AMERISURE MUTUAL INSURANCE v. MICROPLASTICS, INC. (September 20, 2010)

Microplastics manufacturers small plastic components. In 2004, it sold components to Valeo for use in manufacturing automobile door latch assemblies. Before the end of that year, it was apparent that the components were defective. Attempts to resolve the problem were unsuccessful. Valeo terminated the contract and applied money still owing to offset its damages. Microplastics filed suit for breach of contract -- Valeo asserted a counterclaim alleging that Microplastics failed to meet its engineering and quality specifications. Microplastics notified Amerisure, its insurer under a series of CGL policies. The policies provided coverage for "property damage," defined as physical injury to or loss of use of tangible property. Amerisure denied coverage and filed an action for a declaration that it had no duty to defend or indemnify. Microplastics and Valeo settled the underlying dispute. Judge Nordberg (N.D. Ill.) granted summary judgment for Amerisure. Microplastics appeals.

In their opinion, Judges Cudahy, Ripple, and Hamilton affirmed. Under Illinois law, a court compares the allegations of the complaint to the policy language. If those allegations potentially fall within the policy language, the insurer has a duty to defend. Here, the policy covers "property damage" -- but property damage coverage applies to liability for damage to the property of others, not to the cost of repairing the insured's own property. The Court noted that it was unclear from Valeo's counterclaim whether it was asserting such loss. The Court conceded that it was theoretically possible that some of Valeo's losses resulted from damage to property other than the defective product. Theoretical losses, however, are not enough. The duty to defend is triggered only by actual allegations in the complaint, not implied ones. There is nothing in the complaint or the record suggesting any "property damage."