In the
United States Court of Appeals
For the Seventh Circuit
No. 09-3764
AMERISURE MUTUAL INSURANCE COMPANY,
Plaintiff-Appellee,
v.
MICROPLASTICS, INC.,
Defendant-Appellant.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 1:07-cv-03827—John A. Nordberg, Judge.
ARGUED APRIL 21, 2010—DECIDED S EPTEMBER 20, 2010
Before CUDAHY, RIPPLE, and HAMILTON, Circuit Judges.
HAMILTON, Circuit Judge. This case presents a recurring
problem under Illinois insurance law governing an in-
surer’s duty to defend under a commercial general
liability policy. Suppose a buyer sues a manufacturer for
supplying defective products, but the buyer does not
specify the elements of its claims for damages in the
complaint. A commercial general liability policy is in-
2 No. 09-3764
tended to cover, among other risks, the insured’s liability
for accidental bodily injury and property damage caused
by its defective products. The policy is not intended,
however, to cover the costs of replacing or repairing
the defective products themselves. The parties agree
here that if the unhappy buyer alleges that the defective
products have caused bodily injury or damage to prop-
erty other than the defective products themselves, a
commercial general liability policy will require the
insurer to defend its insured. They also agree that if the
unhappy buyer alleges only a claim for repair or replace-
ment of the defective products, the policy will not re-
quire the insurer to defend what amounts to only a
breach of contract claim against its insured.
The problem presented here is whether the insurer
has a duty to defend the insured when the unhappy
buyer makes only general allegations for costs incurred
as a result of the defective products, without explicitly
disavowing any claim for damage to property other
than the defective products themselves. The unhappy
buyer’s claim in this case has all the earmarks of a pure
breach of contract claim for costs of repair, replacement, or
similar economic losses not covered by the insurance
policy. There is no indication that the insured manufac-
turer’s products caused damage to any property other
than the defective products themselves. Although the
insured manufacturer offers speculative hypotheses
about scenarios that are not literally inconsistent with
the unhappy buyer’s allegations, those speculative hy-
potheses are not sufficient to trigger the insurer’s duty
to defend under the commercial general liability poli-
cies. We affirm the district court’s decision to that effect.
No. 09-3764 3
I. The Dispute Between Microplastics and Valeo
The district court granted summary judgment for the
insurer, plaintiff-appellee Amerisure Mutual Insurance
Company. The relevant facts are undisputed, consisting
primarily of the terms of the relevant insurance policies
and the contents of various pleadings in the underlying
lawsuit between the unhappy buyer and defendant-
appellant Microplastics, Inc. Microplastics manufac-
tures insert molding components, which are plastic
pieces used to manufacture various mechanical devices.
The unhappy buyer in this case was Valeo Security Sys-
tems. In 2004, Valeo began buying Microplastics com-
ponents and used them to manufacture automobile
door latch assemblies that it sold to automobile manu-
facturers (referred to in industry jargon as “original
equipment manufacturers” or “OEMs”). The supply
relationship between Microplastics and Valeo was gov-
erned by purchase orders that included quality speci-
fications and prices.1
The relationship soured quickly. By October 2004, one
unidentified OEM began complaining to Valeo about
problems with the door latch assemblies. It became clear
to all involved that Microplastics was selling Valeo de-
1
Microplastics and Valeo also entered into a tooling agree-
ment under which Microplastics manufactured certain unique
tools to use in the manufacture of the component parts. Valeo
alleged breaches of both the purchase orders and the tooling
agreement. This appeal concerns only the breaches of the
purchase orders.
4 No. 09-3764
fective parts. Microplastics has forwarded some creative
hypotheses for how these defects manifested themselves,
but the only details with any factual support in the
record are found in a February 2005 email from Valeo
to Microplastics president Mike Roberts identifying the
following defects:
The issue is that when we launched with production
parts from Microplastics we had no idea your process
was allowing some parts which:
1) The potting material did not fill the voids under
the terminals.
2) The potting was not adequately cured to prevent
water intrusion.
3) The potting material did not bond to the upper
housing.
In addition the bus bar was not over-molded as it
should have been, limiting protection, and elevating
the effect of every issue above. Each of these is the
direct result of your process which you must test
and qualify to assure compliance, not Valeo.
R. 37, Ex. A ¶¶ 31, 32. An internal email from Roberts to
Microplastics managers a few months earlier seemed to
acknowledge both the problem and Microplastics’ respon-
sibility for it:
[W]e have to get rid of Valeo . . . . I am convinced that
this piece of crap is a major recall in the making. It
will take a while to make it go away but it NEEDS to
go away . . . . I apologize for being greedy and
No. 09-3764 5
wishful thinking that Valeo would turn out [okay].
Nothing comes from being greedy and stupid. I was
both. Saw the train wreck coming two years ago but
kept it going because we needed the work. Next time
I do that somebody, or all of you, slap me.
R. 37, Ex. G ¶¶ 11-13.
These problems remained unresolved by August 2006,
when Valeo sent a demand letter to Microplastics
formally asserting that Microplastics had breached the
quality and engineering specifications of the purchase
orders. The letter stated that Valeo had chosen to “termi-
nate and cancel the Purchase Orders for cause” and said
that Valeo would apply a debit of about $1,300,000 to
offset “the damages incurred by Valeo due to Micro-
plastics’ breaches.”
II. Litigation and Valeo’s Counterclaim
Settlement negotiations fell through, and in Octo-
ber 2006 Microplastics filed suit for breach of contract
against Valeo. Microplastics alleged that Valeo had failed
to pay 20 invoices for parts delivered, totaling more than
$500,000. In November 2006, Valeo filed a six-count
counterclaim. See Microplastics, Inc. v. Valeo Security
Systems, N.A., No. 06-cv-6187 (N.D. Ill.). Count I, the only
count pertinent here, reiterated the allegations of the
demand letter, seeking setoff and damages for economic
losses incurred as a result of Microplastics’ breaches of
the purchase orders by failing to comply with engi-
neering and quality specifications.
6 No. 09-3764
III. The Insurance Dispute
Appellee Amerisure insured Microplastics from
July 2003 to July 2007 under a series of commercial gen-
eral liability policies (“the CGL policies”). The CGL
policies required Amerisure to pay Microplastics if it
should ever be legally obligated to pay damages to any
third party as a result of “property damage” or “personal
injury” caused by an “occurrence.” The CGL policies
also required Amerisure to defend Microplastics against
any lawsuit seeking such covered damages. The CGL
policies defined “property damage” as:
a. Physical injury to tangible property, including all
resulting loss of use of that property. All such loss
of use shall be deemed to occur at the time of the
physical injury that caused it; or
b. Loss of use of tangible property that is not
physically injured. All such loss of use shall be
deemed to occur at the time of the “occurrence” that
caused it.
Amerisure was first notified of the Valeo counterclaim
on March 1, 2007 by Microplastics’ insurance broker. On
April 13, 2007, Amerisure sent a letter to Microplastics
with the heading “Reservation of Rights.” Amerisure
acknowledged receipt of the Valeo counterclaim and
advised that it was “unable to provide [Microplastics]
with a defense until we have completed our investiga-
tion.” The letter cited the relevant coverage provisions
and stated that “there appears to be a question as to
whether or not this incident is a covered claim under
the general liability policies issued to Microplastics, Inc.
It does not appear that there has been any ‘property
No. 09-3764 7
damage’ caused by an ‘occurrence.’ ” In a June 21, 2007
letter, Amerisure informed Microplastics that it was
declining coverage and would not defend Microplastics
against the Valeo counterclaim. Amerisure then filed
this action on July 9, 2007, seeking a declaration that it
had no duty to defend or indemnify Microplastics with
respect to the Valeo counterclaim.
Without the aid of Amerisure’s defense, Microplastics
sought to settle the pending claims. On September 12,
2007, Microplastics and Valeo entered into a settlement
agreement to resolve all claims between them. No cash
changed hands under the agreement, but Microplastics
issued a credit memo for the amount that Microplastics
had billed Valeo for its supply of the allegedly defective
supply parts, more than $500,000. The record does not
reveal that Microplastics or Amerisure gained any new
knowledge of the nature of the “customer costs” referenced
in Valeo’s counterclaim.
Meanwhile, the present action between Amerisure and
Microplastics proceeded. The parties filed cross-motions
for partial summary judgment on whether Amerisure
had a duty to defend. The district court granted sum-
mary judgment for Amerisure, finding that the Valeo
counterclaim did not trigger a duty to defend because
it did not allege “property damage” or “bodily injury”
under the CGL policies. Microplastics appealed.2
2
Microplastics still contends that the counterclaim potentially
implicates both “property damage” and “bodily injury,” but
it attempts to explain only the “property damage” theory.
8 No. 09-3764
IV. The Duty to Defend
Microplastics contends that the Valeo counterclaim’s
allegations potentially fell within the CGL policies’
“property damage” provision, and therefore triggered
Amerisure’s duty to defend under Illinois law.
Microplastics’ argument relies entirely on hypothetical
situations rather than on any facts actually alleged in the
Valeo counterclaim. Under Illinois law, an insurer has
no duty to defend unless the underlying claim contains
explicit factual allegations that potentially fall within
policy coverage. Because the Valeo counterclaim con-
tained no such factual allegations, and because the al-
legations were fully consistent with a simple claim for
breach of warranty, Amerisure had no duty to defend.
Under Illinois law, a liability insurer’s duty to defend
is broader than its duty to indemnify, but it is not unlim-
ited. See National Casualty Co. v. McFatridge, 604 F.3d
335, 338 (7th Cir. 2010); American Family Mutual Ins. Co. v.
W.H. McNaughton Builders, Inc., 843 N.E.2d 492, 497 (Ill.
App. 2006). To determine whether an insurer has a duty
to defend its insured, we compare the factual allegations
of the underlying complaint (or in this case, counter-
claim) to the language of the insurance policy. Lyerla v.
AMCO Ins. Co., 536 F.3d 684, 688 (7th Cir. 2008); General
Agents Ins. Co. of America, Inc. v. Midwest Sporting Goods
Co., 828 N.E.2d 1092, 1098 (Ill. 2005). “If the facts alleged
in the underlying complaint fall within, or potentially
within, the policy’s coverage, the insurer’s duty to
defend arises.” Santa’s Best Craft, LLC v. St. Paul Fire and
Marine Ins. Co., 611 F.3d 339, 346 (7th Cir. 2010) (quotations
No. 09-3764 9
omitted); Crum and Forster Managers Corp. v. Resolution
Trust Corp., 620 N.E.2d 1073, 1079 (Ill. 1993). “Both the
policy terms and the allegations in the underlying com-
plaint are liberally construed in favor of the insured, and
any doubts and ambiguities are resolved against the
insurer.” State Farm Fire and Casualty Co. v. Perez, 899
N.E.2d 1231, 1235 (Ill. App. 2008), citing Pekin Ins. Co. v.
Beu, 876 N.E.2d 167, 170 (Ill. App. 2007). However, the
general rules that favor the insured must “yield to the
paramount rule of reasonable construction which guides
all contract interpretations.” Western States Ins. Co. v. Bobo,
644 N.E.2d 486, 488 (Ill. App. 1994), quoting Travelers
Ins. Cos. v. P.C. Quote, Inc., 570 N.E.2d 614, 617 (Ill. App.
1991) (quotation marks omitted).
An allegation of defective or faulty workmanship in
the insured’s own products does not, by itself, allege
“property damage” under a standard CGL policy like
these Amerisure policies. Such policies “are intended to
protect the insured from liability for injury or damage
to the persons or property of others; they are not in-
tended to pay the costs associated with repairing or
replacing the insured’s defective work and products,
which are purely economic losses.” West Bend Mutual Ins.
Co. v. People of Illinois, 929 N.E.2d 606, 614-15 (Ill. App.
2010), quoting Travelers Ins. Co. v. Eljer Manufacturing,
Inc., 757 N.E.2d 481, 503 (Ill. 2001) (quotation marks
omitted).
The parties do not dispute the legal background we
have provided thus far. The dispute here lies in the ap-
plication of these rules to the vague allegations in Valeo’s
10 No. 09-3764
counterclaim against Microplastics. Valeo’s counter-
claim had all the earmarks of a buyer’s breach of contract
claim for products that failed to meet the agreed specifica-
tions, resulting in costs for repair or replacement, and
perhaps additional consequential damages in the form
of customer charge-backs for related costs. See generally
Article 2, chapter 7 of the Uniform Commercial Code
(as adopted by Illinois, 810 ILCS 5/2-701 et seq.). Valeo’s
counterclaim included no indication that it was as-
serting a claim for damage to property other than
the defective products themselves.
Microplastics bases its asserted right to a defense from
Amerisure on the allegations of paragraphs 14 and 15 of
the Valeo counterclaim. Those paragraphs alleged:
14. Valeo’s customer with respect to the Component
Parts charged Valeo for its costs associated with
the defects.
15. Microplastics is liable to Valeo for the costs
charged to Valeo associated with the defects.
The counterclaim concluded by requesting relief in the
form of an order declaring “that Valeo is entitled to
setoff or recoupment of all damages it has incurred on
account of Microplastics’ breaches of the Purchase
Orders . . . against any amount that may be due to
Microplastics by Valeo,” and an award of damages that
might be “otherwise due Microplastics from Valeo under
the Purchase Orders (prior to application of Valeo’s
setoff),” attorney fees, and litigation costs. So Valeo’s
customer charged it for unspecified costs associated
with the defective parts originally supplied by Micro-
plastics.
No. 09-3764 11
Microplastics points out correctly that these general
allegations do not logically foreclose the theoretical
possibility that Valeo’s customer charged back costs
resulting from potentially covered damage to property
beyond the defective products. Is that theoretical pos-
sibility enough to trigger the duty to defend under a
CGL policy?
Microplastics argues that the answer is yes, relying
on the generous Illinois rule that, “If the facts alleged in
the underlying complaint fall within, or potentially
within, the policy’s coverage, the insurer’s duty to
defend arises.” Santa’s Best Craft, 611 F.3d at 346; Crum
and Forster, 620 N.E.2d at 1079. If these allegations by
Valeo of unspecified costs charged back by its customer
are enough to trigger the duty to defend, then we
would expect that CGL insurers would quickly find
themselves responsible for defending routine breach of
warranty disputes between commercial manufacturers
and their buyers.
Microplastics attempts to fill in details in the vague
allegations by hypothesizing situations which, if alleged
or true, would bring the costs charged back to Valeo
within the scope of “property damage” covered by the
CGL policies. For example, Microplastics speculates, the
costs might refer to damage to the personal property of
consumers who bought cars. Microplastics hypothesizes
that its defective parts might have caused trunk lids to
open spontaneously, causing the buyers’ property in
trunks to spill onto the roadways. Or perhaps the de-
fective parts allowed water to leak into the passenger
12 No. 09-3764
or trunk areas, causing damage to property stored in the
vehicles. Microplastics contends that because the lan-
guage of the counterclaim does not specifically foreclose
these hypothetical situations, the allegations “potentially”
implicate “property damage” under the CGL policies
and therefore trigger Amerisure’s duty to defend under
Illinois law. See Santa’s Best Craft, 611 F.3d at 346.
This interpretation goes too far. While an insurer’s duty
to defend in Illinois is broad, it is not without limits. The
duty to defend applies only to facts that are explicitly
alleged; “it is the actual complaint, not some hypothetical
version, that must be considered.” Del Monte Fresh Produce
N.A., Inc. v. Transportation Ins. Co., 500 F.3d 640, 643 (7th
Cir. 2007) (finding no duty to defend), quoting Connecticut
Indemnity Co. v. DER Travel Service, Inc., 328 F.3d 347,
350-51 (7th Cir. 2003) (finding no duty to defend be-
cause the policy excluded willful misconduct and the
underlying complaint alleged only willful misconduct;
the fact that federal law also permitted the underlying
plaintiff to recover for insured’s simple negligence was
irrelevant because the underlying complaint alleged
no facts to support a negligence claim) (quotation marks
omitted); see also Allianz Ins. Co. v. Guidant Corp., 900
N.E.2d 1218, 1237-38 (Ill. App. 2008) (rejecting insured’s
view that the underlying claim alleged bodily injury
because that interpretation relied on an application of
the policy provision to hypothetical situations, rather
than to the facts actually alleged; “hypothetical factual
situations are simply irrelevant”). When an insurer de-
termines whether it has a duty to defend, “Implied
claims that are not specifically alleged can be ignored.” Del
No. 09-3764 13
Monte, 500 F.3d at 644 (although insured’s reading of
the allegations “may be true in the abstract,” the specific
language of the allegations placed them within a policy
exclusion).
Applying these principles here, we conclude that the
Valeo counterclaim did not trigger Amerisure’s duty to
defend because it did not allege any facts that could
potentially fall within the scope of covered “property
damage.” The Valeo counterclaim made no specific
allegation of “property damage.” The pertinent portion
of the counterclaim simply alleged that the automobile
manufacturer OEM who purchased the door latch as-
semblies charged Valeo for its “costs associated with
the defects.” It did not allege, or even suggest, that these
costs have any relation to “property damage.” Further,
there is no support in the counterclaim or elsewhere in
the record for Microplastics’ theory that these costs are
related to damage to consumers’ personal property.
There is no mention of consumers in the record, and
while it is clear that the OEM installed defective door
latch assemblies in some of its vehicles, there is no evi-
dence or allegation that any of these vehicles were sold
to consumers before the door latches were repaired.
The record contains no allegation or evidence that the
defects caused doors or trunks to open spontaneously, or
even that the door latch assemblies were ever installed
in the trunks of any vehicles.
We find instructive the Illinois decision in Diamond
State Ins. Co. v. Chester-Jensen Co., Inc., 611 N.E.2d 1083
(Ill. App. 1993), in which the appellate court affirmed
14 No. 09-3764
summary judgment finding no duty to defend. In
Diamond State, the insured manufacturer sold part of an
air conditioning system for a state office building. The
system failed, resulting in sweltering conditions that
caused most of the building to be uninhabitable. The
state sued the manufacturer, seeking compensation
for the significant expense it incurred as a result of
the failure, including “modification and repairs to the
heating, ventilation and air conditioning [HVAC] systems”
and lost work days for state employees “who became
ill and had to go either to a hospital or home because of
the heat.” 611 N.E.2d at 1085-86. The manufacturer
sought coverage and defense from its insurer under a
commercial general liability policy comparable to those
at issue here. The manufacturer argued that the HVAC
system repairs claim implicated the policy’s “property
damage” provision, and that the claim of lost productivity
and work time due to employee illness implicated the
policy’s “bodily injury” provision. The court found that
the complaint’s allegations did not potentially fall
within either provision and thus did not trigger the in-
surer’s duty to defend. While the parties have devoted
considerable attention to the “bodily injury” analysis
in Diamond State, we believe that the court’s “property
damage” analysis provides decisive guidance on Illinois
law here.
The underlying complaint in Diamond State did not
specify the nature of the repairs to the HVAC system; that
is, the allegation at issue did not explain whether
these repairs were necessary simply because the manu-
facturer’s defective parts needed to be replaced, or be-
No. 09-3764 15
cause the defective parts caused damage to other por-
tions of the HVAC system not made by the manufacturer.
The court found that this allegation did not implicate
“property damage” even under the broad Illinois duty-to-
defend standard, because there was no express factual
allegation that the insured’s product caused damage to
the HVAC system:
We find no express allegations of physical injury to
property, rather only allegations that [insured]’s
thermal units failed to perform their anticipated
function. Nowhere in its complaint does the State
allege that its HVAC system, or any portion or compo-
nent thereof, was physically damaged, as opposed
to having become simply inoperative because of the
failure of the components to perform as warranted.
* * *
Although the allegations with respect to repair
could be consistent with physical injury to other
portions of the system aside from the [insured’s]
thermal banks themselves, they cannot by themselves
denote that any such physical damage took place . . . .
Diamond State, 611 N.E.2d at 1088-89. The court further
noted that the allegation was “fully consistent with losses
suffered through contract failure” and thus further sup-
ported a finding that it did not implicate the “property
damage” provision. 611 N.E.2d at 1089.
Like the policy in Diamond State, the Amerisure CGL
policies defined “property damage” as “Physical injury
to tangible property” or “Loss of use of tangible property
16 No. 09-3764
that is not physically injured.” And like the underlying
complaint in Diamond State, the Valeo counterclaim
did not expressly allege physical injury to or loss of use
of tangible property. The counterclaim alleged only that
Microplastics’ products were defective, and it sought
“costs associated with the defects.” These allegations
are comparable to the Diamond State allegations that
sought compensation for HVAC repair costs. As the
court explained in Diamond State: “Although the allega-
tions with respect to repair could be consistent with
physical injury to other portions [of the automobiles], they
cannot by themselves denote that any such physical
damage took place.” 611 N.E.2d at 1089. While we are
required to construe the underlying claim liberally and
to resolve doubts in favor of coverage for the insured,
State Farm Fire and Casualty Co. v. Perez, 899 N.E.2d at
1235, we are not permitted simply to speculate about
possible factual allegations that are absent from the
claim itself.
Like the allegations in Diamond State, the allegations at
issue here are “fully consistent with losses suffered
through contract failure.” See Diamond State, 611 N.E.2d
at 1089. Paragraphs 14 and 15 are the middle two of the
six paragraphs comprising the counterclaim section en-
titled “Defective Component Parts” (paragraphs 12-17).
Paragraph 12 summarized Microplastics’ obligations
under the purchase orders, and paragraph 13 alleged
that the component parts failed to conform to those
obligations. Paragraphs 16 and 17 simply explained that
the terms of the purchase orders entitled Valeo to set off
and recoup in the event of a Microplastics breach. Natu-
No. 09-3764 17
rally, if Valeo’s claims are true, then its customers would
have charged it for the cost of replacing or repairing the
faulty products. Nothing in paragraphs 14 and 15 ex-
panded the scope of the counterclaim beyond allega-
tions for breach of contract. Like the HVAC repair allega-
tion in Diamond State, these allegations are perfectly
consistent with simple replacement costs and consequen-
tial damages based on breach of contract, and no lan-
guage expressly stated, or even insinuated, that they
might pertain to physical injury to property. Ac-
cordingly, because paragraphs 14 and 15 contained “no
express allegations of physical injury to property” and
were “fully consistent with losses suffered through con-
tract failure”, they did not even potentially implicate
“property damage” under the CGL policies and thus did
not satisfy the Illinois duty-to-defend standard. See
Diamond State, 611 N.E.2d at 1088-89; see also Allianz
Ins. Co. v. Guidant Corp., 900 N.E.2d 1218, 1237-38 (Ill.
App. 2008) (affirming trial court’s finding that insurer
had no duty to defend: “The Policyholders’ failure to
consider the entire context [of the clause] result[ed] in
their flawed interpretation . . . . [T]he trial court’s inter-
pretation of the provision at issue is supported by the
provision’s plain and unambiguous language.”).3
3
We recognize that the outcome might be different if the
insured came forward with evidence, beyond the claimant’s
pleadings, showing that the duty to defend indeed applied.
We do not have that situation here. Amerisure’s April 13, 2007
letter invited Microplastics to provide evidence showing that
(continued...)
18 No. 09-3764
Microplastics contends that Diamond State is distin-
guishable because the underlying complaint in that case
alleged only economic damages. To support this conten-
tion, Microplastics points to the analysis of the bodily
injury issue in that case. The Diamond State court found
that the underlying complaint’s allegation of work-days
and productivity lost from illness and the effects of heat
did not implicate the “bodily injury” policy provision
because the allegation’s language explicitly described
economic losses related to work and wages. While the
illness and hospitalization caused some of this lost
work time, these “tangential factor[s]” did not bring
the allegations within “bodily injury” coverage because
the state was not seeking recovery for medical damages
on behalf of its employees. 611 N.E.2d at 1087-88.
Microplastics is correct that this portion of Diamond State
is distinct from the present case. The supposed “bodily
injury” allegation in that case specifically described the
economic nature of the damages sought and foreclosed
the possibility that the state was seeking recovery on
behalf of third persons for physical injury and medical
care. Unfortunately for Microplastics, that distinction
has no bearing on the fact that the supposed “property
damage” claims here and in Diamond State are so
similar, and Microplastics has not attempted to draw
such a distinction here.
3
(...continued)
Valeo’s allegations had some basis in third-party property
damage, despite all appearances to the contrary. Microplastics
did not accept the invitation.
No. 09-3764 19
Amerisure nevertheless contends that there is no
express factual allegation rule, because such a rule
would leave the insured “at the mercy of the drafting
whims of plaintiffs’ attorneys.” See Medmarc Casualty
Ins. Co. v. Avent America, Inc., 612 F.3d 607, 615 (7th Cir.
2010) (applying Illinois law); Abrams v. State Farm Fire &
Casualty Co., 714 N.E.2d 92, 97 (Ill. App. 1999). That is a
serious concern. Illinois courts have taken care to pro-
tect insureds from being denied the coverage and the
defense costs they have paid for merely because a plain-
tiff in an underlying case has drafted a complaint with-
out worrying about the defendant’s insurance coverage.
See Pekin Ins. Co. v. Hallmark Homes, L.L.C., 912 N.E.2d
250, 257 (Ill. App. 2009) (“plaintiffs draft their com-
plaints with their own ends in mind, not with the goal
of spelling out whether an insurance company has a
duty to defend any particular defendant”); International
Ins. Co. v. Rollprint Packaging Products, Inc., 728 N.E.2d 680,
688 (Ill. App. 2000) (“The question of coverage should
not hinge on the draftsmanship skills or whims of the
plaintiff in the underlying action.”).
In applying this principle, however, Illinois cases dis-
tinguish between allegations of fact and allegations of
legal theories. The insured’s coverage and right to a
defense depend not on the legal theories stated by the
claimant in the underlying dispute, but on the factual
allegations. “The factual allegations of the complaint,
rather than the legal theory under which the action is
brought, determine whether there is a duty to defend.”
Pekin Ins. Co. v. Dial, 823 N.E.2d 986, 990 (Ill. App.
2005). “[T]he suggestion . . . that the complaint must
20 No. 09-3764
explicitly identify the claim that is within the [policy]
coverage represents an unduly narrow reading” of
Illinois law, Pekin Ins. Co. v. Hallmark Homes, L.L.C., 912
N.E.2d at 257 (emphasis added), and “the court ‘should
not simply look to the particular legal theories pursued
by the claimant, but must focus on the allegedly tortious
conduct on which the lawsuit is based,’ ” Avent America,
612 F.3d at 613 (emphasis added), quoting Hurst-Rosche
Engineers, Inc. v. Commercial Union Ins. Co., 51 F.3d 1336,
1342 (7th Cir. 1995); see also Santa’s Best Craft, LLC v. St.
Paul Fire and Marine Ins. Co., 611 F.3d 339, 346 (7th Cir.
2010) (“Illinois law specifies that [w]e give little weight
to the legal label that characterizes the underlying al-
legations. Instead, we determine whether the alleged
conduct arguably falls within at least one of the cate-
gories of wrongdoing listed in the policy.”) (interior
quotation omitted); Health Care Industry Liability Ins.
Program v. Momence Meadows, 566 F.3d 689, 696 & n.9
(7th Cir. 2009) (“While an insurer certainly has a duty
to defend its insured against any complaint that leaves
open the possibility of coverage, that duty is premised
on the facts the parties to the underlying complaint
actually alleged in their complaint”; insurer had no duty
to defend under Illinois law because “the underlying
complaint [was] absolutely devoid of any factual allega-
tions suggesting such a claim”) (internal citations omit-
ted); International Ins. Co. v. Rollprint Packaging Products,
Inc., 728 N.E.2d at 688-89 (complaint that did not seek
recovery under a wrongful eviction theory nevertheless
triggered a duty to defend under the policy’s “wrongful
eviction” provision because the complaint provided a
No. 09-3764 21
detailed factual account that included the allegation that
the insured defendant “told [plaintiff] he was fired and
physically evicted [him] from his office and from the
building” in an attempt to establish discriminatory dis-
charge claims under federal statutes).
The factual allegations of Valeo’s counterclaim
did not trigger a duty to defend under the Amerisure
CGL policies. We need not reach the other issues
addressed by the parties. The judgment of the district
court is AFFIRMED.
9-20-10