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Hamilton Die Cast v. United States F. G. Co.

United States Court of Appeals, Seventh Circuit
Jan 3, 1975
508 F.2d 417 (7th Cir. 1975)

Summary

holding that defective manufacture of tennis racket frame is not an occurrence

Summary of this case from Wm. C. Vick Const. Co. v. Pennsylvania Nat. Mut.

Opinion

No. 74-1077.

Argued November 6, 1974.

Decided January 3, 1975.

Barry T. McNamara, Chicago, Ill., for plaintiff-appellant.

Robert L. Kiesler, Chicago, Ill., for defendant-appellee.

Appeal from the United States District Court for the Northern District of Illinois.

Before SWYGERT, Chief Judge, MARIS, Senior Circuit Judge, and CUMMINGS, Circuit Judge.

Senior Circuit Judge Albert B. Maris of the Third Circuit is sitting by designation.


In November 1972, plaintiff brought this declaratory judgment action seeking a determination of its rights under a contract of insurance issued by defendant which insured plaintiff against its liability for personal injuries and property damage caused by an "occurrence." In November 1971, Midland Sporting Goods ("Midland") sued plaintiff, which had agreed to manufacture for Midland all of its requirements of aluminum die cast tennis rackets. Midland claimed that the tennis racket frames were to be of good and merchantable quality and "porosity and oxide free, of optimum metal density and free of shrinkage." According to Midland's complaint, the number of rejects in the lots produced by plaintiff was not to exceed 1% and an implied warranty that the goods would be merchantable attached under Section 2-314 of the Uniform Commercial Code (Ill.Rev.Stats. ch. 26, § 2-314 (1973)). Midland sought $2,000,000 in damages from plaintiff for the following reasons set forth in its complaint:

Although Midland's complaint refers to "tennis rackets," it is clear that plaintiff was commissioned to make only the frames. Apparently Midland would then undertake to complete the rackets by adding string, handles, etc. This fact is crucial to plaintiff's theory of the case before us.

"6. Defendant failed to make timely shipment and delivery of the said tennis rackets.

"7. Defendant failed to furnish to plaintiff all its requirements of said tennis rackets.

"8. The tennis rackets which were manufactured by defendant and sold and delivered to plaintiff were not of good and merchantable quality. The said tennis rackets were not porosity and oxide free, were not of optimum metal density and were not free of shrinkage.

"9. The number of rejects in the lots of tennis rackets manufactured by defendant and sold and delivered to plaintiff exceeded 1%."

Paragraph 10 of the complaint describes the damages that Midland claims:

"10. As a result of the matters set forth in the foregoing paragraphs 6, 7, 8 and 9, plaintiff's supply of tennis rackets was not sufficient for it to satisfy the demand for such rackets, plaintiff was required to refund the purchase price of defective tennis rackets which were returned to it, and the reputation of plaintiff and its tennis racket in the market was damaged. By reason of the foregoing, plaintiff has suffered damages to the extent of $2,000,000."

As a result of the alleged defects Midland withdrew its tennis rackets from the market. As of the time of the oral argument before us, Midland's suit had not yet been tried.

Plaintiff tendered the defense of the Midland action to defendant under its comprehensive general liability insurance policy, but defendant refused the tender on various grounds. In its answer to the instant complaint, defendant asserted that (1) there was no "occurrence," as required by the insurance policy; (2) there was no "property damage" within the meaning of the policy; and (3) the so-called "sisterhood" exclusion (Exclusion N of the policy) was applicable. We agree. Since we uphold the validity of these three defenses, we do not reach other defenses asserted in defendant's answer.

The "sisterhood" exclusion is discussed in R. Elliott, New Comprehensive General Liability Policy, Practicing Law Institute XII-QQ-9 (1967).

After both parties filed motions for summary judgment, then District Judge Tone issued an unreported memorandum opinion denying plaintiff's motion and granting defendant's, holding that "Midland's claim is essentially one for loss of investment, loss of anticipated profits, and loss of goodwill" and that damages from injury to such intangible property rights were excluded from the policy's coverage. In a supplemental opinion, he also held that the "sisterhood" exclusion (N) precluded coverage. He did not determine whether there was an "occurrence" within the meaning of the policy. We affirm.

In pertinent part, the policy covers plaintiff's liability for "property damage" which is "caused by an occurrence." In our judgment, the district court correctly held that any sums plaintiff may be obligated to pay as a result of the Midland action will not be a result of "property damage" as defined in the policy. The definition is: "injury to or destruction of tangible property." As Judge Tone rightly observed, Midland is claiming damages for injury to intangible property, so that coverage does not exist under the policy. See St. Paul Fire Marine Ins. Co. v. Northern Grain Co., 365 F.2d 361, 367 (8th Cir. 1966); Hartford Accident Indemnity Co. v. Case Foundation Co., 10 Ill.App.3d 115, 294 N.E.2d 7 (1st Dist. 1973). Since this is a diversity case, Illinois rules on choice of law are applicable because that is the state where the district court is located. Illinois choice of law rules dictate the choice of Ohio law, as the state wherein the insurance contract was apparently executed. However, plaintiff has cited no applicable authority from Ohio that is contrary to the Hartford case.

See Paragraph 10 of Midland's complaint quoted supra.

The non-Ohio cases relied upon by plaintiff to show that there was property damage are inapposite because they involve policy provisions differing from the one before us.

Using an inventive, if farfetched, approach, plaintiff contends in this Court, that there was "property damage" to the finished product, the racket, by reason of the incorporation of the allegedly defective part, the frame. We do not think that the mere inclusion of a defective component, where no physical harm to the other parts results therefrom, constitutes "property damage" within the meaning of the policy. For example, if an automobile crash results from the failure of its defective tire, the defective component can be said to have caused "property damage" to the finished product. If, however, some of the tires purchased by the automobile manufacturer are found to be defective and the manufacturer therefore withdraws its cars from the market, there has not been "injury to or destruction of tangible property," which is (as noted) the definition of "property damage" in the policy. We also reject plaintiff's contention that because Midland's complaint implicitly seeks compensation for the loss of use of its machinery for finishing the rackets idled by the alleged lack of quality frames, the suit is one for "property damage." Idled machinery is not injured or destroyed tangible property and, therefore, there is no "property damage" within the coverage of the policy.

Secondly, Exclusion N of the policy applies, as held in the district court's second memorandum opinion. That clause specifically excludes:

" damages claimed for the withdrawal, inspection, repair, replacement or loss of use of the Named Insured's products or work completed by or for the Named Insured or of any property of which such products or work form a part, if such products, work or property are withdrawn from the market or from use because of any known or suspected defect or deficiency therein" (emphasis added).

Here Midland withdrew the tennis rackets from the market because the frames "were not porosity and oxide free, were not of optimum metal density and were not free of shrinkage." As the district judge observed, Exclusion N was "designed to exclude from coverage costs incurred by the withdrawal of goods from the market, the situation presented here." (See emphasized language of Exclusion N above.) Under the language of Exclusion N, it is immaterial that the withdrawal was not by the insured.

To the extent that Parker Products, Inc. v. Gulf Insurance Co., 486 S.W.2d 610 (Tex.Civ.App. 1972), is to the contrary, we agree with the dissenting opinion. This point was not discussed when the Parker Products case reached the Supreme Court of Texas. See 498 S.W.2d 676 (1973).

Finally, although it was not a basis for the district court's decision, we think it is appropriate to note that the damages claimed by Midland were not the result of "an occurrence" as required by the terms of the policy. An "occurrence" is defined as "an accident, including injurious exposure to conditions, which results, during the policy period, in bodily injury or property damage neither expected nor intended from the standpoint of the Insured." Because Midland's complaint controls the question whether defendant must accept the tender of defense, it is of course immaterial that plaintiff's declaratory judgment complaint characterizes Midland's suit as "for property damage arising from an occurrence of alleged negligent manufacture" of aluminum tennis racket frames by plaintiff. If one of the completed rackets had broken during normal use due to the defective frames and a person or an item of property had been harmed, it seems clear that there would have been an "occurrence" and that defendant would have had responsibility for plaintiff's defense. Such a situation would clearly be "an accident." The policy does not, however, cover "an occurrence of alleged negligent manufacture"; it covers negligent manufacture that results in "an occurrence." Plaintiff's strained interpretations aside, the Midland complaint would not support a reasonable belief that Midland's damages were the result of "an occurrence" within the definition of the policy in suit.

Plaintiff relies upon Maurice Pincoffs Co. v. St. Paul Fire Marine Ins. Co., 447 F.2d 204 (5th Cir. 1971). to support its argument that there was an "occurrence" under defendant's policy. However, in that case, the parties did not disagree on whether an occurrence had in fact transpired. The question before the court was whether there was one occurrence of liability or eight separate occurrences under the policy. The Pincoffs case is inapplicable because it did not focus upon the issue before us.

Because it was not raised below, we do not consider plaintiff's argument that since Midland's suit against plaintiff had not yet been tried, summary judgment in this case was premature.

Judgment affirmed.


Summaries of

Hamilton Die Cast v. United States F. G. Co.

United States Court of Appeals, Seventh Circuit
Jan 3, 1975
508 F.2d 417 (7th Cir. 1975)

holding that defective manufacture of tennis racket frame is not an occurrence

Summary of this case from Wm. C. Vick Const. Co. v. Pennsylvania Nat. Mut.

concluding a CGL policy insuring against property damage caused by an occurrence did not cover damages to business reputation because those are "damages for injury to intangible property"

Summary of this case from Magnus, Inc. v. Diamond State Ins. Co.

concluding a CGL policy insuring against property damage caused by an occurrence did not cover damages to business reputation because those are “damages for injury to intangible property”

Summary of this case from Magnus, Inc. v. Diamond State Ins. Co.

concluding component failure constitutes an occurrence if component causes completed product to fail and person or item of property is harmed

Summary of this case from Western Nat. Mut. Ins. v. Frost Paint

In Hamilton Die, plaintiff sought CGL coverage for damages which it incurred as a result of selling defective tennis racket frames.

Summary of this case from Magnus, Inc. v. Diamond State Ins. Co.

noting that damage or defect in the work itself was not covered, but that if the defective work injured a third person, the injury claim would be covered

Summary of this case from Essex Insurance Company v. Ragland Mills, Inc.

In Hamilton Die Cast, an insured-manufacturer of tennis racket frames sold frames to Midland Sporting Goods ("Midland").

Summary of this case from Wm. C. Vick Const. Co. v. Pennsylvania Nat. Mut.

applying Ohio law, but assuming Ohio law is consistent with Illinois law

Summary of this case from Eljer Mfg., Inc. v. Liberty Mut. Ins.

In Hamilton Die, supra, the Court, applying Ohio law, held that "property damage" did not include claimed damages for injury to intangible property.

Summary of this case from W.E. O'Neil Const. v. National Union Fire

In Hamilton Die Cast, Inc. v. United States Fidelity Guaranty Co., 508 F.2d 417 (7th Cir. 1975), the Seventh Circuit held that there was no property damage to the finished product, a tennis racket, by reason of the incorporation of a defective frame.

Summary of this case from Imperial Cas. Indem. v. High Conc. Struc.

applying Illinois choice of law rules

Summary of this case from Courts of the Phoenix v. Charter Oak Fire Ins. Co.

In Hamilton Die Cast, the Court of Appeals for the Seventh Circuit construed a definition of property damage similar to that in the Employers policy and concluded that the inclusion of a defective component part was insufficient to constitute property damage because no physical harm had resulted.

Summary of this case from American Motorists Ins. Co. v. Trane Co.

In Hamilton Die Cast, plaintiff furnished defective aluminum tennis racket frames which the buyer used to make tennis rackets.

Summary of this case from Stone Webster Eng. v. American Motorist Ins.

In Hamilton Die Cast, Inc. v. United States F. G. Co., 508 F.2d 417 (7th Cir. 1975), the relevant portions of the insurance policy were substantially identical to the policy in the instant case.

Summary of this case from WESTERN EXTERMINATING CO. v. HARTFORD ACC

In Hamilton Die Cast the manufacturer withdrew completed tennis rackets from the market because the insured had failed to comply with contract specifications concerning the porosity of the racket frames.

Summary of this case from Sola Basic Industries, Inc. v. United States Fidelity & Guaranty Co.

applying Ohio law

Summary of this case from Bogner Constr. Co. v. Field Assoc.

applying Ohio law

Summary of this case from Environmental Expl. v. Bituminous Fire

applying Ohio law

Summary of this case from Royal Plastics v. State Auto Mut. Ins. Co.

In Hamilton Die Cast, Inc. v. United States Fidelity Guaranty Co. (7th Cir. 1975), 508 F.2d 417, plaintiff sought to recover damages for defective tennis rackets under a complaint which alleged that the supply of rackets was not sufficient to satisfy the demand for such rackets.

Summary of this case from U.S. Fid. Guar. v. Wilkin Insulation

In Hamilton Die Cast, Inc. v. United States Fidelity Guaranty Co. (7th Cir. 1975), 508 F.2d 417, the court reasoned that the inclusion of a defective component, where no physical harm to the other parts results, did not constitute property damage under a general liability policy insuring against product liability property damage.

Summary of this case from Fremont Ind. Co. v. Sp. Earth Equip. Corp.

In Hamilton, the insured manufacturer sought to recover from its insurance carrier for damages occasioned by the defective tennis racket frames it had supplied.

Summary of this case from Elco Industries, Inc. v. Liberty Mutual Insurance

In Hamilton Die Cast, Inc. v. United States F. G. Co. (7th Cir. 1975) 508 F.2d 417, a customer sued the insured for an alleged failure to comply with a contract for supplying tennis racket frames.

Summary of this case from Fresno Economy Import Used Cars, Inc. v. United States Fidelity & Guaranty Co.

In Hamilton Die, the court was dealing with a case in which the manufacturer of defective tennis racket frames sought to recover for the damage to its own defective product as well as for the value of the grip and strings added to the defective frame.

Summary of this case from Pittway Corp. v. American Motorists Ins. Co.

In Hamilton, a manufacturer withdrew completed tennis rackets from the market because the insured had failed to comply with contract specifications concerning the porosity of the racket frames.

Summary of this case from Elco Industries, Inc. v. Liberty Mutual Insurance
Case details for

Hamilton Die Cast v. United States F. G. Co.

Case Details

Full title:HAMILTON DIE CAST, INC., PLAINTIFF-APPELLANT, v. UNITED STATES FIDELITY…

Court:United States Court of Appeals, Seventh Circuit

Date published: Jan 3, 1975

Citations

508 F.2d 417 (7th Cir. 1975)

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