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Schaefer/Karpf Productions v. CNA Insurance Companies6/18/1998
nt declaring Gulf had no duty to defend or indemnify defendant in the Fox action. The court found Fox's complaint did not allege damage to or destruction of property, tangible or otherwise. Even if it did, there would be no coverage for injury to artistic value. The court cited Giddings v. Industrial Indem. Co., supra, 112 Cal.App.3d at page 219 for the proposition "tangible property" for purposes of a CGL policy means "`property . . . having physical substance apparent to the senses.'" (827 F.2d at p. 578.) Artistic value, the court concluded, is not something which has physical substance apparent to the senses nor is there any objective means available to quantify in substantive economic terms any diminution in the artistic value of a film. Therefore, the court held, "the artistic value of a movie is tangible property within the meaning and intent of the insurance policy." (Ibid.)
In Lucker Mfg. v. Homes Ins. Co. (3rd Cir. 1994) 23 F.3d 808, the court held the design concept for a product, as opposed to the product itself, was not tangible property for purposes of CGL liability. In Lucker, the plaintiff contracted with the Shell Oil Company to design and manufacture an anchoring system for off-shore drilling platforms called a Lateral Mooring System (LMS). The design called for the use of castings, large metal objects which attach to the ocean floor and hold the cables connected to the platform. Lucker purchased a number of these castings from Grede Foundries. Prior to actually building the LMS, Lucker decided to test the strength of Grede's castings. Confident the test would be successful and impressive, Lucker invited Shell representatives to watch. The test turned out a disaster. One of Grede's castings failed. Had it been incorporated into the LMS and put into operation, Shell's drilling platform would have floated off in the sea. As a result of the casting's failure, Shell insisted Lucker make changes in the design of the LMS at a cost of $600,000. Lucker then sued Grede under contract and tort theories for the cost of the design changes. Grede tendered defense of the action to Home Insurance under its CGL policy. Home refused to defend Grede and disclaimed all liability under the policy on the grounds Lucker's injury did not constitute "loss of use" of "tangible property" as those terms are used in the 1973 definition. After obtaining a judgment against Grede, Lucker, as Grede's assignee, brought an action against Home for defense costs and indemnification. (Id. at pp. 810-811.)
The Third Circuit affirmed a judgment for Home. The court agreed with Lucker "the decreased value of a product because of loss of customer acceptance of the product is a `loss of use' within the meaning of the standard CGL policy." (23 F.2d at p. 816.) Loss of use coverage, however, only applies to tangible property. Lucker conceded a design concept is not tangible property because an idea cannot be touched and is not materially existent. But, it argued, a design which is reduced to a tangible medium like a blueprint or a computer disk (or, presumably, a videotape) should be considered tangible property. Home, on the other hand, argued that where the real value of a design is in the idea, not in the physical plans that memorialize the idea, any loss in value of the design represents a loss in value of the idea, which is not a loss of use of tangible property. (Id. at p. 819.) The court concluded Home had the better argument:
"In this case, none of the losses Lucker sought from Grede represented a loss in the value of the storage medium in which the design for the LMS was embodied or in the costs in reducing the design to blueprints or computer tape (e.g. the costs of having engineers draw up the plans
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