## Facts

- School districts and public building owners sued numerous asbestos-related defendants, including an insulation contractor alleged to have installed asbestos-containing products, seeking reimbursement for asbestos abatement costs.
- The underlying complaints alleged that installed asbestos materials released toxic fibers, contaminating building air and structures, damaging contents, and requiring removal, encapsulation, or other abatement.
- The contractor held successive comprehensive general liability (CGL) policies issued between 1964 and 1985 providing defense and indemnity for suits seeking damages because of “property damage” caused by an “occurrence,” subject to exclusions.
- One insurer denied coverage and refused to defend; other insurers provided a defense under reservations of rights.
- The insurers filed and intervened in a declaratory judgment action seeking rulings that they had no duty to defend or indemnify.
- The trial court ruled for the insurers; the appellate court reversed, finding the allegations potentially within coverage and triggering the duty to defend.

## Issues

1. Whether allegations of asbestos fiber release and building contamination constitute “property damage” as “physical injury to tangible property” (including loss of use) under CGL policies.
2. Whether the alleged damage resulted from an “occurrence,” where the insured intentionally installed asbestos-containing materials but did not expect or intend the resulting contamination.
3. Whether policy exclusions (including expected-or-intended injury, owned property, sistership/product-recall, “your product/your work,” and pollution exclusions) clearly precluded coverage such that no duty to defend arose.

## Decision

- The court affirmed the appellate court and held the insurers owed a duty to defend the insured in the underlying asbestos-abatement suits.
- The complaints alleged “property damage” because asbestos fibers allegedly contaminated buildings and contents, amounting to physical injury to tangible property and related loss of use, not merely economic loss.
- The complaints alleged an “occurrence” because the claimed damage arose from continuous or repeated exposure to asbestos fibers over time and was not alleged to be expected or intended from the insured’s standpoint.
- The asserted exclusions did not unambiguously eliminate the potential for coverage on the face of the complaints at the duty-to-defend stage.
- Questions of allocation across policy periods and ultimate indemnity were treated as distinct from the threshold duty to defend.

## Legal Principles

- An insurer must defend if the underlying complaint alleges facts within or potentially within policy coverage, even if the allegations may be groundless, false, or fraudulent.
- Asbestos fiber contamination that adheres to surfaces, becomes embedded in building structures, and impairs use constitutes “physical injury to tangible property” and therefore “property damage” under standard CGL definitions.
- For “occurrence” analysis, the focus is on whether the resulting injury or damage was expected or intended, not merely whether the insured’s underlying conduct (e.g., installation) was intentional.
- Exclusions are construed narrowly at the duty-to-defend stage; unless an exclusion clearly applies to all alleged bases of recovery, the duty to defend remains.
- Allegations of ongoing contamination can potentially implicate damage during multiple policy periods, supporting a defense obligation for insurers on the risk during those periods.

## Conclusion

The court held that allegations of indoor asbestos fiber release and resulting contamination describe covered “property damage” caused by an “occurrence” under CGL policies, and that the pleaded facts did not trigger exclusions clearly enough to defeat the insurers’ duty to defend.


United States Fidelity & Guaranty Co. v. Wilkin Insulation Co., 144 Ill. 2d 64, 578 N.E.2d 926 (Ill. 1991)