In the

    United States Court of Appeals
                 For the Seventh Circuit
                     ____________________
No. 19-1062
LEXINGTON INSURANCE COMPANY,
                                                     Plaintiff-Appellee,
                                  v.

CHICAGO FLAMEPROOF & WOOD
SPECIALTIES CORPORATION,
                                                 Defendant-Appellant.
                     ____________________

             Appeal from the United States District Court
        for the Northern District of Illinois, Eastern Division.
              No. 17-cv-03513 — Elaine E. Bucklo, Judge.
                     ____________________

  ARGUED FEBRUARY 13, 2020 — DECIDED FEBRUARY 27, 2020
                ____________________

   Before FLAUM, MANION, and BARRETT, Circuit Judges.
   FLAUM, Circuit Judge. The district court held that Lexington
Insurance Company (“Lexington”) owed no duty to defend
Chicago Flameproof & Wood Specialties Corporation (“Chi-
cago Flameproof”) in three underlying lawsuits. We affirm.
The underlying complaints do not allege an “occurrence”—or
accident—as is required to trigger Lexington’s duty to defend
under the insurance policy at issue.
2                                                   No. 19-1062

                        I. Background
    Chicago Flameproof is an Illinois-based distributor of
commercial building materials, including fire retardant and
treated lumber (“FRT lumber”). During the relevant time,
Chicago Flameproof maintained a general liability insurance
policy through Lexington. Under the policy, Lexington has
“the right and duty to defend [Chicago Flameproof] against
any suit seeking [covered] damages” but no duty to defend
against a suit seeking uncovered damages.
    The policy provides that Lexington will pay sums that
Chicago Flameproof “becomes legally obligated to pay as
damages because of … property damage” that is “caused by
an occurrence that takes place in the coverage territory.” The
policy defines “occurrence” as “an accident, including contin-
uous or repeated exposure to substantially the same general
harmful conditions.” The policy defines “property damage”
as “physical injury to tangible property, including all result-
ing loss of that property,” or “loss of use of tangible property
that is not physically injured.”
    Lexington and Chicago Flameproof dispute whether the
policy potentially covers damages alleged against Chicago
Flameproof in three lawsuits—one in federal court in Minne-
sota and two in Minnesota state courts—all stemming from
Chicago Flameproof’s sale of lumber to Minnesota-based res-
idential and commercial contractors JL Schwieters Construc-
tion, Inc. and JL Schwieters Building Supply, Inc. (collectively,
“Schwieters”). According to the underlying complaints,
Schwieters contracted with two building contractors, Big-D
Construction Midwest, LLC and DLC Residential, LLC (col-
lectively, the “general contractors”), to provide labor and ma-
terial for the framing and paneling for four building projects
No. 19-1062                                                   3

in Minnesota. Elness Swenson Graham Architects, Inc. (“El-
ness”), the architectural firm for all four projects, required
that FRT lumber meeting the requirements set forth in the In-
ternational Building Code (“IBC”) be used for the exterior
walls of each building.
    The IBC is a model building code that sets forth standards
for the construction process, including “detailed labeling
standards for FRT lumber, requiring that eight specific pieces
of information be stamped on each piece of FRT lumber.”
Minnesota and Illinois have adopted the IBC and its testing
and certification requirements for FRT lumber. All fifty states
have adopted some version of the IBC.
    Schwieters alleges that it contracted with Chicago Flame-
proof to purchase a particular brand of FRT lumber, D-Blaze
lumber, for use in the four projects. According to the under-
lying complaints, “Chicago Flameproof knew or had reason
to know that [Schwieters] was purchasing FRT lumber for the
particular purpose of installing it in buildings that required
IBC-compliant FRT lumber.” Given that “Chicago Flame-
proof is one of the geographically closest FRT lumber suppli-
ers to Minnesota,” the underlying complaints allege that
“Chicago Flameproof knew or should have known that the
IBC and the IBC testing and certification requirements for
FRT lumber had been adopted by the State of Minnesota.”
   Chicago Flameproof nevertheless made a “unilateral deci-
sion” to instead deliver its in-house FlameTech brand lumber,
which purportedly was not IBC-compliant FRT lumber be-
cause it had not been tested, certified, listed, or labeled pur-
suant to IBC requirements. The FlameTech lumber thereby
“did not meet the IBC definition of FRT lumber” and there-
4                                                 No. 19-1062

fore “was not actually FRT lumber.” Chicago Flameproof al-
legedly “concealed that … [the] FlameTech lumber had not
been tested or listed pursuant to IBC requirements for FRT
lumber.”
   Apparently unaware that Chicago Flameproof had deliv-
ered uncertified lumber, Schwieters installed the FlameTech
lumber in all four building projects. After Elness, the general
contractors, and the building owners discovered that the lum-
ber was not IBC-certified, they instructed Schwieters to re-
move it and replace it with IBC-certified FRT lumber. Chicago
Flameproof ultimately “admitted” that it had shipped
“FlameTech lumber rather than the D-Blaze FRT lumber ad-
vertised on its website and ordered by” Schwieters.
    The underlying complaints allege that, as a supplier of
commercial building materials, “Chicago Flameproof was or
should have been aware of the importance of IBC testing and
certification requirements for FRT lumber and was or should
have been aware of the potential consequences associated
with a failure to comply with IBC testing and certification re-
quirements.” Indeed, Chicago Flameproof displayed on its
website that it had “expertise in the specification and use of
treated wood products.” Here, the consequences of Chicago
Flameproof’s alleged failure to supply IBC-certified lumber
included that the uncertified FlameTech lumber was ulti-
mately removed and replaced with IBC-certified FRT lumber,
damaging the surrounding materials into which the lumber
had been integrated.
    Schwieters sued Chicago Flameproof in federal court in
Minnesota, charging it with negligent misrepresentation,
fraudulent misrepresentation, deceptive business practices,
false advertising, consumer fraud, breach of warranties, and
No. 19-1062                                                  5

breach of contract. Under the federal complaint’s negligent
misrepresentation count, Schwieters alleges that Chicago
Flameproof represented that it had D-Blaze FRT lumber avail-
able for purchase but did not exercise reasonable care when it
“fail[ed] to communicate to [Schwieters] that it did not have
sufficient quantity of D-Blaze FRT lumber in stock to fulfill
[Schwieters]’s orders, fail[ed] to communicate to [Schwieters]
Chicago Flameproof’s unilateral decision to ship FlameTech
lumber to [Schwieters] in place of the D-Blaze FRT lumber
that had been ordered, and fail[ed] to disclose that the Flame-
Tech lumber supplied to [Schwieters] did not comply with
IBC requirements related to the testing, listing, and labeling
of FRT lumber and thus was not FRT lumber.” The fraudulent
misrepresentation count alleges that Chicago Flameproof
“knew that it did not have sufficient quantities of D-Blaze FRT
lumber available for purchase and intended to fill orders with
its own in-house manufactured brand, FlameTech,” and that
Chicago Flameproof knew its “statements on its website that
its lumber was tested, listed, and labeled in accordance with
IBC requirements were false.” Schwieters also brought third-
party complaints in Minnesota state court against Chicago
Flameproof seeking contribution and indemnification for the
same conduct. The damages alleged in the underlying law-
suits include damages to the exterior walls, wiring, and insu-
lation resulting from the process of removing and replacing
the FlameTech lumber.
    Lexington filed this declaratory judgment action, seeking
a ruling that it owes no duty to defend Chicago Flameproof
for the conduct alleged in the underlying complaints. The dis-
trict court entered summary judgment for Lexington, holding
that if “Flameproof knowingly supplied non-IBC-compliant
6                                                      No. 19-1062

lumber and concealed that it did so,” as the underlying com-
plaints assert, “then the property damage that allegedly re-
sulted from tearing out that non-compliant lumber cannot be
said to have been caused by an accident. Rather, these dam-
ages are the natural and ordinary consequence of knowingly
supplying a non-compliant product and thus do not poten-
tially fall within the [] policy’s coverage.”
    Chicago Flameproof now appeals the district court’s entry
of summary judgment for Lexington, arguing that Lexington
must defend it because Chicago Flameproof’s shipment of
lumber and the tearing out of that lumber were occurrences
that caused property damage. Lexington responds that the
underlying complaints do not trigger its duty to defend be-
cause the complaints do not allege property damage caused
by an occurrence, and that coverage is otherwise excluded by
the insurance policy’s business risk exclusions. 1
                            II. Discussion
    A. Standard
    “We review the district court’s interpretation of the insur-
ance policy at issue and the resulting grant of summary judg-
ment de novo.” Westfield Ins. Co. v. Nat’l Decorating Serv., Inc.,

, 694–95 (7th Cir. 2017). To determine whether
Lexington owes a duty to defend, we liberally construe the
allegations in the underlying complaints in favor of Chicago
Flameproof and compare those allegations to the insurance
policy. 

    1 Chicago Flameproof did not respond to Lexington’s invocation of
the business risk exclusions.
No. 19-1062                                                      7

    “The duty to defend is triggered if the allegations in the
underlying complaint[s] fall within, or potentially within, the
policy’s coverage.” 

not triggered, however, if it is
“clear from the face of the underlying complaint[s] that the
allegations fail to bring the case within or potentially within[]
the policy’s coverage.” 

marks and cita-
tion omitted).
    An insurer must defend an insured even if only one theory
of recovery in the underlying complaints is within the poten-
tial coverage of the policy. U.S. Fidelity & Guar. Co. v. Wilkin
Insulation Co., 

, 930 (Ill. 1991). But “little weight
is given to the legal label under which a count is brought; ra-
ther, the determination regarding whether there is a duty to
defend focuses on the conduct alleged.” Ill. Cas. Co. v. W. Dun-
dee China Palace Rest., Inc., 

, ¶ 20 (cita-
tion omitted). We must read the underlying complaints as a
whole to assess the true nature of the allegations. 

Illinois law the duty to defend is broad, the duty is not
limitless.” 

.
   B. “Occurrence”
    The underlying complaints do not trigger Lexington’s
duty to defend because they do not allege an “occurrence.”
An “occurrence” under the insurance policy is an “accident,”
which under Illinois law is “an unforeseen occurrence, usu-
ally of an untoward or disastrous character or an undesigned
sudden or unexpected event of an inflictive or unfortunate
character.” Acuity Ins. Co. v. 950 W. Huron Condo. Ass’n, 

, ¶ 28, appeal denied, 

(Ill.
2019) (citations omitted). If an act results in an injury that “is
the rational and probable consequence of the act or, stated dif-
ferently, the natural and ordinary consequence of the act,”
8                                                    No. 19-1062

then the act “is not an accident.” Stoneridge Dev. Co., Inc. v.
Essex Ins. Co., 

, 652 (Ill. App. Ct. 2008) (internal
citations and quotation marks omitted).
    The underlying complaints allege that, as a supplier of
commercial building materials, Chicago Flameproof was or
should have been aware of the importance of IBC certification
requirements and the consequences of failing to comply with
them. Chicago Flameproof nevertheless made a “unilateral
decision” to ship FlameTech—which had not gone through
the IBC-certification process—rather than the D-Blaze FRT
lumber that Schwieters had ordered and that had gone
through the IBC-certification process. Chicago Flameproof
then “concealed” that it had shipped lumber that was not IBC-
certified. The natural and ordinary consequence of supplying
and concealing that it had supplied uncertified lumber, given
the IBC certification requirements, was that the lumber would
need to be removed and replaced with lumber that had been
certified as IBC-compliant. That, in turn, would damage the
surrounding materials into which the lumber had been inte-
grated.
    Hence, according to the underlying complaints, Chicago
Flameproof deliberately shipped uncertified lumber, con-
cealed that fact, and was aware or should have been aware of
the consequences of those actions—namely, that the uncerti-
fied lumber would need to be ripped and torn from the pro-
jects.
       [I]f a contractor uses inadequate building mate-
       rials, … he takes a calculated business risk that
       no damage will take place. If damage does take
       place, it flows as an ordinary and natural conse-
       quence of the contractor’s failure to perform the
No. 19-1062                                                    9

       construction properly or as contracted and there
       can be no coverage for such damage.
Viking Const. Mgmt., Inc. v. Liberty Mut. Ins. Co., 

,
7 (Ill. App. Ct. 2005) (citation and brackets omitted).
    The underlying complaints allege no “unforeseen,” “un-
designed,” or “unexpected” event. Acuity, 

, ¶ 28. The ripping and tearing out of the FlameTech
lumber was the natural and ordinary consequence of supply-
ing lumber that was not IBC-certified. Cf. Ind. Ins. Co. v. Hydra
Corp., 

, 73 (Ill. App. Ct. 1993) (“[T]he cracks in
the floor and the loose paint on the exterior of the building are
the natural and ordinary consequences of installing defective
concrete flooring and applying the wrong type of paint.”); Bi-
tuminous Cas. Corp. v. Gust K. Newberg Constr. Co., 

, 1010 (Ill. App. Ct. 1991) (“[T]he allegation of too hot and
too cold temperatures in the building are no more than the
natural and ordinary consequences of installing an inade-
quate HVAC system.”).
    Faulty workmanship may constitute an occurrence if it re-
sults in damages that exceed the scope of the insured’s work
product. See, e.g., Certain Underwriters at Lloyd’s London v.
Metro. Builders, Inc., 

, ¶¶ 46–56 (dis-
cussing cases); Acuity, 

, ¶ 43 (holding
there was occurrence where insured’s allegedly poor work-
manship caused damages “to occur to a part of the construc-
tion project outside of the [insured]’s scope of work”). There
also may be an occurrence where the insured “was unaware
of the defective nature” of its component until after it was in-
corporated into a finished product. Elco Indus., Inc. v. Liberty
Mut. Ins. Co., 

, 44 (Ill. App. Ct. 1980).
10                                                  No. 19-1062

    Here, however, the underlying complaints are incon-
sistent with the notion that Chicago Flameproof merely en-
gaged in shoddy workmanship or shipped lumber that had a
hidden defect resulting in damages that Chicago Flameproof
could not have reasonably expected. Rather, the underlying
complaints allege that Chicago Flameproof deliberately
shipped uncertified lumber despite knowing the conse-
quences of doing so.
    In Wilkin, the Illinois Supreme Court held that, given the
requirement to construe pleadings and insurance policies in
favor of the insured, the insured’s installation of asbestos-con-
taining products was an occurrence even though the underly-
ing complaints included a conclusory allegation that the in-
sured “knew or should have known of the propensity of [its]
product to release toxic asbestos 

(emphasis omitted). Conversely, this case includes more than
a conclusory allegation that Chicago Flameproof knew or
should have known of the consequences of its deliberate act.
    The underlying complaints provide that, as a supplier of
commercial building materials, Chicago Flameproof was or
should have been aware of IBC certification requirements. In-
deed, Chicago Flameproof held itself out as having “expertise
in the specification and use of treated wood products.” The
state where Chicago Flameproof was based (Illinois) and the
state where the projects were located (Minnesota) had both
adopted the IBC certification requirements for FRT lumber. In
fact, all fifty states had adopted some form of the IBC certifi-
cation requirements. Based on these allegations, Chicago
Flameproof was or should have been aware that its domestic
sales—and its sales relating to these projects in particular—
would need to comply with IBC certification requirements.
No. 19-1062                                                   11

There was nothing regarding the natural and ordinary conse-
quences of supplying uncertified lumber for projects that re-
quire certified lumber that was unknown or hidden to Chi-
cago Flameproof at the time it shipped the uncertified lumber.
    Chicago Flameproof would likely prefer that Schwieters
had left the uncertified FlameTech lumber in place pending
Chicago Flameproof’s efforts to obtain certification for it, but
that does not mean that Chicago Flameproof could not have
reasonably expected that Elness, the general contractors, or
the building owners would require the lumber to be removed
instead of waiting. While Chicago Flameproof may have an
argument regarding a failure to mitigate damages, we need
not resolve any such argument here. The underlying com-
plaints highlight that “Chicago Flameproof was or should
have been aware of the importance of IBC testing and certifi-
cation requirements for FRT lumber” beyond merely provid-
ing lumber that is later found to have met the IBC require-
ments.
    Chicago Flameproof insists it believed that supplying the
FlameTech lumber would satisfy its contractual obligation to
supply FRT lumber because the FlameTech lumber satisfied
the IBC requirements even though it was not yet IBC-
certified. This does not square, however, with the allegations
in the underlying complaints that Schwieters ordered a spe-
cific brand of FRT lumber, D-Blaze, and that Chicago Flame-
proof knew or should have known of the importance of IBC
certification beyond merely satisfying other IBC require-
ments.
   Although the negligent misrepresentation count in one of
the underlying complaints uses the label “negligent,” “courts
give little weight to the label that characterizes the underlying
12                                                 No. 19-1062

allegations.” Farmers Auto. Ins. Ass’n v. Danner, 2012 IL App
(4th) 110461, ¶ 39 (internal quotation marks and citation omit-
ted). “The underlying complaint[s] must be read as a whole
to assess [their] true nature.” W. Dundee, 

, ¶ 20. Regardless of the labels used, the focus of our
inquiry remains on whether there was an “unfore-
seen[,] … undesigned, sudden, or unexpected event,” and
whether the injury alleged was the “natural and ordinary”
consequence of Chicago Flameproof’s actions. 

, 652. Acts that give rise to a negligent misrepre-
sentation claim can result in an occurrence “as long as the in-
sured did not expect or intend the injury.” USAA Cas. Ins. Co.
v. McInerney, 

, ¶ 18. “Expected inju-
ries are those that should have been reasonably anticipated by
the insured.” Farmers Auto. Ins. Ass’n v. Danner, 2012 IL App
(4th) 110461, ¶ 34.
    Schwieters has not alleged that Chicago Flameproof was
negligent or failed to exercise reasonable care when it made
the “unilateral decision” to ship uncertified lumber. Rather,
the underlying complaints allege in the negligent representa-
tion count that Chicago Flameproof did not exercise reasona-
ble care by representing that it had certified D-Blaze FRT lum-
ber available for purchase and by failing to notify Schwieters
that it had supplied uncertified lumber. As the district court
explained, when examining the underlying complaints as a
whole, “the thrust … is that Chicago Flameproof engaged in
deliberate conduct—the shipping of the wrong lumber and
the concealment of that fact—that caused the alleged property
damage.”
   Although some of the allegations used the language of
“negligence” or “reasonable care,” the injury alleged stems
No. 19-1062                                                             13

from Chicago Flameproof’s “unilateral decision” to supply
the uncertified lumber and concealment of having done so. Cf.
Farmers, 

, ¶ 40 (holding that despite
negligence label, insured’s conduct could “only be described
as intentional when considering the complaint as a whole”);
Pekin Ins. Co. v. Dial, 

, 992 (Ill. App. Ct. 2005)
(“[E]ven though count I of [the underlying] complaint was
couched in terms of negligence, the complaint alleged a
course of conduct that was clearly intentional and not merely
negligent or accidental.”). While exercising reasonable care by
informing Schwieters that it had shipped uncertified lumber
might have provided an opportunity to avoid the installation
and removal of the FlameTech lumber (and the resulting
damages), Chicago Flameproof’s failure to avail itself of that
opportunity does not undermine the conclusion that the dam-
age alleged was the natural and ordinary result of Chicago
Flameproof’s deliberate decision to supply, and conceal that
it had supplied, uncertified lumber. 2
                           III. Conclusion
    For the foregoing reasons, we AFFIRM the judgment of the
district court.




    2 Chicago Flameproof did not respond in appellate briefing or at oral
argument to Lexington’s argument that the insurance policy’s business
risk exclusions also preclude coverage. Because there was no “occur-
rence,” we need not rely on the business risk exclusions to decide this ap-
peal.