There is no indication in the underlying complaint, either by inference or otherwise, that Lucker was ever unable, due to the failure of the castings or otherwise, to offer the original LMS for sale to Shell or to offer use of the original LMS design to other customers. Lucker simply complained that when offered, Shell and perhaps other customers wanted something different because of the failure of the castings. Thus Lucker did not allege a loss of an intended use of the original LMS as merchandise for sale or the original LMS design as a means of producing such merchandise; Lucker alleged a loss of an expected customer acceptance of its product and design.
And loss of customer acceptance of a product or design is in no way the equivalent of "loss of use" of a product or design under the policy. To equate the two would be to link CGL coverage to the vagaries of customer desire and make insurers of liabilities into guarantors of markets for goods and services.
The CGL policy at issue here committed The Home to no such undertaking. The Home contracted to defend and indemnify Grede for damages resulting from the loss of use of tangible property only. Business reputation, profits, and other business and economic losses are intangibles and, as Lucker itself concedes, losses of such are not covered under the policy. See Plaintiff, Lucker's, Memorandum in Opposition to Defendant's Motion for Summary Judgment at 11; Lowenstein Dyes & Cosmetics, Inc. v. Aetna Life & Casualty Co., 524 F. Supp. 574, 577 (E.D.N.Y. 1981), aff'd without opinion, 742 F.2d 1437 (2d Cir. 1983); Ludwig Candy Co. v. Iowa Nat'l Mut. Ins. Co., 78 Ill. App. 3d 306, 310, 396 N.E.2d 1329, 1332, 33 Ill. Dec. 605 (1979). Likewise, customer acceptance of or desire for a product or design is intangible, and thus the loss of such is not covered.
In summary, then, I find that Lucker's complaint in the underlying action does not allege damages for "loss of use" of the original LMS or LMS design, or any other form of covered property damage under the policy. Accordingly, I find that The Home was justified as a matter of law in withdrawing its defense of Grede in the underlying action. I will therefore enter summary judgment in favor of The Home on Lucker's claim for breach of duty to defend.
I will also enter judgment in favor of The Home on Lucker's claim for breach of duty to indemnify. "An insurer has a duty to indemnify its insured only if it is established that the insured's damages are actually within the policy coverage." Safeguard Scientifics, Inc. v. Liberty Mut. Ins. Co., 766 F. Supp. 324, 334 (E.D. Pa. 1991)(Pennsylvania law), aff'd in part, rev'd in part without opinion, 961 F.2d 209 (3d Cir. 1992). As characterized by Lucker, the damages it recovered from Grede, the insured, as a result of the underlying jury verdict included: (1) $ 32,934 for the actual cost of the castings; (2) $ 200,007 in "Test Project Costs"; and (3) $ 251,337 for the "Cost Absorbed to reproduce Shell's casting to a higher specification." See Lucker's Memorandum in Support at 15. None of these damages are within the policy coverage.
As to the first of these damages, Lucker itself agrees, as mentioned above, that the cost of the actual castings (Grede's product) is specifically excluded under the policy. See supra note 10 and accompanying text. Turning next to the "Test Project Costs," Lucker describes these damages as "the cost incurred by Lucker in the teardown and storage at Lehigh University, the retest costs, as well as the additional labor costs." See Lucker's Memorandum in Support at 15. Without elaboration, Lucker contends that these damages are within the policy coverage for the reasons stated in Arcos Corp. v. American Mut. Liability Ins. Co., 350 F. Supp. 380 (E.D. Pa. 1972), aff'd, 485 F.2d 678 (3d Cir. 1973).
Arcos involved a claim by General Dynamics against the manufacturer of a special weld wire called "Inconel" purchased by General for use in the construction of a nuclear power plant aboard a submarine. Id. at 382. After using the weld wire, General Dynamics began to notice that some of the welds it made were not composed of Inconel but a different type of weld wire. Id. General Dynamics subsequently sued the manufacturer of the weld wire for the cost of testing the various welds it had made and ripping out those which were not of Inconel. Id. The manufacturer sought defense and indemnification from its CGL insurer; coverage was denied; and the manufacturer sought judicial vindication of its policy rights.
In finding for the manufacturer on summary judgment, the court held, among other things, that the testing and removal costs sustained by General Dynamics were "property damage" under the CGL policy, citing two Third Circuit opinions addressing property damage resulting from the incorporation of an insured's product into other property. Id. at 383 (citing Bowman Steel Corp. v. Lumbermens Mut. Casualty Co., 364 F.2d 246, 249-50 (3d Cir. 1966); Pittsburgh Plate Glass Co. v. Fidelity & Casualty Co. of New York, 281 F.2d 538, 541-45 (3d Cir. 1960)). The issue in these two Third Circuit decisions and in a more recent Third Circuit opinion construing Pittsburgh Plate Glass, see Imperial Casualty & Indem. Co. v. High Concrete Structures, Inc., 858 F.2d 128, was whether the occurrences involved constituted "property damage" to property other than the insured's own product.
In Pittsburgh Plate Glass, for example, the court found that there was "property damage" to property other than the insured's own product where the insured's product -- paint -- had been baked onto venetian blinds and later flaked and peeled. 281 F.2d at 541. Remarked the court in Imperial Casualty, "the purchaser [of the paint] created a new product [the blinds] having a value in excess of the value supplied by the insured [in the paint], and suffered damage to more than just the insured's product [when the paint flaked and peeled from the blinds]." 858 F.2d at 134-35. Likewise, because General's use of the weld wire in Arcos necessarily created a new product (the weld wire was presumably melted into components of the nuclear power plant), there was damage to more than just the insured's product (the weld wire), and the Court held that the costs of testing to locate the improper welds and removing them was covered "property damage."
There is no assertion or other evidence in this or the underlying proceeding, however, that the testing which gave rise to the "Test Project Costs" was necessary to uncover property damage to property other than the castings, such as the LMS. Indeed, there is no assertion or evidence that the Grede castings were ever incorporated into the LMS, and Lucker has admitted that there was no claim in the underlying action for physical injury to property other than the castings. See supra note 10 and accompanying text. Additionally, the only assertion of "property damage" pressed by Lucker here is for its own loss of use of the LMS, which has nothing whatsoever to do with the identified testing costs and which I have already rejected as a theory of recovery. Therefore, because the "Test Project Costs" are not related to covered "property damage," I find that they are not within the policy coverage.
The final category of damages to be considered are those costs absorbed by Lucker in reproducing Shell's casting to a higher specification. These are the costs Lucker claims it incurred in revising the original LMS to meet Shell's new requirements and for which Lucker asserts coverage under the loss of use theory rejected above. Accordingly, I find that these damages are not within the policy coverage.
I mentioned at the outset that I need not determine whether Pennsylvania's insurer bad faith statute, 42 Pa. Cons. Stat. Ann. § 8371, applies as a matter of law to this dispute. This is so because, even if it did apply, Lucker's claim against The Home under the statute must fail. Lucker's claim of bad faith rests entirely upon the contention that The Home breached its duties to defend and indemnify Grede in bad faith. Because I have determined that The Home breached neither of these duties, there can be no claim of bad faith in doing so. I will therefore enter judgment in favor of The Home on this claim.
An appropriate order follows.
ORDER - April 7, 1993, Filed, Entered
AND NOW, this 5th day of April, 1993, upon consideration of the cross motions for summary judgment filed by the parties, all papers filed in support thereof and in opposition thereto, and upon consideration of the arguments made by both parties at a hearing held in this matter, IT IS HEREBY ORDERED for the reasons stated in the accompanying Memorandum that plaintiff's Motion for Summary Judgment is DENIED and defendant's Motion for Summary Judgment is GRANTED as follows:
1. SUMMARY JUDGMENT is entered FOR DEFENDANT and against plaintiff on plaintiff's claims for breach of duty to indemnify, breach of duty to defend, and insurer bad faith.
2. Plaintiff's claim for declaratory relief is DISMISSED as MOOT.
John R. Padova, J.