Wisconsin Pharmacal Company, LLC v. Nebraska Cultures of California, Inc.
2016 WI 14
| Wis. | 2016Background
- Pharmacal contracted Nutritional Manufacturing to produce probiotic tablets containing Lactobacillus rhamnosus (LRA).
- Nebraska Cultures supplied the LA probiotic instead of LRA, and Jeneil supplied LA to Nebraska Cultures for Nutriational Manufacturing.
- The finished tablets were manufactured, packaged, and shipped to Pharmacal and then to a retailer, where they were recalled upon discovery of LA instead of LRA.
- Pharmacal and the retailer destroyed the recalled tablets; Pharmacal asserted multiple contract and tort claims against Nebraska Cultures, Evanston, Jeneil, and Netherlands.
- The circuit court granted summary judgment to the insurers, concluding no coverage existed under the policies for the remaining claims.
- The court of appeals held there was a potential initial grant of coverage under the Netherlands and Evanston policies, requiring examination of property damage, occurrences, and exclusions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does incorporation of a defective ingredient amount to property damage caused by an occurrence under the Netherlands policy? | Pharmacal argues there is property damage to the tablets and/or other property caused by an occurrence. | Netherlands contends there is no property damage or occurrence under the policy due to an integrated system. | No initial grant of coverage; no property damage caused by an occurrence under Netherlands. |
| Does incorporation of a defective ingredient amount to property damage caused by an occurrence under the Evanston policy? | Pharmacal asserts property damage and an occurrence under California-law analysis. | Evanston argues no property damage or occurrence, or exclusions apply. | No initial grant of coverage; no property damage caused by an occurrence under Evanston. |
| Do the policies' impaired-property exclusions negate any potential coverage? | Pharmacal contends exclusions do not apply to bar coverage if there is property damage from an occurrence. | Netherlands and Evanston argue impaired-property exclusions negate coverage even if there were an initial grant. | Impaired-property exclusions negate coverage; no coverage even if there were an occurrence. |
| If there were property damage from an occurrence, do the exclusions completely negate coverage under both policies? | There could be coverage notwithstanding exclusions depending on the facts. | Exclusions apply to bar coverage for impaired property and contractual-failure-type harms. | Exclusions apply; no coverage under either policy. |
Key Cases Cited
- Wis. Label Corp. v. Northbrook Prop. & Cas. Ins. Co., 233 Wis. 2d 314 (Wis. 2000) (defines property damage and integrated-system considerations)
- Vogel v. Russo, 236 Wis. 2d 504 (Wis. 2000) (defines property damage and loss of use for CGL policies)
- Wausau Tile, Inc. v. Cnty. Concrete Corp., 226 Wis. 2d 235 (Wis. 1999) (integrated-system analysis for damage to product vs. other property)
- East River S.S. Corp. v. Transamerica Delaval, Inc., 476 U.S. 858 (U.S. Supreme Court 1986) (integrated-system concept informing how damage to the product affects the system)
- American Family Mut. Ins. Co. v. Am. Girl, Inc., 268 Wis. 2d 16 (Wis. 2004) (economic loss rule does not determine insurance coverage; policy language governs)
- Shade Foods, Inc. v. Innovative Prods. Sales & Mktg., Inc., 78 Cal. App. 4th 847 (Cal. Ct. App. 2000) (integrated-component injuries and loss of use in California)