Lagestee-Mulder, Inc. v. Consolidated Insurance, 2012 U.S. App. LEXIS 13004

LMI contracted Crown Centre to build a multi-story office project in Illinois; LMI subcontracted window/door work to Frontrunner, which procured an occurrence-based CGL policy from Consolidated naming LMI as additional insured.
Policy covered property damage caused by an occurrence during the policy period and required Consolidated to defend suits seeking damages for covered property.
Crown sued in state court alleging construction defects and water infiltration; LMI tendered defense to Consolidated on March 6, 2009, but Consolidated delayed coverage decision for six months.
Consolidated denied coverage on October 14, 2009, rejecting LMI’s tender of defense after settlement talks proceeded without Consolidated participating.
The district court held Consolidated had no duty to defend because the underlying complaint alleged damage to the building itself, not to other property, and LMI appealed.
The Seventh Circuit affirmed, applying Illinois law, that coverage requires damage to property other than the structure and that mere potential for coverage is insufficient to trigger a defense duty.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Did the underlying complaint trigger the duty to defend?	LMI: complaints’ vague damages include covered losses; broad reading triggers defense.	Consolidated: only damages to property other than the structure count; no non-structural damage alleged.	No, not triggered; only building damage alleged.
Does water infiltration constitute covered damage under the policy?	LMI: water intrusion implies potential damages to other property.	Infiltration shown as result of defective work; not alleged as damage to other property.	No coverage; damages limited to the structure.
May implied claims or hypothetical scenarios sustain a defense duty?	Microplastics-based reasoning could expand to include implied damages.	Only explicit facts within the complaint may trigger coverage.	No, actual complaint must allege facts within or potentially within coverage.

Gen. Agents Ins. Co. of Am., Inc. v. Midwest Sporting Goods Co., 828 N.E.2d 1092 (Ill. 2005) (underlying facts determine duty to defend; broader duty than indemnity; liberally construed for insured)
Amerisure Ins. Co. v. Microplastics, Inc., 622 F.3d 806 (7th Cir. 2010) (mere possibility of covered damage does not trigger defense duty; must be explicit factual allegations within complaint)
United States Fid. & Guar. Co. v. Wilkin Insulation Co., 578 N.E.2d 926 (Ill. 1991) (insurer must defend if allegations potentially fall within policy coverage)
CMK Development Corp. v. West Bend Mut. Ins. Co., 917 N.E.2d 1155 (Ill. App. Ct. 2009) (defense duty broader than indemnity; repair costs for defective work not necessarily covered)
Pekin Ins. Co. v. Roszak/ADC, LLC, 231 N.E.2d 799 (Ill. App. Ct. 2010) (underlying facts must support theories within policy coverage; no speculative claims)