Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 1:07-cv-03827-John A. Nordberg, Judge.
The opinion of the court was delivered by: Hamilton, Circuit Judge
Before CUDAHY, RIPPLE, and HAMILTON, Circuit Judges.
This case presents a recurring problem under Illinois insurance law governing an insurer's duty to defend under a commercial general liability policy. Suppose a buyer sues a manufacturer for supplying defective products, but the buyer does not specify the elements of its claims for damages in the complaint. A commercial general liability policy is in-tended to cover, among other risks, the insured's liability for accidental bodily injury and property damage caused by its defective products. The policy is not intended, however, to cover the costs of replacing or repairing the defective products themselves. The parties agree here that if the unhappy buyer alleges that the defective products have caused bodily injury or damage to property other than the defective products themselves, a commercial general liability policy will require the insurer to defend its insured. They also agree that if the unhappy buyer alleges only a claim for repair or replacement of the defective products, the policy will not require the insurer to defend what amounts to only a breach of contract claim against its insured.
The problem presented here is whether the insurer has a duty to defend the insured when the unhappy buyer makes only general allegations for costs incurred as a result of the defective products, without explicitly disavowing any claim for damage to property other than the defective products themselves. The unhappy buyer's claim in this case has all the earmarks of a pure breach of contract claim for costs of repair, replacement, or similar economic losses not covered by the insurance policy. There is no indication that the insured manufacturer's products caused damage to any property other than the defective products themselves. Although the insured manufacturer offers speculative hypotheses about scenarios that are not literally inconsistent with the unhappy buyer's allegations, those speculative hypotheses are not sufficient to trigger the insurer's duty to defend under the commercial general liability policies. We affirm the district court's decision to that effect.
I. The Dispute Between Microplastics and Valeo
The district court granted summary judgment for the insurer, plaintiff-appellee Amerisure Mutual Insurance Company. The relevant facts are undisputed, consisting primarily of the terms of the relevant insurance policies and the contents of various pleadings in the underlying lawsuit between the unhappy buyer and defendant-appellant Microplastics, Inc. Microplastics manufactures insert molding components, which are plastic pieces used to manufacture various mechanical devices. The unhappy buyer in this case was Valeo Security Systems. In 2004, Valeo began buying Microplastics components and used them to manufacture automobile door latch assemblies that it sold to automobile manufacturers (referred to in industry jargon as "original equipment manufacturers" or "OEMs"). The supply relationship between Microplastics and Valeo was governed by purchase orders that included quality specifications and prices.*fn1
The relationship soured quickly. By October 2004, one unidentified OEM began complaining to Valeo about problems with the door latch assemblies. It became clear to all involved that Microplastics was selling Valeo de- fective parts. Microplastics has forwarded some creative hypotheses for how these defects manifested themselves, but the only details with any factual support in the record are found in a February 2005 email from Valeo to Microplastics president Mike Roberts identifying the following defects:
The issue is that when we launched with production parts from Microplastics we had no idea your process was allowing some parts which:
1) The potting material did not fill the voids under the terminals.
2) The potting was not adequately cured to prevent water intrusion.
3) The potting material did not bond to the upper housing.
In addition the bus bar was not over-molded as it should have been, limiting protection, and elevating the effect of every issue above. Each of these is the direct result of your process which you must test and qualify to assure compliance, not Valeo.
R. 37, Ex. A ¶¶ 31, 32. An internal email from Roberts to Microplastics managers a few months earlier seemed to acknowledge both the problem and Microplastics' responsibility for it:
[W]e have to get rid of Valeo . . . . I am convinced that this piece of crap is a major recall in the making. It will take a while to make it go away but it NEEDS to go away . . . . I apologize for being greedy and wishful thinking that Valeo would turn out [okay]. Nothing comes from being greedy and stupid. I was both. Saw the train wreck coming two years ago but ...