In 2004, Microplastics began selling plastic molding components to Valeo Security Systems for use in manufacturing automobile door latch assemblies that Valeo sold to automobile manufacturers. Soon after, Valeo and its customers concluded that Microplastics was selling Valeo defective parts. Microplastics’ CGL policy with Amerisure covered any damages Microplastics may be held liable for as a result of “property damage” or “personal injury” caused by an “occurrence.” Amerisure declined coverage of Valeo’s claims against Microplastics because the allegations that Valeo set forth in its counterclaim did not specifically allege property damage or personal injury.
Microplastics filed suit for breach of contract against Valeo. Valeo filed several counterclaims. In response to Valeo’s counterclaims, Amerisure sued Microplastics seeking a declaratory judgment that Amerisure was not liable to Microplastics under the CGL policy. Microplastics appealed the district court’s grant of summary judgment.
This opinion analyzed whether or not the theoretical possibility of property damage extracted by Microplastics from a vague allegation made in Valeo’s counterclaim was sufficient to trigger Amerisure’s duty to defend under the CGL policy. First, the court found that Microplastics’ creative hypotheses of ways that Valeo’s customers may have incurred property damage surpassed the plausible limits of an insurer’s broad duty to defend in Illinois. Because Valeo’s claim did not allege explicit facts to indicate property damage, it did not fall under Microplastics’ CGL policy. For example, Microplastics could not extrapolate a theory of property damage from the claim that Valeo’s customers charged it for “costs associated with the defects.” The court also held that its obligation to construe underlying claims liberally in favor of coverage for the insured does not allow it to blatantly speculate about factual allegations not present in the claim itself. Further, Valeo’s claims presented classic breach of contract allegations, citing losses attributed to Microplastics’ failure to comply with the agreed upon quality specifications. Finally, the court explained that to apply the explicit factual allegation rule, courts determine an insured’s coverage and right to a defense based on the factual allegations made, not a plaintiff’s allegations of legal theories.