Wisconsin Pharmacal Co. v. Nebraska Cultures of California, Inc.
2014 WI App 111
Wis. Ct. App.2014Background
- This is an insurance coverage dispute over a misrepresented ingredient in a dietary supplement.
- Pharmacal ordered rhamnosus for a probiotic tablet; Nebraska Cultures and Jeneil supplied the wrong ingredient (acidophilus).
- The finished product was recalled as unusable; the injury affected third-party property (other ingredients, packaging, tooling).
- Policies issued by Evanston (to Nebraska Cultures) and Netherlands (to Jeneil) provide CGL coverage with various exclusions.
- The circuit court granted summary judgment for the insurers, ruling no initial coverage and applying exclusions; on appeal the issue was whether there is an initial grant of coverage for property damage caused by an occurrence.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether there is an initial grant of coverage for property damage caused by an occurrence | Nebraska Cultures/Jeneil: there was an occurrence causing property damage to other ingredients. | Evanston/Netherlands: no occurrence because misdelivery is not an accident and property damage is limited to the insured product. | Yes, there is an initial grant of coverage for property damage caused by an occurrence. |
| Whether the incorporation of the wrong product into the final product constitutes property damage | Damage to third-party property occurred when acidophilus was incorporated and rendered the product unusable. | Damage is only to the insured product or lacks physical injury to other property. | Yes, it constitutes property damage to other tangible property. |
| Whether the occurrence was accidental rather than intentional conduct | Injury arose from negligent provision of the wrong ingredient; not intentional harm. | Everson/Stuart II suggest misrepresentation or volitional acts negate occurrence. | Occurrence here is accidental; misrepresentation alone does not negate coverage. |
| Application of exclusions (recall, your product, impaired property) to defeat coverage | Exclusions do not bar coverage for third-party property damage caused by incorporation of wrong product. | Recall and other exclusions may bar coverage for damages tied to the insured product. | Recall exclusions do not defeat third-party property damage; other exclusions do not preclude coverage in this context. |
| Duty to defend at the four-corners stage | Based on complaint alone, there is potential coverage requiring defense. | Not expressly addressed; four-corners analysis governs initial duty to defend. | There is an arguable duty to defend at the four-corners stage. |
Key Cases Cited
- American Family Mut. Ins. Co. v. American Girl, Inc., 268 Wis. 2d 16 (Wis. 2004) (initial grant of coverage; tort/contract label not controlling)
- Aetna Cas. & Sur. Co. v. M & S Indus., Inc., 827 P.2d 321 (Wash. Ct. App. 1992) (incorporation doctrine; damage to property of another permits coverage)
- Stuart v. Weisflog's Showroom Gallery, Inc. (Stuart II), 311 Wis. 2d 492 (Wis. 2008) (misrepresentation not an accident; coverage analyzed under four corners and exclusions)
- Everson v. Lorenz, 280 Wis. 2d 1 (Wis. 2005) (misrepresentation not an accident; scope of occurrence defined)
- Glendenning's Limestone & Ready-Mix Co. v. Reimer, 295 Wis. 2d 556 (Wis. Ct. App. 2006) (coverage determined by policy terms; nature of property and injury)
- Terra Indust., Inc. v. National Union Fire Ins. Co. of Pittsburgh, 346 F.3d 1160 (8th Cir. 2003) (beverage CO2 contamination as occurrence)
- Shade Foods, Inc. v. Innovative Prods. Sales & Mktg., 93 Cal. Rptr. 2d 364 (Cal. Ct. App. 2000) (incorporation of adulterated ingredients as occurrence)