The opinion of the court was delivered by: Reagan, District Judge
A. Introduction & Procedural Background
In February 2005, seven homeowners -- Joseph Findley, Heather Findley, Timothy Hoestermann, Debra Hoestermann, Norma Hoestermann, Mark Ratliff and Vivian Ratliff -- sued real estate developer Taylor-Morley, Inc. ("TMI") in the Circuit Court of St. Clair County alleging that TMI breached contractual obligations and made false representations about "Olde Lantern Estates," a real estate development in Belleville, Illinois (St. Clair County Case No. 05-L-1025). According to the homeowners, TMI promised that the homes would be constructed around a "championship golf course" but failed to construct a golf course, quit actively selling lots in the development, and made other changes adversely affecting the value of the Olde Lantern properties.
In January 2006, TMI removed that suit to this Court (Case No. 06-cv-0078-MJR). After threshold review, the undersigned Judge found the removal untimely and remanded the action to St. Clair County Circuit Court, where it remains pending.
In December 2006, Cincinnati Insurance Company -- who issued four insurance policies to TMI -- filed the above-captioned action here, seeking a declaration that Cincinnati has no duty to defend or indemnify TMI in the Illinois state court breach of contract action filed by the homeowners.*fn1 Cincinnati asserts that the applicable policies provide no coverage because the state court complaint does not plead an "occurrence" (Count I), the state court complaint alleges no "bodily injury" (Count II), the state court complaint alleges no "property damage" (Count III), the state court complaint alleges no "personal injury" or "advertising injury" (Count IV), and multiple exclusions bar coverage of the state court lawsuit (Count V). Subject matter jurisdiction lies under the federal diversity statute, 28 U.S.C. § 1332.*fn2
Now before the Court is Cincinnati's December 14, 2007 motion for summary judgment, which has been extensively briefed by the parties (Docs. 39, 40, 50, 58 and 59). Analysis begins with the legal standards governing summary judgment.
B. Standard Governing Summary Judgment in Federal Court
Summary judgment is appropriate where there are no genuine issues of material fact, and the moving party is entitled to judgment as a matter of law.
Breneisen v. Motorola, Inc., 512 F.3d 972 (7th Cir. 2008), citing Fed. R. Civ. P. 56(c), Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986), and Krieg v. Seybold, 481 F.3d 512, 516 (7th Cir. 2007).
In ruling on a summary judgment motion, this Court must construe the evidence and all inferences reasonably drawn from the evidence in the light most favorable to the non-moving party. TAS Distributing Co., Inc. v. Cummins Engine Co., Inc., 491 F.3d 625, 630 (7th Cir. 2007); Reynolds v. Jamison, 488 F.3d 756, 764 (7th Cir. 2007). Thus, in the case sub judice, the undersigned Judge construes all facts and makes all reasonable inferences in favor of Defendants (TMI and the homeowners), the nonmovants.
C. Conflicts of Law Analysis
Urging this Court to declare that Cincinnati owes no duty to defend or indemnify TMI in the Illinois state court suit, Cincinnati maintains that the allegations of the underlying state court complaint do not fall within coverage under the policies in question -- commercial general liability and umbrella policies issued to TMI which cover the period of June 2000 to June 2004. Before discussing the duties to defend and indemnify, the Court must resolve one preliminary issue -- which state's substantive law to apply in this diversity action.
The parties agree this issue must be resolved using Illinois choice of law principles. Defendants argue those principles mandate application of Missouri law. Plaintiff maintains that Illinois law controls. Plaintiff has the better argument here.
In a suit "where the federal court's subject matter jurisdiction is based on diversity ... the forum state's choice of law rules determine the applicable substantive law." Sound of Music Co. v. Minnesota Min. & Mfg. Co., 477 F.3d 910, 915 (7th Cir. 2007), citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941), and Thomas v. Guardsmark, Inc., 381 F.3d 701, 704-05 (7th Cir. 2004). Accord Jupiter Aluminum Corp. v. Home Ins. Co., 225 F.3d 868, 873-74 (7th Cir. 2000).
Illinois is the forum state here. Illinois has adopted the "most significant contacts" test of the Restatement (Second) of Conflicts § 188 (1971) to decide choice of law disputes arising from contracts. Hinc v. Lime-O-Sol Co., 382 F.3d 716, 719 (7th Cir. 2004).
Under this test (assuming the parties have not made an effective choice of law in their contract itself), relevant contacts include "the place of contracting, negotiation, performance, location of the subject matter of the contract, and the domicile, residence, place of incorporation, and business of the parties." Id., citing Wildey v. Springs, 47 F.3d 1475, 1483 (7th Cir. 1995).
These factors must be "evaluated according to their relative importance with respect to the particular issue." RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 188, at 575 (1971). In the specific context of insurance contracts, the single most important factor is the principal location of the insured risk during the policy term. Eclipse Mfg. Co. v. U.S. Compliance Co., -- N.E.2d --, 2007 WL 4259439, *7 (Ill. App. Nov. 30, 2007), citing RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 193 at 610. Accord West Suburban Bank of Darien v. Badger Mut. Ins. Co., 141 F.3d 720, 724 (7th Cir. 1998), citing Lapham-Hickey Steel Corp. v. Protection Mut. Ins. Co., 655 N.E.2d 842, 845 (Ill. 1995).
So, although the place of delivery of the contract, the domicile of the insured and insurer, and the place of performance all merit consideration, "the location of the insured risk is given special emphasis." Jupiter, 225 F.3d at 874, citing Society of Mount Carmel v. Nat'l Ben Franklin Ins. Co. of Illinois, 643 N.E.2d 1280, 1287 (Ill. App. 1984). See also Westchester Fire Ins. Co. v. G. Heileman Brewing Co., Inc., 747 N.E.2d 955, 962-63 (Ill. App. 2001), appeal denied, 755 N.E.2d 484 (Ill. 2001).
In the case at bar, the insurance policies were issued and TMI is domiciled in Missouri (see Kennedy and Krafve Affidavits, Docs. 58-2 at p. 1 & 58-4 at p. 14), but the location of the insured risk (as to all seven properties) is Illinois. The underlying lawsuit was filed by Illinois citizens in Illinois court. Illinois is the state in which Cincinnati has been called to perform under the contract. Each of the homes insured by the policies is located in Illinois. Whether Cincinnati owes a duty to defend or indemnify TMI in the Illinois suit brought by the Illinois homeowners under the policies insuring the Illinois properties, therefore, should be decided under Illinois law.
D. Analysis of Duties to Defend & Indemnify
Under Illinois law, the interpretation of an insurance contract is a question of law which may be resolved summarily. See Illinois School Dist. Agency v. Pacific Ins. Co., Ltd., 471 F.3d 714, 719 (7th Cir. 2006). See also Keystone Consol. Industries, Inc. v. Employers Ins. Co. of Wausau, 456 F.3d 758, 762 (7th Cir. 2006); Transamerica Ins. Co. v. South, 125 F.3d 392, 398 (7th Cir. 1997); Employers Ins. of Wausau v. Bodi-Wachs Aviation Ins. Agency, Inc., 39 F.3d 138, 141 (7th Cir. 1994); Crum & Forster ManagersCorp. v. Resolution Trust Corp., 620 N.E.2d 1073, 1077 (Ill. 1993).
If the words of an insurance policy are unambiguous, the court must give them their plain, ordinary and popular meaning; but if the words are susceptible to more than one reasonable interpretation, they "are ambiguous and will be construed in favor of the insured and against the insurer that drafted the policy." Illinois School Dist., 471 F.3d at 719, citing Maremont Corp. v. Continental Cas. Co., 760 N.E.2d 550, 554 (Ill. 2001). The Court now turns to whether the insurance policies in question obligate Cincinnati to defend and/or indemnify TMI in the underlying state court action.
As a general rule, the duty to defend is broader than the duty to indemnify. In Keystone Consol. Industries, 456 F.3d at 762, the United States Court of Appeals for the Seventh Circuit explained that under Illinois law: "The duty to defend is generally broader because it arises in cases of arguable or potential coverage. That is, an insured need only put the insurer on notice of the claim in order to trigger the insurer's duty to defend."
By contrast, the duty to indemnify "arises only in circumstances of actual coverage; if the insurance policy does not cover what is alleged in the claim, the insurer will not have a duty to indemnify based on that claim." Id. See also Westchester Fire, 747 N.E.2d at 964, citing Conway v. Country Casualty Ins. Co., 442 N.E.2d 245 (Ill. 1982)("An insurer's duty to defend is much broader than its duty to indemnify.").
Whether an insurer owes a duty to defend its insured is determined by comparing the allegations of the underlying complaint to the relevant provisions of the insurance policies. Lapham-Hickey Steel, 655 N.E.2d at 847. AccordU.S. Fidelity & Guaranty Co. v. Wilkin Insulation Co.,578 N.E.2d 926, 930 (Ill. 1991); Westchester Fire, 747 N.E.2d at 964. If the complaint "alleges facts within the coverage of the policy or potentially within the coverage of ...