Insurance — CGL policies — incorporation

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Wisconsin Court of Appeals

Civil

Insurance — CGL policies — incorporation

An insured suppliers’ negligent provision of an ingredient that renders the other ingredients and the final product unusable when incorporated constitutes an occurrence resulting in property damage under a CGL policy.

“American Girl also makes clear that, to the extent an insurer seeks to exclude contract claims associated with the insured’s defective product, it is by operation of the business risk exclusions, not by reading what is not there into the insurance contract’s initial coverage grant. See id., ¶¶39, 41 & n.6, 43-47. The exclusions generally limit coverage for the insured’s own product, for the loss of use of property that has not been physically injured, and for impaired property where the insured’s product can be removed, repaired, or replaced. These exclusions do not apply here to defeat coverage for third-party property damage. See 9A LEE R. RUSS, ET AL., COUCH ON INSURANCE 3d § 129:21, at 129-44 (rev. ed. 2009) (‘[T]he [impaired property] exclusion does not apply where there is physical damage to the other property into which the insured’s work or product has been incorporated ….’). If insurers want to exclude coverage for physical injury to other third-party component property caused by incorporation of the wrong product (i.e., to import the economic loss/integrated product doctrine into the policy), they can do so by writing their business risk exclusions accordingly. ‘It is entirely possible that one could do a negligent act, which would form the basis for a breach of contract claim. It would be an easy matter to have the insurance policy state that is does not cover facts that arise out of what is a breach of contract, if that was indeed [the insurer’s] intention.’ 1325 N. Van Buren, 293 Wis. 2d 410, ¶62.”

Reversed and Remanded.

Recommended for publication in the official reports.

2013AP613 & 2013AP687 Wisconsin Pharmacal Co. LLC v. Nebraska Cultures of California Inc.

Dist. II, Ozaukee County, Wolfgram, J., Neubauer, J.

Attorneys: For Appellant: Baxter, James A., Milwaukee; Schepp, Rachel N., Milwaukee; For Respondent: Schrimpf, Thomas R., Milwaukee; Odian, Elizabeth, Milwaukee