Title: Travelers Insurance Co. v. Eljer Manufacturing, Inc.

State: illinois

Issuer: Illinois Supreme Court

Document:

Docket Nos. 88407, 88410 cons.-Agenda 17-May 2001.
TRAVELER'S INSURANCE COMPANY et al. (Gibralter 
Casualty Company, Appellee and Cross-Appellant) v. ELJER 
MANUFACTURING, INC., et al., Appellant and Cross-Appellee.
Opinion filed September 20, 2001.
	JUSTICE McMORROW delivered the opinion of the court:
	We are asked in this consolidated appeal to determine when
indemnity coverage for "property damage" under excess
comprehensive general liability insurance policies, issued between
1979 and 1990 by various insurance companies(1) (the insurers) to
Eljer Manufacturing, Inc., Eljer Industries, Inc., United States
Brass Corporation and Household International, Inc. (the
policyholders), is triggered. The insurers filed four declaratory
judgment actions in the circuit court of Cook County, seeking a
declaration with respect to the insurers' obligations to indemnify
the policyholders in thousands of underlying product liability
claims filed by individuals alleging property damage arising out of
the failure of the "Qest Qick/Sert II" (Qest) residential plumbing
system. The Qest system was manufactured and sold by the
policyholders, and was installed in buildings throughout the
country during the policy periods. The circuit court of Cook
County consolidated the insurers' declaratory judgment actions,
and the parties thereafter filed cross-motions for partial summary
judgment on the trigger-of-coverage issue. The circuit court
granted summary judgment in favor of the insurers, and denied the
cross-motion for summary judgment brought by the policyholders.
The circuit court ruled, as a matter of law, that the insurers' duty
to indemnify the policyholders for underlying "property damage"
claims is triggered only when an actual leak in a Qest plumbing
system occurs during the policy period. The circuit court explicitly
rejected the argument advanced by the policyholders that "property
damage" covered under the insurers' policies occurred during the
policy period in which the Qest plumbing system was installed
into a residence.
	The appellate court reversed the circuit court's grant of
summary judgment as to those insurance policies governed by
New York law and issued prior to 1982, holding that the policy
language did not require a leak to trigger coverage. With respect
to those policies governed by Illinois law and issued after 1981,
the appellate court determined that the circuit court correctly
denied the policyholders' motion for summary judgment.
However, the appellate court also found that the circuit court erred
in granting summary judgment to the insurers with respect to the
post-1981 policies. The appellate court concluded that the circuit
court incorrectly held that "property damage" occurs, and coverage
is therefore triggered, only at the time that a Qest system develops
a leak. 307 Ill. App. 3d 872. We granted the policyholders'
petitions for leave to appeal (177 Ill. 2d R. 315(a)), and
consolidated these cases. For the reasons that follow, we affirm in
part, reverse in part, and remand this cause to the circuit court for
further proceedings.

BACKGROUND
	Certain relevant facts giving rise to these consolidated actions
are not in dispute. Between 1979 and 1990, United States Brass
Corporation (U.S. Brass) manufactured and sold the components
comprising a polybutylene plumbing system known as "Qest
Qick/Sert II" (Qest). This plastic, hot/cold pressure residential
plumbing system was sold to plumbing contractors who installed
the system at construction sites, usually behind walls, or between
floors and ceilings. Qest systems were installed in site-built
homes, apartment buildings, and condominiums across the country
until December 31, 1986. At that time, U.S. Brass ceased
warranting the Qest system for use in site-built structures.
However, U.S. Brass continued to manufacture and market the
Qest system for mobile homes and prefabricated housing through
1990. It is estimated that between 500,000 and 750,000 housing
units in the United States contain the Qest plumbing system. U.S.
Brass is currently a wholly owned subsidiary of Eljer
Manufacturing, Inc., which, in turn, is wholly owned by Eljer
Industries, Inc. For a period of time relevant to this matter, U.S.
Brass was a wholly owned subsidiary of Household International,
Inc. As stated, these four corporate entities are the policyholders
in the matter at bar.
	According to an affidavit filed in the circuit court by
Catherine E. Bracken, general counsel for U.S. Brass and senior
counsel of Eljer Industries, Inc., as a result of certain alleged
defects in the Qest plumbing system, product liability claims with
respect to the Qest systems were first filed against U.S. Brass and
its parent corporations in the early-1980s. These claims generally
alleged that defects in the Qest system caused the system to leak,
and sought recovery based upon theories of negligence, breach of
warranty, strict tort liability, and, in some cases, fraud or
misrepresentation. According to Bracken's affidavit, by the end of
1993, approximately 61,300 claims had been filed against U.S.
Brass and its parent companies as a result of Qest system failures.
Based upon the number of claims at that time, U.S. Brass
estimated that approximately 4.6% of the Qest systems installed
between 1979 and 1990 had experienced failures. Bracken averred
that U.S. Brass and Eljer had made no subsequent estimates with
respect to the projected failure rate of the Qest systems.
	In her affidavit, Bracken further stated that several jury
verdicts, in various jurisdictions across the county, have been
entered against U.S. Brass and its parent corporations as a result
of the Qest claims, "and thousands of other claims have been
settled."(2) Kurt Nelson, outside counsel for U.S. Brass, stated in an
affidavit submitted to the circuit court that almost all litigated
claims involved residences which had experienced leaks in the
Qest system. Nelson averred that these claims generally sought
recovery for water damage to the housing structure, fixtures and
personal property. In addition, damages were sought for expenses
incurred in removing the Qest system from behind walls, floors
and ceilings, and for diminution in the value of the building
resulting from the presence of allegedly defective plumbing.
According to Nelson, a minority of claims involved buildings that
had not yet experienced leaks, but in which the homeowners, as a
preventive measure, had removed the Qest systems. These claims
sought recovery for the cost of replacing the Qest system as well
as the diminution in value of the residences.
 	During the early 1990s, the four insurance coverage suits at
issue in the appeal at bar were filed in the circuit court of Cook
County. In May 1994, while these declaratory judgment actions
were pending, U.S. Brass filed for bankruptcy protection in the
United States Bankruptcy Court for the Eastern District of Texas.(3)
Upon U.S. Brass' bankruptcy filing, proceedings in these Cook
County coverage actions were automatically stayed. In June 1994,
U.S. Brass filed in the United States Bankruptcy Court for the
Northern District of Illinois a motion to transfer venue of these
four coverage suits to the federal Bankruptcy Court for the Eastern
District of Texas. However, the federal bankruptcy court for the
Northern District of Illinois abstained from exercising jurisdiction
and ordered these matters remanded to the circuit court of Cook
County. The order of the bankruptcy court was affirmed by the
United States District Court for the Northern District of Illinois
(see U.S. Brass Corp. v. California Insurance Co., 198 B.R. 940
(N.D. Ill. 1996)) and the United States Court of Appeals for the
Seventh Circuit (see In re United States Brass Corp., 110 F.3d 1261 (7th Cir. 1997)). On December 31, 1997, the bankruptcy stay
was lifted by the United States Bankruptcy Court for the Eastern
District of Texas. Thereafter, these declaratory judgment suits
went forward in the circuit court of Cook County.
	The circuit court consolidated the four suits into a single
action seeking a declaration with respect to the triggering event for
the insurers' duty to indemnify the policyholders for the
underlying Qest liability claims. Throughout the period during
which the policyholders manufactured and marketed the Qest
system, the policyholders maintained multiple layers of
comprehensive general liability (CGL) insurance. The excess CGL
policies at issue in this appeal are "form following" policies which
incorporate the terms and conditions of the policy in the layer of
coverage below them, and which are only to be implicated once
the underlying layers of coverage are exhausted. The relevant
language contained in all of the excess CGL policies at issue in the
matter at bar is identical, to the extent that all policies provide
indemnity coverage for an "occurrence" resulting in third-party
"property damage" which takes place during the respective policy
period.
	However, the policies differ with respect to the definition of
"property damage," depending upon the years in which the
policies were issued. The excess CGL indemnity policies in effect
from 1979 through 1981 (pre-1982 policies) were negotiated and
issued in New York to a New York predecessor corporation of
Household International, Inc., the former parent corporation of
U.S. Brass. These policies followed form to a first-layer umbrella
policy issued by Highlands Insurance Company, and define
"property damage" as an "injury to tangible property." The parties
agree that New York law controls the interpretation of the pre-1982 policies.
	The parties further agree that Illinois law controls the
interpretation of the excess CGL indemnity policies issued after
1981 through 1990 (post-1981 policies). These policies were
negotiated and issued in Illinois upon the move of U.S. Brass'
parent corporation to this state, and followed form to a first-layer
umbrella policy issued by Travelers Indemnity Company. The
post-1981 policies define "property damage" as "physical injury
to or destruction of tangible property."(4)
	The parties at bar dispute when the insurers' duty to
indemnify the policyholders for underlying "property damage"
claims is triggered. The insurers filed with the circuit court a
motion for partial summary judgment on the trigger of coverage
issue, arguing that under the language of the policies, indemnity
coverage for Qest claims is triggered no earlier than the time at
which a Qest system first leaks, and not at the time that the system
was installed. According to the insurers, it is only those policies in
effect at the time of the occurrence of a leak which give rise to
their indemnification obligation. The policyholders filed a cross-motion for summary judgment, seeking a declaration that the very
installation of the allegedly defective Qest system into a residential
structure causes "property damage" within the meaning of the
policies and, therefore, that indemnity coverage under the policies
is triggered at the time of installation. In the alternative, the
policyholders requested that the circuit court allow discovery on
the issues raised by the parties' summary judgment motions.
	On May 27, 1998, the circuit court issued a memorandum of
opinion in which the court found that, as a matter of law,
indemnity coverage under the policies is triggered upon the leak
of a Qest system, because it is only at that time that a third-party
experiences "property damage" within the meaning of the policy
language. The circuit court further found that, as a matter of law,
the installation of a Qest system did not constitute "property
damage" within the meaning of the policies.
	In addressing the coverage trigger issue with respect to the
policies issued prior to 1982, the circuit court reviewed the New
York decisions submitted by the parties, and concluded that "the
reasoning of the New York courts clearly illustrates that the plain
language of the policies calls for coverage upon the occurrence of
an injury-in- fact." Therefore, the circuit court held that, under
New York law, "the installation of the plumbing system is not the
triggering event. The 'occurrence' is the leak as that is when the
'effects of exposure' actually result in damage to property."
	With respect to the trigger of coverage under the post-1981
policies, the circuit court relied upon our appellate court's
decisions in Diamond State Insurance Co. v. Chester-Jensen Co.,
243 Ill. App. 3d 471 (1993), and Bituminous Casualty Corp. v.
Gust K. Newberg Construction Co., 218 Ill. App. 3d 956 (1991).
Applying the reasoning of these decisions, the circuit court held
that the policy coverage is triggered at the moment there is a leak
in a Qest system, and not upon installation of the system. In
reaching this conclusion, the circuit court observed that CGL
policies are "intended to protect the insured from liability for
injury or damage to the person or property of others; they are not
intended to pay the costs associated with repairing or replacing the
insured's defective work and products, which are purely economic
losses." Quoting from the Diamond State decision, the circuit
court concluded that "[f]inding coverage for the cost of replacing
or repairing defective work would 'transform the policy into
something akin to a performance bond.' "
	On July 7, 1998, the circuit court entered an agreed order
granting the insurers' motion for summary judgment on the trigger
of coverage issue, denying the policyholders' cross-motion for
summary judgment on the trigger of coverage issue, and directing
entry of a declaratory judgment that "it is the leak of the Qest/Qick
Sert II polybutylene plumbing system, and not the installation of
the system, which will trigger coverage for property damage
claims under the policies issued by the insurers in these cases."
	On appeal, the appellate court affirmed in part and reversed
in part the judgment of the circuit court. 307 Ill. App. 3d 872. The
appellate court held that the circuit court erred in granting
summary judgment to the insurers with respect to the coverage
trigger issue under the pre-1982 policies. The appellate court
observed that in Sturges Manufacturing Co. v. Utica Mutual
Insurance Co., 37 N.Y.2d 69, 332 N.E.2d 319, 371 N.Y.S.2d 444
(1975), New York's highest court determined that the very
installation of a defective component, other than a contaminant,
could constitute "property damage" under policy language
identical to that at issue in the cause at bar. The appellate court
observed that, under Sturges, coverage for "property damage"
under the pre-1982 policies could be triggered at the time of
installation if it caused diminution in value to the residences in
which the Qest system was installed in an amount in excess of the
value of the Qest system itself. The appellate court further found,
however, that since the record contained no evidence of whether,
in fact, any diminution in value resulting from the presence of the
Qest system in a residence exceeded the value of the Qest system
itself, the circuit court correctly denied the policyholder's motion
for summary judgment, in which the policyholders had argued
that, as a matter of law, diminution in value within the meaning of
the Sturges decision occurred upon the very installation of the
Qest system. Finally, the appellate court held that, to the extent
that the policyholders were requesting a declaration of the
insurers' duty to indemnify, the relief they seek is "premature
pending resolution of the underlying claims." 307 Ill. App. 3d at
887. Accordingly, the appellate court remanded this issue to the
circuit court for further proceedings.
	With respect to the excess CGL policies issued to the
policyholders after 1981, the appellate court, applying Illinois law,
rejected the argument advanced by the policyholders that
indemnity coverage for "property damage" within the meaning of
the policies was triggered upon the very installation of a Qest
system into a structure. The appellate court therefore affirmed the
circuit court's denial of the policyholders' motion for summary
judgment on this issue. The appellate court concluded, however,
that although coverage under the post-1981 policies is not
triggered by the mere installation of a Qest system, it "can be
triggered prior to the development of a leak if the replacement of
the system necessitates actual physical damage to tangible property
other than the Qest System itself." 307 Ill. App. 3d at 886. Thus,
the appellate court determined that the circuit court erred in
concluding that coverage under the post-1981 policies is only
triggered upon a Qest system developing a leak, and also erred in
granting summary judgment in favor of the insurers on this issue.
Accordingly, the appellate court reversed the circuit court's grant
of summary judgment to the insurers with respect to the post-1981
policies, and remanded the cause to the circuit court for further
proceedings.
	We allowed the policyholders' petitions for leave to appeal
(177 Ill. 2d R. 315(a)), and consolidated the actions. We also
allowed an amicus curiae brief to be filed by the Insurer's Year
2000 Roundtable in support of the insurers' position. In addition,
the insurers were granted leave to file briefs as cross-appellants.
On December 1, 2000, this court issued an opinion affirming in
part and reversing in part the judgment of the appellate court. U.S.
Brass, Eljer Manufacturing, Inc., and Eljer Industries, Inc.,
subsequently filed a petition for rehearing, which we allowed. 155
Ill. 2d R. 367.

ANALYSIS
	The sole issue presented in this appeal concerns the
construction of the "property damage" provision contained within
the excess CGL indemnity policies issued to the policyholders by
the insurers. In general, the insurers argue that "property damage"
does not occur until a particular claimant's Qest system fails and
leaks, causing water damage to the claimant's property. According
to the insurers, this is the earliest possible moment that the duty to
indemnify the policyholders is triggered. Conversely, the
policyholders advance the argument that "property damage" within
the meaning of the policies takes place at the time of the
installation of the allegedly defective Qest system. Therefore, the
policyholders contend, the insurers' duty to indemnify the
policyholders is triggered at the time of installation, under the
policy in effect during that period, even if no leak takes place until
after the policy period has concluded.
	Initially, we note that this appeal was taken from the circuit
court's orders granting summary judgment in favor of the insurers
on the trigger of coverage issue and denying the policyholders'
cross-motion for summary judgment. In appeals from summary
judgment rulings, our review is de novo. Crum & Forster
Managers Corp. v. Resolution Trust Corp., 156 Ill. 2d 384, 390
(1993); Outboard Marine Corp. v. Liberty Mutual Insurance Co.,
154 Ill. 2d 90, 102 (1992). Although the use of summary judgment
aids in the expeditious disposition of a lawsuit, "[s]ummary
judgment is a drastic measure and should only be granted if the
movant's right to judgment is clear and free from doubt."
Outboard Marine, 154 Ill. 2d  at 102. A motion for summary
judgment is properly granted, therefore, only when the pleadings,
depositions, admissions, and affidavits on file reveal that there is
no genuine issue as to any material fact, and that the moving party
is entitled to judgment as a matter of law. 735 ILCS 5/-1005(c)
(West 1998). In considering a summary judgment motion, the
court has a duty to construe the evidence strictly against the
movant and liberally in favor of the nonmoving party. Outboard
Marine, 154 Ill. 2d  at 131-32.
	 The construction of the provisions of an insurance policy is
also a question of law, subject to de novo review. American States
Insurance Co. v. Koloms, 177 Ill. 2d 473, 479-80 (1997);
Outboard Marine, 154 Ill. 2d  at 108. In construing the language of
the policy, the court's primary objective is to ascertain and give
effect to the intent of the parties to the contract. Koloms, 177 Ill. 2d  at 479; Outboard Marine, 154 Ill. 2d  at 108. In order to
ascertain the meaning of the policy's language and the parties'
intent, the court must construe the policy as a whole and "take into
account the type of insurance purchased, the nature of the risks
involved, and the overall purpose of the contract." Koloms, 177 Ill. 2d  at 479; see also Outboard Marine, 154 Ill. 2d  at 108. If the
words of a policy are clear and unambiguous, "a court must afford
them their plain, ordinary, and popular meaning." (Emphasis  in
original.) Outboard Marine, 154 Ill. 2d  at 108. Conversely, if the
language of the policy is susceptible to more than one meaning, it
is considered ambiguous and will be construed strictly against the
insurer who drafted the policy and in favor of the insured. Koloms,
177 Ill. 2d  at 479; Outboard Marine, 154 Ill. 2d  at 108-09.
However, this court "will not strain to find ambiguity in an
insurance policy where none exists." McKinney v. Allstate
Insurance Co., 188 Ill. 2d 493, 497 (1999); see also Crum &
Foster, 156 Ill. 2d  at 391.
	The issue of construction presented by this appeal arises in the
context of the excess insurers' duty to indemnify the
policyholders. "The duty to indemnify arises only when the
insured becomes legally obligated to pay damages in the
underlying action that gives rise to a claim under the policy."
Zurich Insurance Co. v. Raymark Industries, Inc., 118 Ill. 2d 23,
52 (1987); see also Outboard Marine, 154 Ill. 2d  at 128. "[T]he
question of whether the insurer has a duty to indemnify the insured
for a particular liability is only ripe for consideration if the insured
has already incurred liability in the underlying claim against it."
Outboard Marine, 154 Ill. 2d  at 127; see also United States
Fidelity & Guaranty Co. v. Wilkin Insulation Co., 144 Ill. 2d 64,
73 (1991); Zurich, 118 Ill. 2d  at 52. Once the insured has incurred
liability as a result of the underlying claim, an insurer's duty to
indemnify arises only if "the insured's activity and the resulting
loss or damage actually fall within the CGL policy's coverage."
(Emphasis in original.) Outboard Marine, 154 Ill. 2d  at 128.
	In the case at bar, the record establishes that the policyholders
have already incurred liability with respect to the underlying Qest
claims. In order to assess if and when the insurers' duty to
indemnify the policyholders is triggered, we must determine
whether the policyholders' activities, with respect to coverage for
"property damage," actually fall within the policies' coverage
during the policy periods. The parties agree that there must be an
"occurrence" resulting in "property damage" during the policy
period before coverage under the policies is triggered. They
disagree, however, as to when the covered "property damage"
occurs. The correct application of the coverage trigger necessarily
depends upon the meaning of "property damage" as that phrase is
used in the policies. Because the policies differ with respect to the
meaning of "property damage" based upon when the policies were
issued, we divide our analysis into two parts: we first consider the
policies issued for periods prior to 1982, and thereafter address the
policies issued for periods subsequent to 1981.

I. Pre-1982 Policies
	The excess CGL indemnity policies issued by the insurers to
the policyholders between 1979 and 1981 provide that the insurers
have a duty to indemnify the policyholders for "damages because
of *** property damage *** caused by each occurrence happening
anywhere in the world." All pre-1982 policies contain the identical
definitions for "occurrence" and "property damage." The policies
define "occurrence" as "an accident, including injurious exposure
to conditions, which results, during the policy period in ***
property damage." The policies define "property damage" as
"injury to or destruction of tangible property."
	As stated, there is no dispute between the parties that New
York law controls the interpretation of the language contained
within the pre-1982 policies, nor that New York applies an injury-in-fact trigger for policy coverage (see Maryland Casualty Co. v.
W.R. Grace & Co., 23 F.3d 617, 625-26 (2d Cir. 1993)). The
parties disagree, however, as to when "property damage" takes
place within the meaning of the pre-1982 policies. The insurers, in
their cross-appeal, contend that the circuit court correctly found
that "property damage" occurs only when a Qest system leaks, and
that the appellate court erred in concluding that under New York
law, diminution in value caused to the residence by the presence
of a Qest system may constitute an "injury to tangible property,"
and, therefore, "property damage." The policyholders respond that
the appellate court properly reversed the circuit court and correctly
found that under the law of New York, an "injury to tangible
property" may include tangible property which has been
diminished in value by the Qest system to an extent greater than
the value of the Qest system. We agree with the policyholders.
	In Sturges Manufacturing Co. v. Utica Mutual Insurance Co.,
37 N.Y.2d 69, 72-73, 332 N.E.2d 319, 322, 371 N.Y.S.2d 444,
447-48 (1975), New York's highest court interpreted the "property
damage" clause of a CGL policy which contained language
identical to that in the pre-1982 policies at bar. In that case,
Sturges, a manufacturer of ski straps, brought a declaratory
judgment action against its insurer, seeking a declaration of the
insurer's coverage obligations with respect to a breach of warranty
and negligence action filed against Sturges by one of its
customers, Americana, which had incorporated the straps into its
own ski bindings. Americana sued Sturges when, due to allegedly
defective stitching on the part of Sturges, the ski straps broke
under stress and caused Americana's customers to return and
cancel their orders for ski bindings. Americana claimed in the
underlying suit that Sturges' straps, as a defective component of
the bindings into which they were incorporated, diminished the
value of, and caused harm to, the bindings as a whole. In holding
that such claims could constitute an "injury to tangible property"
within the meaning of the policy language, the Court of Appeals
of New York stated that "[w]hen one product is integrated into a
larger entity, and the component product proves defective, the
harm is considered to be harm to the entity to the extent that the
market value of the entity is reduced in excess of the value of the
defective component [citation]." Sturges, 37 N.Y.2d  at 72-73, 332 N.E.2d  at 322, 371 N.Y.S.2d  at 447. The decision in Sturges
stands for the proposition that, under New York law, an "injury to
tangible property" includes tangible property which, as a result of
the integration of a defective product, has been diminished in
value to an extent greater than the value of the defective product.
	Based upon the holding of the Sturges court, we agree with
the appellate court below that the circuit court erred in holding
that, under New York law, an "injury to tangible property" occurs
only when a Qest system leaks. Under Sturges, the term "injury to
tangible property" also includes the diminution in a home's value
as a result of the presence of a Qest system, as long as that
diminution is greater than the value of the Qest system itself.
	Having determined what constitutes "property damage"
within the meaning of the pre-1982 policies governed by New
York law, we now turn to the question of when such damage
occurs for purposes of triggering the insurers' duty to indemnify.
As stated, the duty to indemnify arises when the insured has
incurred liability in the underlying claims, and the insured's
activity and resulting loss or damage actually falls within the
coverage of the CGL policy. Outboard Marine, 154 Ill. 2d at 127-28; Zurich, 118 Ill. 2d  at 52. The record indicates that the vast
majority of Qest claims which have either been settled or have
ended in judgment against the policyholders have resulted from
leaks in the Qest system. The record also reveals that these claims
sought recovery for, inter alia, water damage to the residence, the
residence's fixtures, and personal property contained within the
residence. Accordingly, the policy coverage for the leak claims in
which claimants recovered for water damage was triggered at the
time the water damage occurred. However, the record further
reveals that claimants alleging leaks in their Qest system also
sought damages for the diminution in value of the residence
resulting from the presence of the allegedly defective Qest system.
It is unclear from the record exactly what type of damages were
awarded to those claimants who prevailed on claims alleging Qest
systems leaks. We cannot discern from the record if any part of the
damages awarded to the leak claimants was for diminution in the
value of their homes as a result of the Qest system and, if so, when
this diminution occurred and whether the alleged diminution in
value was greater than the value of the Qest system itself. In
addition, the record further indicates that a minority of claims filed
against the policyholders sought recovery for the diminution in
value of the residential property due to the presence of the Qest
system in the home prior to the system's leaking. However, the
record is again unclear with respect to whether any settlement or
judgment was entered against the policyholders in which
diminution in value, within the meaning of Sturges, was actually
awarded and, if so, when such diminution occurred.
	Based upon the state of the record before us, we agree with
the appellate court below that the circuit court erred in granting
summary judgment in favor of the insurers who issued policies for
periods prior to 1982. We also agree with the appellate court that
the circuit court properly denied the policyholders' cross-motion
for summary judgment with respect to the pre-1982 policies. As
stated, summary judgment is proper only if the pleadings and
evidence, when viewed liberally in favor of the nonmoving party,
establish that there is no genuine issue of material fact and the
moving party is entitled to judgment as a matter of law. E.g.,
Outboard Marine, 154 Ill. 2d  at 131-32.
	The record before us establishes that there are disputed issues
of fact material to the resolution of this issue. To the extent the
parties are seeking a declaration with respect to the insurers' duty
to indemnify, we remand this portion of the instant cause to the
circuit court with instructions to determine, as to each claim for
which indemnity is sought from the pre-1982 insurers, if covered
"property damage" occurred within the relevant policy periods,
with reference to the specific type of damage sought to be
indemnified. We note that, at this time, such determination can
only be made with respect to claims actually settled or which have
come to judgment and for which the policyholders have incurred
liability. We agree with the appellate court that a declaration with
respect to the insurers' duty to indemnify is premature as to those
cases still pending against the insurers. Such cases will become
ripe at the time that the underlying claims are resolved.

II. Post-1981 Policies
	We next address the excess CGL indemnity policies issued to
the policyholders by the insurers after 1981. The parties agree that
these policies are governed by Illinois law. As stated, in construing
the language of an insurance policy, the court's primary objective
is to ascertain and give effect to the intent of the parties to the
contract. Koloms, 177 Ill. 2d  at 479; Outboard Marine, 154 Ill. 2d 
at 108. If the words of a policy are clear and unambiguous, "a
court must afford them their plain, ordinary, and popular
meaning." (Emphasis in original.) Outboard Marine, 154 Ill. 2d  at
108. The post-1981 excess CGL policies issued by the insurers to
the policyholders define "property damage" as "physical injury to
*** tangible property which occurs during the policy period."
(Emphasis added.) It is the addition of the word "physical" to this
definition which distinguishes the policies issued for periods
subsequent to 1981 from those policies issued for periods prior to
1982.
	The policyholders assert that both the circuit and appellate
courts erred in holding that, under Illinois law, the very installation
of a Qest system within a residence did not constitute "physical
injury to tangible property" and, therefore, did not constitute
"property damage" within the meaning of the post-1981 policies.
According to the policyholders, homes which contain the Qest
system are "tangible property" that suffer "injury" as a result of the
installation of a plumbing system which has a propensity to leak.
The policyholders characterize the injury to the homes as
"physical" because the defective Qest system was physically
incorporated and connected to the residences and diminished the
value of the residences from the moment the Qest system was
installed.
	In support of the "installation trigger" of coverage, the
policyholders rely in principal part upon the majority opinion
rendered by the United States Court of Appeals for the Seventh
Circuit in Eljer Manufacturing, Inc. v. Liberty Mutual Insurance
Co., 972 F.2d 805 (7th Cir. 1992), and contend that the appellate
court below erred in declining to adopt the rationale of the Eljer
opinion. The policyholders also maintain that "Illinois asbestos
property damage insurance coverage cases also support the
incorporation doctrine," and assert that the appellate court below
erred in concluding that such cases provided little or no guidance
in resolving the issue at bar.
	The insurers respond that the appellate court correctly
affirmed the circuit court's denial of the policyholders' cross-motion for summary judgment on this issue. According to the
insurers, the circuit and appellate courts properly determined that,
under the policies' plain language, the mere installation of a
functioning Qest system into a residence does not constitute a
"physical injury to tangible property" and thus does not trigger
coverage under the post-1981 policies. The insurers further
contend that the appellate court correctly determined that "physical
injury" also does not encompass the diminution in value to a
residence resulting from the failure of a Qest system to perform as
promised. Relying upon the decisions of our appellate court in
Diamond State Insurance Co. v. Chester-Jensen Co., 243 Ill. App.
3d 471 (1993), and Bituminous Casualty Corp. v. Gust K.
Newberg Construction Co., 218 Ill. App. 3d 956 (1991), the
insurers assert that such an alleged diminution in value constitutes
an intangible economic loss which is not covered under the
policies' provisions. In addition, the insurers contend that the
appellate court appropriately declined to follow the Seventh
Circuit's majority opinion in Eljer, as Eljer ignored the plain
meaning of the phrase "physical injury" and instead adopted a
construction which fails to give effect to both words at the same
time. Finally, the insurers maintain that the appellate court
correctly determined that the asbestos cases relied upon by the
policyholders are inapposite, for the matter at bar, unlike an
asbestos action, does not involve the installation of a
"contaminant" into another structure.
	Because the issue before us is one of contract interpretation,
we begin with an examination of the language of the disputed
policies. It is clear from the arguments of the parties that their
dispute focuses upon the meaning of the phrase "physical injury to
tangible property." The policyholders maintain that this term is
ambiguous and that a reasonable interpretation of the phrase is that
coverage is triggered at the time a defective Qest system is
incorporated into a home. The policyholders also contend that this
court's decision in American States Insurance Co. v. Koloms, 177 Ill. 2d 473 (1997), "require[s]" us to examine the relevant
insurance industry drafting history of the post-1981 policies'
definition of "property damage."
	The arguments of the policyholders are misplaced. We do not
find ambiguity in the phrase "physical injury to tangible property."
In order to trigger coverage for "property damage," the plain
language of the post-1981 policies requires that there be an injury
to tangible property and that the injury be physical in nature.
Because the words of the policy are unambiguous, it is
unnecessary for this court to consider extrinsic evidence of the
policy's purported meaning. Rather, we must afford the
unambiguous policy terms their plain, ordinary and popular
meaning. As this court has previously noted in Outboard Marine,
the "usual and ordinary" meaning of a phrase is " 'that meaning
which the particular language conveys to the popular mind, to
most people, to the average, ordinary, normal [person], to a
reasonable [person], to persons with usual and ordinary
understanding, to a business [person], or to a lay[person].' "
Outboard Marine, 154 Ill. 2d  at 116, quoting 2 Couch on
Insurance 2d §15:18 (rev. ed. 1984). Webster's Dictionary defines
"physical" as "of or relating to natural or material things as
opposed to things mental, moral, spiritual, or imaginary:
MATERIAL, NATURAL." Webster's Third New International
Dictionary 1706 (1993). Although Black's Law Dictionary does
not contain a definition of the term "physical," it does define the
term "physical harm" as "[a]ny physical impairment of land [or]
chattels." Black's Law Dictionary 722 (7th ed. 1999). We
conclude that, to the average, ordinary person, tangible property
suffers a "physical" injury when the property is altered in
appearance, shape, color or in other material dimension.
Conversely, to the average mind, tangible property does not
experience "physical" injury if that property suffers intangible
damage, such as diminution in value as a result from the failure of
a component, such as the Qest system, to function as promised.
	In their submissions to this court, the policyholders argue at
great length that, pursuant to the reasoning of the majority opinion
in the 1992 decision by the United States Court of Appeals for the
Seventh Circuit in Eljer Manufacturing Corp. v. Liberty Mutual
Insurance Co., 972 F.2d 805 (7th Cir. 1982), this court should
hold that the incorporation of a defective product into a larger
entity triggers coverage for "property damage" within the meaning
of the post-1981 policies. In Eljer, the Seventh Circuit was
presented with a federal diversity action in which Eljer
Manufacturing, Inc., one of the policyholders at bar, brought a
declaratory judgment action against its primary liability insurers,
requesting a declaration of whether and when "property damage"
coverage under the policies was triggered with respect to
underlying claims for failure of the same Qest systems at issue in
the instant cause. A divided panel of the Seventh Circuit
concluded that, under Illinois law, " 'physical injury to tangible
property' " occurred at the time of the installation of the Qest
plumbing systems. Eljer, 972 F.2d  at 814. Thus, contrary to our
holding today, the Eljer panel determined that the mere installation
of the Qest systems triggered coverage for the claims, under policy
language identical to that at issue at bar.
	In their argument to this court, the policyholders, while
acknowledging that we are not bound to follow the federal
decision in Eljer (see City of Chicago v. Groffman, 68 Ill. 2d 112,
118 (1977) ("The general rule is that decisions of United States
district and circuit courts are not binding upon Illinois courts");
Hinterlong v. Baldwin, 308 Ill. App. 3d 441, 452 (1999)),
nevertheless vigorously urge us to adopt that decision's reasoning
and likewise hold in their favor on this issue. The insurers
counterargue with equal vigor that Eljer was incorrectly decided
under Illinois law. We agree with the insurers.
 	As stated above, it is a well-settled precept of Illinois law that
because the primary objective in interpreting the provisions of an
insurance policy is to give effect to the parties' intentions, where
a policy provision is clear and unambiguous, its language must be
taken in its plain, ordinary and popular sense. Outboard Marine,
154 Ill. 2d  at 108. In Eljer, the majority deviated from this
fundamental rule of Illinois law. After first finding that "[t]he
central meaning of the term ['physical injury'] as it is used in
everyday English *** is of a harmful change in appearance, shape,
composition, or some other physical dimension of the 'injured'
person or thing," the Eljer panel then expressed concern with
respect to a perceived "conflict between the connotations of the
term 'physical injury' and the objective of insurance." Eljer, 972 F.2d  at 808-09. In an apparent effort to address this "conflict," the
Eljer majority rejected the concept that words or phrases used in
insurance policies are always to be interpreted in their ordinary
language sense, and stated that "[w]e should at least ask what
function 'physical injury' might have been intended to perform in
a comprehensive general liability policy apart from just drawing
a commonsensical, lay person's ordinary-language distinction
***." Eljer, 972 F.2d  at 809-10. The majority then concluded that,
based upon a review of the admittedly "sparse" drafting history of
CGL policies, the term "physical injury" does not require that the
covered property actually be "injured" in a "physical" sense as a
result of the Qest systems, but only that the claimants suffered any
"loss that results from physical contact, physical linkage" with the
defective Qest systems. Eljer, 972 F.2d  at 810.
	Had the Eljer court applied its own ordinary-meaning
interpretation of the phrase "physical injury" to the claims
presented, the result would have been the same as our result today:
without a "harmful change in appearance, shape, composition, or
some other physical dimension" (Eljer, 972 F.2d at 809) to the
claimants' property, the insurance coverage is not triggered. We
believe that the Eljer majority erred when it set aside the "central,"
plain, and ordinary meaning of the term "physical injury," and
instead employed an admittedly "conjectured" analysis with
respect to the function that the phrase was intended to perform in
a CGL policy. As Judge Cudahy pointed out in his dissenting
opinion:
			"There is immediately something counter-intuitive about saying that physical injury has been done to a house
in which a functioning plumbing system has been
installed. Of course, when we determine later (years later)
that a good number of the systems will fail-five percent
in this case-then perhaps there is a sense in which the
'injury' was present from the moment of installation ***.
But is there physical injury?  *** The majority's account
cannot give both words meaning at the same time.
Something physical occurs when the plumbing is
installed-but it is not injury; and we might say that there
is injury (of a sort) when the plumbing is installed-but it
is not physical."  (Emphases in original.) Eljer, 972 F.2d 
at 814-15 (Cudahy, J., dissenting).
	After arriving at its definition of "property damage" within the
meaning of the post-1981 policies, the Eljer majority stated that
"[s]o far we have been discussing this case as if it had to be
decided on the basis of first principles, and that is nearly true,"
because, in the majority's view, the "cases are unclear" with
respect to whether Illinois accepted the "incorporation concept" of
property damage under the "physical injury" definition. Eljer, 972 F.2d  at 812. According to the Eljer majority, the "parties spen[t]
too much time" discussing our opinion in United States Fidelity &
Guaranty Co. v. Wilkin Insulation Co., 144 Ill. 2d 64 (1991),
because it was "unclear" from that decision whether this court
generally accepted the "incorporation theory"of "physical injury."
Eljer, 972 F.2d  at 813. The Eljer majority then stated that the
"closest case" was the 1987 Illinois Appellate Court decision in
Marathon Plastics, Inc. v. International Insurance Co., 161 Ill.
App. 3d 452 (1987), in which the court held that the diminution in
value to an entity caused by the mere incorporation of a defective
component constituted "property damage" under a policy defining
property damage as " 'physical injury to tangible property.' " The
majority in Eljer concluded that there was "no contrary authority
[to Marathon] in Illinois" (Eljer, 972 F.2d at 813), despite the fact
that the Eljer majority specifically noted that, subsequent to the
Marathon decision, a different division of our appellate court, in
Bituminous Casualty Corp. v. Gust K. Newberg Construction Co.,
218 Ill. App. 3d 956 (1991), had determined that intangible
damages, such as diminution in value, do not constitute a
"physical" injury. For the reasons discussed in detail below, we
find the Eljer majority's interpretation of relevant Illinois case law
to be flawed. We will discuss the cases cited by the Eljer majority
seriatim.
	In United States Fidelity & Guaranty Co. v. Wilkin Insulation
Co., 144 Ill. 2d 64 (1991), this court was presented with the
question of whether the installation of insulation containing
asbestos in schools and other public buildings constituted
"property damage" within the meaning of CGL policies which,
identical to the post-1981 policies at bar, defined "property
damage" as "physical injury to *** tangible property." We held
that "asbestos fiber contamination constitutes physical injury to
tangible property, i.e., the buildings and their contents." Wilkin,
144 Ill. 2d  at 75. Although, in the Eljer majority's view, the basis
of our holding was unclear, we specifically explained that the
property was "physically" injured as a result of the presence of
toxic asbestos fibers within the structures, as "the buildings and
their contents (e.g., carpets, upholstery, drapes, etc.) are virtually
contaminated or impregnated with asbestos fibers, the presence of
which poses a serious health hazard to the human occupants."
Wilkin, 144 Ill. 2d  at 75. Thus, this court concluded that "the
contamination of the buildings and their contents" due to the
continuous release of these toxins constituted "physical injury"
under the policies. Wilkin, 144 Ill. 2d  at 77-78.
	 Our decision in Wilkin recognized the unique nature of
asbestos products, which disseminate toxic fibers upon installation
and continuously contaminate a structure and its contents
subsequent to installation. It follows, therefore, that this
contamination, which Wilkin held constituted the "physical" injury
to the property, occurs upon installation of these toxic products.
Wilkin was premised upon the specific facts before the court in
that case and not upon a general proposition that incorporation of
a defective component into another structure constitutes "physical
injury." Accordingly, the argument advanced by the policyholders
in their submissions to this court that Wilkin and its progeny
support their conclusion that the mere incorporation of a defective
component constitutes a "physical" injury to property is
inapposite. We agree with the appellate court below that, "[u]nlike
the asbestos cases cited by the Policyholders, [the cause at bar]
does not involve the installation of any contaminant," as the Qest
systems are "not alleged to contain any toxic substances" and the
"defective nature of the system is related solely to its propensity to
leak prematurely, that is, its failure to perform as intended." 307
Ill. App. 3d at 879.
	Further, the Eljer majority's reliance on the 1987 decision of
our appellate court in Marathon Plastics, Inc. v. International
Insurance Co., 161 Ill. App. 3d 452 (1987), was misplaced. In
Marathon, the insured, Marathon Plastics, manufactured
polyvinylchloride (PVC) pipes and sold these pipes for use in the
construction of a rural water district. It was subsequently
discovered that the system leaked due to defective seals which
Marathon had incorporated into the pipe. The purchaser of the pipe
looked for signs of the leak, dug up the pipejoint, cut both sides of
it, inserted a new piece of PVC pipe, and reburied the lines.
Thereafter, the purchaser made a written demand on Marathon for
the labor and material costs incurred in the repair of the leaks.
After settling the claim, Marathon sought indemnification from its
insurer for the amount paid on the claim. The insurer responded
that no "property damage" within the meaning of Marathon's
policy had occurred. The policy issued to Marathon defined
"property damage," as do the post-1981 policies at issue in the
cause at bar, as "physical injury *** to tangible property" which
occurred during the policy period.
	The appellate court held that "property damage" within the
meaning of Marathon's policy had occurred because, as a result of
the leaks, the water system was diminished in value "even though
no physical injury occurred to the water system." (Emphasis
added.) Marathon, 161 Ill. App. 3d at 463. In arriving at this
conclusion, the Marathon court principally relied upon the
reasoning in an earlier appellate court decision, Pittway Corp. v.
American Motorists Insurance Co., 56 Ill. App. 3d 338 (1977),
which held that including defective plastic valves in aerosol cans
of hairspray caused "property damage" to the extent that the
market value of the final product was diminished, less the cost of
the defective valve itself. Pittway, 56 Ill. App. 3d at 341. Despite
the fact that the policy in Pittway defined "property damage" as
" 'injury to or destruction of tangible property' " (Pittway, 56 Ill.
App. 3d at 341), and not as a "physical injury to or destruction of
tangible property," the Marathon court inexplicably stated that the
"property damage" definition in the Pittway policy was "virtually
identical" to that at issue in Marathon. Marathon, 161 Ill. App. 3d
at 461.(5)
	We conclude that Marathon was erroneously decided. The
court in Marathon failed to give any effect to the actual language
of the policies at issue in that case. Although the policies defined
"property damage," as do the post-1981 policies at bar, as
"physical injury to tangible property," the Marathon court
improperly disregarded the policies' requirement of physical
injury, explicitly stating that insurance coverage was triggered
"even though no physical injury occurred." Marathon, 161 Ill.
App. 3d at 463. The Marathon court arrived at this holding by
erroneously relying upon earlier appellate court cases which
interpreted a different definition of "property damage," one that
did not include the word "physical." As we have explained above,
under the plain meaning of the word, a "physical" injury occurs
when property is altered in appearance, shape, color or in other
material dimension, and does not take place upon the occurrence
of an economic injury, such as diminution in value. Accordingly,
we overrule the Marathon decision.
	The Eljer majority stated that there was "no contrary authority
in Illinois" to Marathon, a decision which we have now overruled,
despite the majority's acknowledgment that the insurers in the
Eljer case "place[ed] particular weight" upon a subsequent
decision of our appellate court. In that case, Bituminous Casualty
Corp. v. Gust K. Newberg Construction Co., 218 Ill. App. 3d 956
(1991), the insured general contractors were sued by the State of
Illinois for various acts and omissions in the installation, design
and manufacture of a heating, ventilation and air conditioning
system (HVAC) in the State of Illinois Center. One element of
damages sought by the State was the expense in repairing the
system. The insurer filed an action for declaratory judgment
alleging that the underlying claims were grounded in the State's
"disappointed commercial expectations" because the contractor
failed to install an HVAC system that would properly cool the
building. The insurer argued that because the underlying action
sought damages for economic loss, it did not fall within the
definition of "property damage" under the policy, which defined
this term, as do the post-1981 policies at bar, as "physical injury"
to tangible property. The insureds counterargued that the
complaint alleged property damage for a defective or inadequate
HVAC system that failed to function properly and had to be
replaced.
	The appellate court agreed with the insurer and held that the
underlying claims failed to allege "property damage" as defined
under the policy because no facts existed establishing that a
"physical injury" to tangible property had occurred. Although the
insureds argued that "property damage" would take place because,
during the repair work, the State would have to remove and
replace or repair ceilings and other portions of the building, the
court concluded that this did not alter the fact that the underlying
claims were grounded in a breach of contract that resulted in
disappointed commercial expectations, and the State was seeking
to recover for the economic loss sustained as a result of the
expense incurred in repairing the system. Bituminous, 218 Ill. App.
3d at 963-64. Although the insureds attempted to rely upon our
decision in Wilkin to support their position, the appellate court
panel correctly concluded that "[w]e do not find this case
analogous to the toxic fibers permeating the school buildings in
Wilkin." Bituminous, 218 Ill. App. 3d at 966. The appellate court
stressed that "no detrimental effect" occurred to the State of
Illinois Center as a result of the faulty HVAC system, and that the
underlying claims were premised upon the allegation that "the air
conditioning system did not do the job the State expected."
Bituminous, 218 Ill. App. 3d at 966. Thus, the Bituminous ruling
holds that intangible damage, such as diminution in value resulting
from a product's failure to perform as promised, does not
constitute a "physical" injury within the meaning of the post-1981
policies.
	Clearly, Bituminous constitutes "contrary authority" to
Marathon. As Judge Cudahy aptly pointed out in his dissenting
opinion in Eljer, Bituminous was not only "the more recent case,"
it also "discusses, and makes sense of" our decision in Wilkin. See
Eljer, 972 F.2d  at 816-17 (Cudahy, J., dissenting).
	We note that our appellate court has subsequently expanded
upon the reasoning and holding of the Bituminous decision. In
Diamond State Insurance Co. v. Chester-Jensen Co., 243 Ill. App.
3d 471 (1993), the court was faced with the identical claims filed
with respect to the identical liability insurance provisions at issue
in Bituminous, but which involved an insured who was the
manufacturer of the refrigeration equipment incorporated into the
HVAC system installed in the State of Illinois Center. In Diamond
State, the court relied upon its decision in Bituminous in holding
that "[m]ere allegations of repair and modification without any
allegations of physical injury are insufficient to involve coverage"
under policies requiring a "physical" injury to tangible property.
Diamond State, 243 Ill. App. 3d at 480. The court found that the
underlying claims stated no physical injury to tangible property,
but only asserted that the refrigeration units failed to perform their
anticipated function and requested the cost of repairing or
replacing the units. Although the insured in Diamond State relied
heavily upon earlier appellate court decisions such as Pittway and
Marathon, the court determined this reliance was "misplaced."
The court observed that the "coverage requirements in Pittway
were entirely different from the requirements of the policies here
in issue *** [because they] did not require 'physical injury' as a
prerequisite for recovery." Diamond State, 243 Ill. App. 3d at 481.
Further, the court noted that "[t]he analysis in Marathon is
inconsistent with the clear language and underlying purpose of the
policies. Insurance policies must be interpreted by the standard of
construction and interpretation of contracts in general. [Citations.]
The language of the policy explicitly requires 'physical injury.' It
cannot be construed to provide coverage on the basis of loss or
diminished use simply resulting from the failure of a component
to perform as promised." Diamond State, 243 Ill. App. 3d at 482.
The court went on to observe that "[t]he construction followed in
Marathon and urged here by [the insured] ignores the overall
purpose and design of a comprehensive general liability policy. If
the Marathon interpretation were to be adopted as urged by [the
insured], the policy would not only provide insurance against tort
liability, but would function as a performance bond as well."
Diamond State, 243 Ill. App. 3d at 482.
	For the foregoing reasons, we conclude
that the interpretation and application of relevant Illinois case law
by the Eljer majority is flawed. We reject the argument proffered
by the policyholders that we should adopt the reasoning and
holding in Eljer with respect to determining when coverage for
"property damage," within the meaning of the post-1981 policies,
is triggered. Further, in light of our holding, it is unnecessary for
us to address those cases from other jurisdictions, cited by the
policyholders in their submissions to this court, which have
followed the Eljer opinion. 	In sum, this court now finds that, under its plain and ordinary
meaning, the
term "physical injury" unambiguously connotes damage to
tangible property causing an alteration in appearance, shape,
color or in other material dimension. We reject the
policyholders' assertions that, under the post-1981 excess CGL
policies, the very installation of a functional Qest system into a
structure constitutes "property damage." Insurance coverage is
not triggered where the Qest system does not cause any physical
injury to tangible property during the policy period and
performs as intended. The plain language of the policies
unambiguously states that the insurable event which gives rise
to the insurers' obligation to provide coverage is the physical
damage to tangible property. The term "physical" limits the
word "injury" in the policies' definition of "property damage."
	We also conclude that under its plain and ordinary meaning,
the phrase "physical injury" does not include intangible damage to
property, such as economic loss. We agree with the rulings of our
appellate court in Bituminous and Diamond State that the
diminution in value of a whole, resulting from the failure of a
component to perform as promised, does not constitute a physical
injury. We hold that the appellate court below correctly concluded
that indemnity coverage under the post-1981 policies at bar is not
triggered by "[p]urely economic losses, such as damages for
inadequate value, costs of repair or replacement, and diminution
in value" that result from "a product's inferior quality or its failure
to perform for the general purposes for which it was manufactured
and sold *** absent physical injury to tangible property." 307 Ill.
App. 3d at 884.
	Indeed, adopting the interpretation of "property damage"
advanced by the policyholders would lead to absurd results. First,
if we were to hold that the installation of a fully functional
plumbing system constituted "physical injury to tangible
property," we would effectively eliminate the word "physical"
from the policies' definition of "property damage" and thereby
fundamentally alter the terms of the insurance contract entered into
between the parties. Construing "physical injury" in this manner
would violate the paramount rule in interpreting policy provisions,
which is to ascertain and give effect to the intent of the parties. See
Outboard Marine, 154 Ill. 2d  at 115.
	In addition, if we were to accept the policyholders' argument
that, even though a product fails years after its installation, the
"property damage" can nevertheless be backdated to the time the
product was initially installed, this would lead to the absurd result
that liability insurance policies are triggered not by the actual
product failure, but instead by the potential for the product's
failure in the future. Although the installation of a Qest system in
a residence exposes the homeowner to an approximately 5% risk
that the system may fail at some point in the future, the installation
remains an "exposure to conditions," which does not trigger
coverage under the post-1981 policies. We further agree with the
observation of amicus that "[t]o allow the [policyholders] to reach
back in time and trigger old policies *** would eviscerate another
critical term of the policies: the policy period. Insurance contracts
do not provide perpetual coverage; they provide coverage only for
injury that actually occurs during a finite policy period. Absent the
ability to define and limit contractual risks, insurers cannot
effectively spread those risks and contain the costs of insurance."
	Finally, we observe that if we were to interpret the post-1981
excess CGL policies as urged by the policyholders, "the policy
would not only provide insurance against tort liability, but would
function as a performance bond as well." Diamond State, 243 Ill.
App. 3d at 482; Qualls v. Country Mutual Insurance Co., 123 Ill.
App. 3d 831, 833-34 (1984). As explained more fully in Qualls:
			"[C]omprehensive general liability policies *** are
intended to protect the insured from liability for injury or
damage to the persons or property of others; they are not
intended to pay the costs associated with repairing or
replacing the insured's defective work and products,
which are purely economic losses. [Citations.] Finding
coverage for the cost of replacing or repairing defective
work would transform the policy into something akin to
a performance bond." Qualls, 123 Ill. App. 3d at 833-34.
Accordingly, the circuit court correctly denied the policyholders'
cross-motion for summary judgment on the trigger of coverage
issue with respect to the post-1981 policies.
	Having defined the term "physical injury to tangible property"
within the meaning of the post-1981 excess CGL policies, we now
determine when such damage occurs, under the facts before us, for
purposes of triggering the insurers' duty to indemnify. We hold
that coverage under the post-1981 policies is triggered ("property
damage" takes place) at such time that a claimant suffers "physical
injury to tangible property" in the form of water damage due to
leaks from the Qest system. Accordingly, coverage under the post-1981 policies is not triggered if the date of the "physical
injury"-the water damage due to a leak-occurs after the policy
period, even if the installation of the Qest system occurs within the
policy period.
	As previously stated, the duty to indemnify arises when the
insured has incurred liability in the underlying claims, and the
insured's activity and resulting loss or damage actually falls within
the coverage of the CGL policy. Outboard Marine, 154 Ill. 2d at
127-28; Zurich, 118 Ill. 2d  at 52. As observed above in the course
of the discussion of the pre-1982 policies, the vast majority of
Qest claims which have either been settled or have resulted in
judgment against the policyholders are cases in which an actual
leak of the Qest system occurred. The record also reveals that
these claims sought recovery for, inter alia, water damage to the
home, the home's fixtures, and personal property contained within
the residence. We hold that the insurers' duty to indemnify the
policyholders for leak claims in which claimants recovered for
these specific damages was triggered at the time the water damage
occurred. The insurers have no duty to indemnify the
policyholders, however, for any damages recovered by leak
claimants for the diminution in value of the residence resulting
from the presence of the allegedly defective Qest system. As
previously determined, such purely economic losses, resulting
from the Qest system's failure to perform for the general purposes
for which it was manufactured and sold, do not trigger coverage
under the post-1981 policies in the absence of a "physical" injury
to the property. Accordingly, we affirm the circuit court's grant of
summary judgment on this issue as to the post-1981 insurers.
	However, because this is a duty-to-indemnify action, we agree
with the appellate court that a declaration with respect to the
insurers' duty to indemnify is premature as to those cases still
pending against the insurers. As stated, such cases will become
ripe at the time that the underlying claims are resolved.
	As a final matter, we note that the record further reveals that
a minority of claims filed against the policyholders sought
recovery for the diminution in value of the residential property due
to the presence of the Qest system in the home prior to the
systems' leaking, as well as the cost of replacing those systems.
We hold that coverage under the post-1981 policies is not
triggered in the context of a claimant's voluntary decision to
replace a fully functional Qest system prior to the development of
a leak. Although a claimant may understandably be concerned by
reports that an estimated 5% of the Qest systems have experienced
failures, the damage caused to a home by the removal of a
functional system prior to a leak does not constitute "physical
injury to tangible property" arising from a covered occurrence
under the policies. The "injury" caused by the Qest system under
these facts flows from the claimant's disappointed commercial
expectations in the performance of the Qest system and is not an
injury which is "physical" in nature.(6) As stated, the post-1981
policies do not provide coverage for economic loss claims against
the policyholders. Consistent with the policy language agreed upon
by the parties to the insurance contract, the insurers did not
consent to become guarantors of the product quality or the
performance of the Qest systems. We therefore agree with the
insurers in their cross-appeal that the appellate court erred in
finding that coverage under the post-1981 policies may be
triggered prior to the occurrence of an actual leak if, in the course
of replacing the Qest system, actual physical damage is caused to
the home itself. Accordingly, we reverse the judgment of the
appellate court on this issue.

CONCLUSION
	For the foregoing reasons, the circuit court's grant of
summary judgment is reversed as to the pre-1982 insurers and
affirmed as to the post-1981 insurers. The appellate court's
judgment is affirmed, with the exception of its holding concerning
the voluntary removal of a nonleaking Qest system, which is
reversed. The cause is remanded to the circuit court for further
proceedings consistent with this opinion.

Appellate court judgment affirmed in part
 and reversed in part;
 circuit court judgment affirmed in part
and reversed in part;
cause remanded.
 



 



1.      1The insurance companies which are party to this appeal consist of
two groups: those which issued policies between 1979 and 1981 (pre-1982 policies) and those which issued policies between 1982 and 1990
(post-1981 policies). The pre-1982 policies were issued by Aetna
Casualty and Surety Company, Allstate Insurance Company, Employers
Mutual Casualty Company, Gibraltar Casualty Company, Lexington
Insurance Company, National Union Fire Insurance Company, North
River Insurance Company and Old Republic Insurance Company. The
post-1981 policies were issued by Travelers Casualty and Surety
Company, Traveler's Insurance Group, Continental Insurance Company,
Royal Insurance Company, Zurich International Limited, National
Surety Corporation, Granite State Insurance Company, National Union
Fire Insurance Company, Federal Insurance Company, International
Insurance Company, Hartford Accident and Indemnity Company, First
State Insurance Company, and Century Indemnity Company. For
purposes of this appeal, we collectively refer to all insurance company
parties as "the insurers."

2.      2The record reveals that, through the end of 1993, 202 lawsuits
(representing approximately 26,700 Qest residential installations) were
settled, and that U.S. Brass had incurred approximately $64 million in
liabilities as a result of these claims.

3.      3According to documents filed by U.S. Brass and the Eljer companies
in the federal bankruptcy actions, 108 lawsuits covering approximately
30,000 claims involving Qest Systems remained pending as of March
31, 1994. 

4.      4According to the affidavit of Catherine Bracken, after 1986,
insurance policies which covered the liability of U.S. Brass and the
Eljer companies contained a variety of exclusionary clauses with respect
to coverage for Qest claims. These exclusionary clauses are not at issue
in this appeal, and we express no opinion on them. 

5.      5As additional support for its conclusion that "property damage"
occurred under the facts presented, the Marathon court also made
citation to, and discussed, Elco Industries, Inc. v. Liberty Mutual
Insurance Co., 90 Ill. App. 3d 1106 (1980). The Elco court, citing to the
decision in Pittway, held that "property damage," defined in the Elco
policies as simply "injury to the tangible property," includes "tangible
property which has been diminished in value or made useless
irrespective of any actual physical injury to the tangible property." Elco,
90 Ill. App. 3d at 1111. 

6.      6We note that our decision today does not preclude homeowners
from obtaining compensation for their economic losses from the
manufacturer of a defective product or, where appropriate, those in the
line of the distribution of the product.