Lagestee-Mulder, Inc. v. Consolidated Insurance , 682 F.3d 1054 ( 2012 )


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  •                              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