.
Pursuant to the vendor's endorsement, Sportmart tendered defense of the complaint to Daisy. In correspondence of January 31, 1991, Daisy refused the tender on the basis that the Micelis' complaint was premised upon Sportmart's negligence in selling the ammunition rather than upon any defect in Daisy's product. Sportmart's insurer then tendered the defense to Continental, apparently on or about October 7, 1992. Continental similarly rejected the tender on October 14, 1992.
On November 23, 1992, Sportmart filed its first-amended complaint for declaratory judgment, seeking a determination that Daisy and Continental were obligated to defend it in the Miceli lawsuit. Daisy and Continental moved for summary judgment, arguing that the vendor's endorsement covered only injuries resulting from a defect in Daisy's product. Sportmart responded with a cross-motion for summary judgment, claiming that it was entitled to coverage for any injury arising from the product regardless of whether any defect was alleged. Following a hearing, the trial court denied Sportmart's motion and entered summary judgment for Daisy and Continental. Sportmart then filed the instant appeal.
The primary issue on appeal turns upon the meaning of the phrase "arising out of" in the vendor's endorsement. Sportmart argues that this language unambiguously required Continental to defend it in all bodily injury claims resulting from the Daisy product. Alternatively, Sportmart contends that even if the language is ambiguous, all ambiguities must be construed in favor of Sportmart as the insured. Defendants respond that the purpose of the vendor's endorsement was to cover Sportmart for claims resulting from defects in the product rather than from Sportmart's own fault. Thus, because the Miceli's complaint was premised solely upon Sportmart's negligence in selling the pellets to a minor, the case was beyond policy coverage.
In determining the extent of an insurer's duty to defend, we look exclusively to the terms of the policy and the allegations of the underlying complaint. ( Clemmons v. Travelers Insurance Co. (1981), 88 Ill. 2d 469, 476, 430 N.E.2d 1104, 58 Ill. Dec. 853; Employers Mutual Companies/Illinois Emcasco Insurance Co. v. Country Companies (1991), 211 Ill. App. 3d 586, 591, 570 N.E.2d 528, 156 Ill. Dec. 52.) If the underlying complaint alleges facts potentially within the policy's coverage, the insurer is obligated to defend its insured even if the allegations are groundless, false, or fraudulent. (Emphasis in original.) ( United States Fidelity & Guaranty Co. v. Wilkin Insulation Co. (1991), 144 Ill. 2d 64, 73, 578 N.E.2d 926, 161 Ill. Dec. 280; Conway v. Country Casualty Insurance Co. (1982), 92 Ill. 2d 388, 393, 442 N.E.2d 245, 65 Ill. Dec. 934.) The insurer cannot justifiably refuse to defend unless the face of the complaint clearly fails to state facts which bring the case potentially within the policy's coverage. ( Wilkin, 144 Ill. 2d at 73.) Moreover, the underlying complaint and policy must be construed liberally in favor of the insured; any doubts or ambiguities should be resolved against the insurer who drafted the policy. Wilkin, 144 Ill. 2d at 74; Maryland Casualty Co. v. Chicago & North Western Transportation Co. (1984), 126 Ill. App. 3d 150, 154, 466 N.E.2d 1091, 81 Ill. Dec. 289.
In the instant case, the policy language at issue ...