In the
United States Court of Appeals
For the Seventh Circuit
No. 11-3730
L AGESTEE-M ULDER, INCORPORATED ,
Plaintiff-Appellant,
v.
C ONSOLIDATED INSURANCE C OMPANY,
Defendant-Appellee.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 09 C 07793—Gary S. Feinerman, Judge.
A RGUED A PRIL 19, 2012—D ECIDED JUNE 26, 2012
Before E ASTERBROOK, Chief Judge, and F LAUM and
W OOD , Circuit Judges.
F LAUM, Circuit Judge. This case presents a question
under Illinois insurance law governing an insurer’s duty
to defend under a commercial general liability policy.
Appellant argues that Consolidated Insurance Company
breached its duty to defend by rejecting appellant’s
tender of defense regarding a state court action brought
2 No. 11-3730
in Illinois. The underlying suit eventually settled, and
appellant now seeks indemnification. The district court
found that Consolidated Insurance Company had no
duty to defend because the underlying complaint failed
to allege damage to any covered property. We affirm.
I. Background
The facts of this case are not contested. Lagestee-
Mulder, Incorporated (“LMI”) was hired by Crown
Centre LLC (“Crown”) to construct a multi-story office
building (the “Project”) in Frankfort, Illinois. LMI then
subcontracted the supply and installation of the Project’s
windows and doors to Frontrunner Glass & Metal, Inc.
(“Frontrunner”). Pursuant to the subcontract, Front-
runner was required to purchase and maintain in-
surance that named LMI as an additional insured.
Frontrunner complied with this obligation and pur-
chased an occurrence-based commercial general liability
policy (the “Policy”) from Consolidated Insurance Com-
pany (“Consolidated”). The Policy required Consolidated
to cover sums that its insureds (Frontrunner as the
primary policy holder, and LMI as an additional insured)
became legally obligated to pay because of property
damage, caused by an occurrence, taking place within
the coverage territory, during the policy period. The
Policy also required Consolidated to defend any suit
seeking damages for covered property.
During the later stages of construction, Crown experi-
enced water infiltration at numerous locations, as well as
other construction defects, prompting Crown to file suit
No. 11-3730 3
in Illinois state court. LMI tendered the defense of its
claim to Consolidated on March 6, 2009, but Consoli-
dated made no coverage decision during the subsequent
six months. Though LMI had not obtained a coverage
decision, it began settlement discussions with Crown,
and in October, 2009, the lawsuit settled. Although Con-
solidated was informed of all settlement talks, it par-
ticipated in none. In a letter dated October 14, 2009,
Consolidated denied coverage for Crown’s claim
against LMI and rejected LMI’s tender of defense.
Following Consolidated’s coverage denial, LMI
brought the instant lawsuit alleging that Consolidated
breached its duties under the Policy. The parties filed
cross motions for summary judgment as to Consoli-
dated’s duty to defend, and the district court found
in Consolidated’s favor. This appeal followed.
II. Discussion
We review the entry of summary judgment de novo,
construing all facts and drawing all inferences in the
light most favorable to the non-moving party. Abstract
& Title Guar. Co., Inc. v. Chicago Ins. Co., 489 F.3d 808,
810 (7th Cir. 2007). “Summary judgment is appropriate
where the evidence before the court indicates that
there are no genuine issues of material fact and the
moving party is entitled to judgment as a matter of law.”
Id. The parties agree that Illinois law governs.
The question before us is whether Crown’s state court
complaint triggered Consolidated’s duty to defend LMI
4 No. 11-3730
under the Policy. Specifically, we must determine
whether the complaint alleged “property damage”
covered by the Policy. The Policy is a standard occurrence-
based commercial general liability (“CGL”) policy
which provides coverage for “property damage” caused
by an “occurrence” during the “policy period.” In addi-
tion to providing coverage, it also requires Consolidated
to defend any suit seeking damages for covered prop-
erty. To determine whether an insurer’s duty to defend has
been triggered, a court must compare the allegations
in the underlying complaint with the language of the
insurance policy. Gen. Agents Ins. Co. of Am., Inc. v. Midwest
Sporting Goods Co., 828 N.E.2d 1092, 1098 (Ill. 2005). The
factual allegations of the complaint determine whether
there is a duty to defend. Amerisure Ins. Co. v. Microplastics,
Inc., 622 F.3d 806, 815 (7th Cir. 2010). “If the underlying
complaint alleges facts within or potentially within
policy coverage, an insurer is obligated to defend its
insured even if the allegations are groundless, false or
fraudulent.” Gen. Agents Ins., 828 N.E.2d at 1098. When
“it is clear from the face of the underlying complaint
that the allegations set forth . . . fail to state facts to bring
a case within, or potentially within, the coverage of the
policy” there is no duty to defend and no coverage. Id.
However, “[a]n insurer may not justifiably refuse to
defend an action against its insured unless it is clear
from the face of the underlying complaint[ ] that the
allegations fail to state facts which bring the case within,
or potentially within, the policy’s coverage.” United
States Fid. & Guar. Co. v. Wilkin Insulation Co., 578 N.E.2d
926, 930 (1991) (emphasis in original). Because an
No. 11-3730 5
insurance company must defend its insured in actions
that are even potentially within coverage, its duty
to defend is broader than its duty to indemnify. CMK
Development Corp. v. West Bend Mut. Ins. Co., 917 N.E.2d
1155, 1163 (Ill. App. Ct. 2009).
The rules governing application of CGL policy provi-
sions are settled. Where the underlying suit alleges
damage to the construction project itself because of a
construction defect, there is no coverage. By contrast,
where the complaint alleges that a construction defect
damaged something other than the project, coverage
exists. Lyerla v. AMCO Ins. Co., 536 F.3d 684, 688 (7th Cir.
2008). In other words, to find coverage, “there must be
damage to something other than the structure, i.e., the
building. . . .” CMK Development Corp., 917 N.E.2d at 1164
(citing Viking Construction Mgmt. Inc. v. Liberty Mut. Ins.
Co., 831 N.E.2d 1, 16 (Ill. App. Ct. 2005)); Pekin Ins. Co. v.
Richard Marker Associates, Inc., N.E.2d 362, 365 (Ill. App. Ct.
1997) (there must be “damage to other materials not
furnished by the insured”). As articulated by the Illinois
Supreme Court:
Comprehensive general liability policies . . . are in-
tended to protect the insured from liability for
injury or damage to the persons or property of
others; they are not intended to pay the costs associ-
ated with repairing or replacing the insured’s
defective work and products, which are purely eco-
nomic losses. [Citations.] Finding coverage for the
cost of replacing or repairing defective work would
transform the policy into something akin to a perfor-
mance bond.
6 No. 11-3730
Travelers Insurance Co. v. Eljer Mfg., Inc., 757 N.E.2d 481
(Ill. 2001) (quoting Qualls v. Country Mut. Ins. Co., 462
N.E.2d 1288, 1291 (Ill. App. Ct. 1984)). Elaborating on
this purpose, the Illinois Appellate Court has explained:
[If] insurance proceeds could be used for damages
from defective workmanship, a contractor could be
initially paid by the customer for its work and then
by the insurance company to repair or replace the
work. [Citation.] Treating a CGL policy like a per-
formance bond would be unjust to the CGL
insurer, which, in contrast to the surety on a perfor-
mance bond, cannot bring suit against the contractor
for the defective construction.
CMK Development, 917 N.E.2d at 1167 (citing Stoneridge
Development Co., Inc. v. Essex Ins. Co., 888 N.E.2d 633,
653 (Ill. App. Ct. 2008)). Accordingly, Consolidated’s duty
to defend under the Policy was only triggered if the
underlying complaint alleged covered damages—damage
to something other than the structure itself.
We begin our analysis mindful that “[t]he underlying
complaint[ ] and the insurance polic[y] must be liberally
construed in favor of the insured.” United States Fid. &
Guar. Co., 578 N.E.2d at 930. Crown’s state court
complaint brought four claims against LMI: (1) breach of
construction contract by failing to, inter alia, properly
perform, build, supervise, and construct; (2) breach of
contractor’s warranty for materials, equipment and
construction services by failing to, inter alia, furnish labor
and materials in good quality; (3) breach of contractor’s
call back warranty resulting in water infiltration by
No. 11-3730 7
failing to, inter alia, furnish labor and products free
of defects; and (4) breach of contractor’s call back
warranty after completion by failing to correct defective
work. Examples of alleged breaches include failure to
properly construct and assemble the building, including
windows and doors, and failure to furnish labor and
materials of good quality. These breaches related to
specific areas of the Project such as the cavity wall,
the brick masonry veneer, and exterior wall cladding. In
essence, the complaint alleged various deficiencies in
the materials LMI used during construction, short-
comings in LMI’s workmanship, and defects in the build-
ing as constructed. Each count alleged that “as a result
of LM[I]’s breaches . . . Crown has been damaged in
an amount in excess of $50,000.00.” The underlying
complaint does not clarify what explicit damages
Crown sustained, nor does it specify whether anything
other than the building itself was damaged. Accordingly,
LMI argues that the complaint’s vague use of the term
“damages” must be construed broadly enough to include
all types of property loss, including covered loss to prop-
erty other than the structure itself, thereby bringing
the complaint within the purview of the Policy and trig-
gering Consolidated’s duty to defend.
In support of this position, LMI notes that courts
have found a duty to defend when a complaint pleads
facts which alternately could give rise to, or exclude
coverage. For example, in Chandler v. Doherty, the
plaintiff alleged she was injured by the defendant in a
car accident. 207 N.E.2d 634, 636 (Ill. App. Ct. 1998).
The defendant owned two cars, only one of which was
8 No. 11-3730
insured, but the complaint did not specify which car
the defendant-insured was driving at the time of the
accident. Id. Because the complaint did not exclude the
possibility that the defendant was driving the insured
car at the time of the accident, there was potential for
coverage, which was sufficient to trigger the duty to
defend. Id. at 638. Sims v. Nat’l. Cas. Co., 193 N.E.2d 123
(Ill. App. Ct. 1963), presents similar facts. There, the
plaintiff was a passenger in the defendant’s truck and was
injured when the truck struck another vehicle. Id. at 124.
The plaintiff’s failure to plead that he was an employee
within the course of his employment at the time of
the accident did not preclude coverage because it was
equally as likely that the plaintiff was acting as an em-
ployee, excluding coverage, as not. Id. at 127.
LMI analogizes these cases to the facts at hand, but
there is an important distinction. In Chandler and Sims,
the underlying complaints pled specific facts that,
when construed in favor of the insured, could trig-
ger coverage. Here, no such facts exist. The underlying
complaint describes LMI’s alleged breaches in detail,
specifying deficiencies in materials, workmanship, and
in the building’s construction. But nowhere does the
complaint allege damage to anything other than the
building. Instead, it exclusively alleges damage to the
structure itself, which is insufficient to trigger Consoli-
dated’s duty to defend. Though it is true that the com-
plaint claims water infiltration, it identifies no under-
lying damage caused by the water. In other words, the
water infiltration described in the complaint is not pre-
sented as the cause of unspecified property damage,
but instead, the result of faulty construction.
No. 11-3730 9
Our recent analysis in Amerisure Ins. Co. v. Microplastics,
Inc. is instructive, affirming that the mere possibility
that covered damage occurred does not trigger a duty to
defend under Illinois law. 622 F.3d 806 (7th Cir. 2010).
There, a buyer of plastic molding components counter-
sued the manufacturer alleging breaches of quality and
engineering specifications. The underlying counterclaim
asserted that “[Manufacturer] is liable to [buyer] for
the costs charged to [buyer] associated with the defects”
but did not specify the nature of the defects. Id. at 811.
Similar to this case, the manufacturer argued that use
of the word “defects” was sufficient to show damage to
property potentially within the CGL policy’s property
damage provision, and therefore trigger the duty to
defend. This court disagreed, reiterating that under
“Illinois law, an insurer has no duty to defend unless
the underlying claim contains explicit factual allega-
tions that potentially fall within policy coverage.” Id.
at 810. The counterclaim contained no such factual al-
legations, and because the allegations were fully con-
sistent with a simple breach of warranty claim, there was
no duty to defend. Id. Microplastics recognized that
CGL policies are “intended to protect the insured from
liability for injury or damage to the persons or property
of others; they are not intended to pay the costs
associated with repairing or replacing the insured’s
defective work and products, which are purely economic
losses.” Id. at 811 (citing West Bend Mutual Ins. Co. v.
People of Illinois, 929 N.E.2d 606, 614-15 (Ill. App. Ct. 2010)
(citation omitted)). Moreover, this court recognized that
while the general allegations of the complaint did not
10 No. 11-3730
“logically foreclose the theoretical possibility” that the
complaint alleged damage to property beyond the de-
fective products, the insurer’s duty to defend while
broad, is not without limits. Id. at 812. “Implied claims
that are not specifically alleged can be ignored.” Id. (citing
Del Monte Fresh Produce N.A., Inc. v. Transportation Ins.
Co., 500 F.3d 640, 644 (7th Cir. 2007)).
As Microplastics confirmed, it is the actual complaint,
and not a hypothetical version that must be considered
when determining whether an insurer’s duty to defend
was triggered. 622 F.3d at 812. Though LMI asks us to
infer claims for property damage, we are not obliged to
recognize claims that are merely implied. Del Monte
Fresh Produce N.A., Inc., 500 F.3d at 644 (“[I]t is the actual
complaint, not some hypothetical version, that must be
considered.” (citing Connecticut Indemnity Co. v. DER
Travel Service, Inc., 328 F.3d 347, 350-51 (7th Cir. 2003))).
Illinois law requires that the “underlying complaint
allege[] facts within or potentially within policy cover-
age. . . .” Gen. Agents Ins., 828 N.E.2d at 1098. Acknowl-
edging that we must construe the complaint liberally
in favor of the insured, “a theory cannot be ‘supported
by the complaint’ if the complaint does not allege facts
to support the elements of that theory. . . . [W]e will not
read into the complaint facts that are not there.” Pekin Ins.
Co. v. Roszak/ADC, LLC, 231 N.E.2d 799, 806 (Ill. App. Ct.
2010). “[W]e are not permitted simply to speculate about
possible factual scenarios that are absent from the
claim itself.” Microplastics, Inc., 622 F.3d at 814. Here, the
factual allegations of the complaint cannot support
LMI’s assertion that Crown alleged anything other than
No. 11-3730 11
defective construction because the complaint is devoid
of any facts that would support this construction.
Because the complaint only alleged damage to the struc-
ture itself, Consolidated’s duty to defend was not trig-
gered.
III. Conclusion
For the foregoing reasons, we A FFIRM the district
court’s grant of summary judgment in favor of Consoli-
dated.
6-26-12