995 N.W.2d 257
Wis. Ct. App.2023Background
- Riverback Farms, a dairy, contracted with Saukville Feed for cattle rations; Integrity Nutrition (Freund) requested addition of Min‑Ad (bio‑available magnesium). Saukville intentionally substituted Fine Lime (a barnlime product) for Min‑Ad.
- Saukville’s owner testified the substitution was intentional but he did not expect or foresee harm; parties dispute whether Freund authorized any substitution.
- After the substitution (Dec 2015–mid‑2018), Riverback alleges herd health problems (metabolic acidosis, abomasal issues, grass tetany, sole ulcers) and decreased milk butterfat; butterfat levels improved after Min‑Ad was reinstated.
- Riverback sued Saukville (and others) for contract and related damages (veterinary/hoof costs, lost butterfat income). Secura (Saukville’s insurer) sought declaratory relief and summary judgment that it had no duty to defend/indemnify.
- The circuit court granted summary judgment for Secura, finding no covered “occurrence” and that reduced butterfat was not covered property damage. Riverback appealed.
- The Court of Appeals reversed: an intentional substitution can give rise to an accidental "occurrence" if resulting harm was unforeseen; the cattle’s physical injuries qualify as property damage; the impaired‑property exclusion does not bar coverage. Case remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Saukville’s intentional substitution can be an "occurrence" (an "accident") under the CGL policy | Substitution led to unforeseeable magnesium deficiency and physical harm; unforeseeable harm can be an occurrence | Because the substitution was intentional, it cannot be an "accident" and thus not an occurrence | Reversed: an intentional act can set in motion an unforeseeable event that is an "accident"/occurrence (per 5 Walworth) |
| Whether injuries to cattle constitute "property damage" under the policy | Physical injuries (ulcers, tetany, hoof lesions) are physical injury to tangible property and thus property damage | Insurer argued some claimed losses (like butterfat reduction) are economic/non‑physical and not covered | Held that the documented physical injuries to cattle are property damage, supporting possible coverage (veterinary/hoof costs acknowledged as covered) |
| Whether reduced butterfat production is covered property damage | Reduced butterfat resulted from physical injury and/or loss of use of tangible property (milk production) | Insurer argued lost butterfat is economic loss and not physical injury | Court found no need to resolve fully at summary judgment because physical injuries already create a possible initial grant of coverage; loss of butterfat not resolved here |
| Whether the impaired‑property exclusion bars coverage | Riverback: exclusion does not apply because cattle were physically injured and feed cannot be "repaired, replaced, or removed" from cattle | Secura: exclusion applies to "impaired property" caused by a defective product incorporated into property | Held exclusion inapplicable: exclusion targets non‑physically‑injured property that is merely less useful because it incorporates a defective product; here cattle suffered physical injury and feed could not be restored/removed as contemplated by the exclusion |
Key Cases Cited
- 5 Walworth, LLC v. Engerman Contracting, Inc., 408 Wis. 2d 39 (2023) (an intentional act can lead to an unforeseeable accident that constitutes an "occurrence" causing property damage)
- American Family Mut. Ins. Co. v. American Girl, Inc., 268 Wis. 2d 16 (2004) (faulty services or products can produce unintended settlement/injury that is an occurrence causing property damage)
- Wisconsin Label Corp. v. Northbrook Prop. & Cas. Ins. Co., 233 Wis. 2d 314 (2000) ("physical injury" ordinarily requires physical alteration/damage)
- Wisconsin Pharmacal Co., LLC v. Nebraska Cultures of California, Inc., 367 Wis. 2d 221 (2016) (discusses scope of physical injury and has been partially overruled/clarified by 5 Walworth)
- Kalchthaler v. Keller Constr. Co., 224 Wis. 2d 387 (Ct. App. 1999) (installation of defective components can cause accidental water infiltration constituting an occurrence)
- Acuity v. Society Ins., 339 Wis. 2d 217 (2012) (faulty work causing accidental soil erosion and collapse can be an occurrence)
- United Coop. v. Frontier FS Coop., 304 Wis. 2d 750 (2007) (sale of contaminated property involved an occurrence despite intentional representations)