Case Title: American Family Mutual Insurance Company v. American Girl, Inc.

Citation: 2004 WI 2

Docket Number: 2001AP001871

State: wisconsin

Court: Wisconsin Supreme Court

Date: 2004-01-09T00:00:00Z

Document:
2004 WI 2 
 
 
 
SUPREME COURT OF WISCONSIN 
 
 
 
 
CASE NO.: 
01-1871 
COMPLETE TITLE: 
 
 
American Family Mutual Insurance Company,  
          Plaintiff-Appellant-Cross- 
          Respondent, 
     v. 
American Girl, Inc., f/k/a Pleasant Company, 
Inc. 
          Defendant-Respondent-Cross- 
          Appellant-Petitioner, 
The Renschler Company, Inc.,  
          Defendant-Third-Party Plaintiff- 
          Respondent-Cross-Appellant- 
          Petitioner, 
     v. 
West American Insurance Company, The Ohio  
Casualty Insurance Company, Regent  
Insurance Company and General Casualty  
Company of Wisconsin,  
          Third-Party Defendants- 
          Respondents-Cross-Respondents. 
 
 
 
 
REVIEW OF A DECISION OF THE COURT OF APPEALS 
2002 WI App 229 
Reported at: 257 Wis 2d. 771, 652 N.W.2d 123 
(Ct. App. 2002-Published) 
 
 
OPINION FILED: 
January 9, 2004   
SUBMITTED ON BRIEFS: 
        
ORAL ARGUMENT: 
September 9, 2003   
 
 
SOURCE OF APPEAL: 
 
 
COURT: 
Circuit   
 
COUNTY: 
Dane   
 
JUDGE: 
John C. Albert   
 
 
 
JUSTICES: 
 
 
CONCURRED: 
        
 
DISSENTED: 
CROOKS, J., dissents (opinion filed). 
ROGGENSACK, J., joins dissent. 
ROGGENSACK, J., dissents (opinion filed).  
CROOKS, J., joins dissent. 
 
NOT PARTICIPATING: ABRAHAMSON, C.J., and WILCOX, J., did not 
participate.   
 
 
 
ATTORNEYS: 
 
 
 
2
For the defendant-third-party plaintiff-respondent-cross-
appellant-petitioner there were briefs by Robert J. Kay, Robert 
A. Mich, Jr. and Kay & Andersen, S.C., Madison, and Jeffrey W. 
Younger, Paul W. Schwarzenbart and Lee, Kilkelly, Paulson & 
Younger, 
S.C., 
Madison, 
and 
oral 
argument 
by 
Paul 
W. 
Schwarzenbart. 
 
For 
the 
defendant-respondent-cross-appellant-petitioner 
there were briefs by Michael G. Laskis, Michael B. Van Sicklen  
and Foley & Lardner, Madison, and oral argument by Michael G. 
Laskis. 
 
For the plaintiff-appellant-cross-respondent there were 
briefs by Wayne M. Yankala and Mingo & Yankala, S.C., Milwaukee, 
and oral argument by Wayne M. Yankala. 
 
For 
the 
third-party 
defendants-respondents-cross-
respondents, West American Insurance Company and The Ohio 
Casualty Insurance Company, there was a brief by Michael D. 
Lawrynk and Gabert, Williams, Konz & Lawrynk, Appleton, and oral 
argument by Michael D. Lawrynk. 
 
For 
the 
third-party 
defendants-respondents-cross-
respondents, Regent Insurance Company and General Casualty 
Company of Wisconsin, there were briefs by Robert F. Johnson, 
Lee Anne N. Conta, Colleen M. Fleming and Cook & Franke S.C., 
Milwaukee, and oral argument by Lee Anne N. Conta. 
 
An amicus curiae brief was filed by Thomas J. Misfeldt, 
Christine A. Gimber and Weld, Riley, Prenn & Ricci, S.C., Eau 
Claire, on behalf of Civil Trial Counsel of Wisconsin. 
 
An amicus curiae brief was filed by David A. Krutz, Dereck 
R. Brower and Michael Best & Friedrich LLP, Waukesha, on behalf 
of The American Subcontractors Association, Inc. 
 
An amicus curiae brief was filed by William E. McCardell 
and DeWitt Ross & Stevens S.C., Madison, and Teresa Mueller, 
Madison, 
on 
behalf 
of 
Associated 
General 
Contractors 
of 
Wisconsin, Inc., Associated General Contractors of Greater 
Milwaukee, and Allied Construction Employers Association. 
 
 
2004 WI 2 
NOTICE 
This opinion is subject to further 
editing and modification.  The final 
version will appear in the bound 
volume of the official reports.   
No.  01-1871  
(L.C. No. 
00 CV 0788) 
STATE OF WISCONSIN  
 
 
   : 
IN SUPREME COURT 
 
 
American Family Mutual Insurance Company,  
 
 
          Plaintiff-Appellant-Cross- 
          Respondent, 
 
     v. 
 
American Girl, Inc., f/k/a Pleasant Company, 
Inc.,  
 
          Defendant-Respondent-Cross- 
          Appellant-Petitioner, 
 
The Renschler Company, Inc.,  
 
          Defendant-Third-Party Plaintiff- 
          Respondent-Cross-Appellant- 
          Petitioner, 
 
     v. 
 
West American Insurance Company, The Ohio  
Casualty Insurance Company, Regent  
Insurance Company and General Casualty  
Company of Wisconsin,  
 
          Third-Party Defendants- 
          Respondents-Cross-Respondents. 
 
FILED 
 
JAN 9, 2004 
 
Cornelia G. Clark 
Clerk of Supreme Court 
 
 
 
 
 
No. 
01-1871   
 
2 
 
REVIEW of a decision of the Court of Appeals.  Reversed and 
cause remanded for further proceedings consistent with this 
opinion.   
¶1 
DIANE S. SYKES, J.   This insurance coverage dispute 
presents an array of legal issues pertaining to the proper 
interpretation of coverage and exclusion language in several 
post-1986 
commercial general 
liability 
("CGL") 
and 
excess 
insurance policies. 
¶2  The dispute initially focuses on the meaning of 
"property damage" and "occurrence" in the standard CGL insuring 
agreement's grant of coverage.  The parties also dispute the 
applicability of several exclusions: for "expected or intended" 
losses; "contractually-assumed liability"; and certain "business 
risks" (a/k/a "your work" or "your product" exclusions).  There 
is a question about the applicability of the "professional 
services 
liability" 
exclusion 
in 
certain excess 
policies.  
Finally, the parties dispute the effect of the economic loss 
doctrine on the availability of insurance coverage, as well as 
the application of the common law "known loss" doctrine to 
certain of the policies. 
¶3  The factual context is a construction project gone 
awry: a soil engineering subcontractor gave faulty site-
preparation advice to a general contractor in connection with 
the construction of a warehouse.  As a result, there was 
excessive settlement of the soil after the building was 
completed, causing the building's foundation to sink.  This 
caused the rest of the 
structure 
to 
buckle 
and 
crack.  
No. 
01-1871   
 
3 
 
Ultimately, the building was declared unsafe and had to be torn 
down. 
¶4  The general contractor, potentially liable to the 
building owner under certain contractual warranties, notified 
its insurance carriers of the loss.  Contractually-required 
arbitration between the owner and the contractor was initiated 
and stayed pending resolution of coverage questions involving 
several of the contractor's insurers.  The circuit court, on 
summary judgment, found coverage under some but not all of the 
policies.  The court of appeals reversed, concluding that the 
"contractual liability" exclusion in each of the policies 
excluded coverage.1  We reverse. 
¶5  The threshold question is whether the claim at issue 
here is for "property damage" caused by an "occurrence" within 
the meaning of the CGL policies' general grant of coverage.  We 
hold that it is.  The CGL policies define "property damage" as 
"physical injury to tangible property."  The sinking, buckling, 
and cracking of the warehouse was plainly "physical injury to 
tangible property."  An "occurrence" is defined as "an accident, 
including continuous or repeated exposure to substantially the 
same general harmful condition."  The damage to the warehouse 
was caused by substantial soil settlement underneath the 
completed building, which occurred because of the faulty site-
preparation advice of the soil engineering subcontractor.  It 
                                                 
1 American Family Mut. Ins. Co. v. Pleasant Co., 2002 WI App 
229, 257 Wis. 2d 771, 652 N.W.2d 123.   
No. 
01-1871   
 
4 
 
was accidental, not intentional or anticipated, and it involved 
the "continuous or repeated exposure" to the "same general 
harmful condition."  Accordingly, there was "property damage" 
caused by an "occurrence" within the meaning of the CGL 
policies.  
¶6  We also conclude that the economic loss doctrine does 
not preclude coverage.  The economic loss doctrine generally 
operates to confine contracting parties to contract rather than 
tort remedies for recovery of purely economic losses associated 
with the contract relationship.  The doctrine does not determine 
insurance coverage, which turns on the policy language.  That 
the property damage at issue here is actionable in contract but 
not in tort does not make it "non-accidental" or otherwise 
remove it from the CGL's definition of "occurrence." 
¶7  We further hold that because the property damage at 
issue here was neither expected nor intended, the "expected or 
intended" exclusion does not apply. 
¶8 
The "contractually-assumed liability" exclusion (upon 
which the court of appeals rested its no-coverage conclusion) 
eliminates coverage for damages the insured is obligated to pay 
"by reason of the assumption of liability in a contract or 
agreement."  We conclude that this language does not exclude 
coverage for all breach of contract liability.  Rather, it 
excludes coverage for liability that arises because the insured 
has contractually assumed the liability of another, as in an 
indemnification or hold harmless agreement.  There is no 
No. 
01-1871   
 
5 
 
indemnification or hold harmless agreement at issue here, so 
this exclusion does not apply.  
¶9  We also conclude that while the "business risk" or 
"your work" exclusions ordinarily would operate to exclude 
coverage 
under 
the 
circumstances 
of 
this 
case, 
the 
"subcontractor" exception applies here.  The subcontractor 
exception to the business risk exclusion restores coverage if 
"the work out of which the damage arises" was performed by a 
subcontractor. 
¶10  In addition, we conclude that the "professional 
services liability" exclusion in the excess policies applies 
under the circumstances of this case.  And finally, coverage 
under the policies issued after the property damage loss was 
substantially known to the parties is barred by the "known loss" 
doctrine. 
I.  FACTS AND PROCEDURAL HISTORY 
¶11  In 1994 The Pleasant Company ("Pleasant") entered into 
a contract with The Renschler Company for the design and 
construction of a large distribution center warehouse, dubbed 
the "94DC," on Pleasant's Middleton, Wisconsin, campus.  Under 
the terms of the contract, Renschler warranted to Pleasant that 
the design and structural components of the 94DC would be free 
from defects, and that Renschler would be liable for any 
consequential damages caused by any such defects.  (Pleasant 
changed its name to American Girl, Inc., several days before the 
issuance of this opinion; we will refer to the company as it was 
known throughout these proceedings.)   
No. 
01-1871   
 
6 
 
¶12 Renschler hired Clifton E.R. Lawson (Lawson), a soils 
engineer, to conduct an analysis of soil conditions at the site.  
Lawson concluded that the soil conditions were poor and 
recommended "rolling surcharging" to prepare the site for 
construction.  Surcharging is a process by which soils are 
compressed to achieve the density required to support the weight 
of a building or other structure.  The process usually involves 
placing large quantities of earth above the soil and allowing 
the earth to bear down on the soils.  Typically this requires 
bringing in enough earth to cover the entire site, which can be 
very costly, and so for large projects like the 94DC, small 
areas of the site are compressed individually, and the earth is 
rolled from one area to the next.   
¶13 The 
surcharging 
was 
done 
according 
to 
Lawson's 
professional 
advice, 
and 
the 
building 
was 
substantially 
completed in August 1994.  Pleasant took occupancy, and soon 
thereafter the 94DC began to sink.  By the spring of 1995 the 
settlement at one end of the structure had reached eight inches. 
¶14  Renschler became aware of the problem in March 1995, 
and Lawson was subsequently advised.  In the fall of 1995 
Renschler re-hung approximately 30 exterior panels and windows 
that were leaking as a result of the settlement.  The building 
continued to sink throughout 1996.  By early 1997, the 
settlement approached one foot, the building was buckling, steel 
supports were deformed, the floor was cracking, and sewer lines 
had shifted.  In January or February 1997, the parties met to 
No. 
01-1871   
 
7 
 
discuss the settlement damage and the options for remediation.2   
In August 1997 Renschler notified its liability insurance 
carrier, American Family Mutual Insurance Company.   
¶15  American Family conducted an investigation of the 
claim and at first concluded that coverage existed for the 
claim.  In January 1998 the insurer reserved $750,000 for the 
claim, and in May 1998 paid Renschler $27,501 for services 
performed relating to remediation of the damage that had 
occurred 
up to that point. 
 In 
early 1999 
remediation 
alternatives were estimated to cost between $4.1 and $5.9 
million.       
¶16 Renschler hired engineers to conduct evaluations of 
the floor from March through September 1999.  The engineers 
advised Renschler that the structural steel was so over-stressed 
that the building was no longer safe for occupancy.  In late 
1999 or early 2000 the building was dismantled.  By that time, 
the 
settlement 
was 
approximately 
18 
inches. 
Renschler's 
geotechnical expert concluded that Lawson was negligent in the 
performance of his engineering/geotechnical work.  It is 
undisputed that Lawson's faulty soil engineering advice was a 
substantial factor in causing the settlement of the 94DC.3         
                                                 
 
2    The circuit court concluded that this meeting triggered 
the application of the known loss doctrine, and we agree.  See, 
Part IIIF, infra. 
  
 
3  While it is undisputed that Lawson's negligent soil 
engineering advice was a substantial factor in causing the 
property damage, thus triggering the subcontractor exception to 
the business risk exclusion (see Part IIIE, infra), it may or 
may not have been the only factor.  Any outstanding questions 
No. 
01-1871   
 
8 
 
¶17 The contract between Pleasant and Renschler provided 
for arbitration of disputes.  Pleasant filed a demand for 
arbitration in December 1999 asserting breach of contract and 
negligence theories of recovery.  Pleasant alleged that Lawson's 
negligence caused excessive settlement, resulting in damage to 
the building, and that Renschler thereby breached its contract 
with Pleasant.  
¶18 In March 2000 American Family filed this action in 
Dane County Circuit Court seeking a declaratory judgment 
regarding coverage under the CGL and excess policies it had 
issued to Renschler from March 1993 to March 1997.  Renschler 
joined four additional insurers: Ohio Casualty Insurance Company 
and West American Insurance Company, which had issued CGL and 
excess liability policies for April 1, 1997, through April 1, 
1999, respectively, and General Casualty Insurance Company and 
Regent Insurance Company, which had issued CGL and umbrella 
liability policies thereafter.  Arbitration was stayed pending 
resolution of the coverage issues. 
¶19 Cross-motions for summary judgment were filed.  The 
Honorable John C. Albert concluded that American Family's CGL 
policies for the years 1994-95, 1995-96, and 1996-97 provided 
coverage, but its 1993-94 policy did not, as it pre-dated the 
loss. 
                                                                                                                                                             
regarding the comparative fault of Renschler, Lawson, or 
Renschler's other subcontractors will be resolved in the 
arbitration, and do not affect the determination of coverage.    
  
No. 
01-1871   
 
9 
 
¶20  The circuit court held that Pleasant's claim against 
Renschler was covered under the language of the insuring 
agreement in the 1994-97 policies, and that none of the policy 
exclusions applied.  The court also concluded that neither the 
economic loss doctrine nor the known loss doctrines precluded 
coverage under these policies.  The circuit court also concluded 
that 
the 
"professional 
services 
liability" 
exclusions 
in 
American Family's excess policies excluded coverage under those 
policies.  With respect to the four other insurers, the circuit 
court held that the known loss doctrine precluded coverage, 
because the extent of the settlement problem was known before 
any of those policies came into effect.     
¶21 The court of appeals reversed as to American Family's 
CGL base policies for the years 1994-97.  Relying on its 
decision in Nelson v. Motor Tech, Inc., 158 Wis. 2d 647, 462 
N.W.2d 903 (Ct. App. 1990), the court held that the exclusion 
for property damage "for which the insured is obligated to pay 
damages by reason of the assumption of liability in a contract 
or agreement" precluded coverage, because Renschler's liability 
to Pleasant derived entirely from its obligations under the 
construction contract.  Id. at 650.  The court of appeals also 
held that there was no coverage under American Family's excess 
policies, as well as the policies of the other insurers, on the 
basis of identical "contractual liability" exclusions in those 
policies.  The court did not address the other coverage issues.  
American Family Mut. Ins. Co. v. Pleasant Co., 2002 WI App 229, 
¶26, 257 Wis. 2d 771, 652 N.W.2d 123.  We accepted review. 
No. 
01-1871   
 
10 
 
II. STANDARD OF REVIEW AND PRINCIPLES OF INTERPRETATION 
¶22 We review a summary judgment pursuant to the same 
standards and methodology as the circuit court.  Frost v. 
Whitbeck, 2002 WI 129, ¶4, 257 Wis. 2d 80, 654 N.W.2d 225.  
Summary judgment is properly granted if there is no genuine 
issue of material fact in dispute and the moving party is 
entitled to judgment as a matter of law.  Id.  
¶23  This case involves the interpretation of an insurance 
contract and thus presents a question of law that we review de 
novo.  Id., ¶5.  Judicial interpretation of a contract, 
including an insurance policy, seeks to determine and give 
effect to the intent of the contracting parties.  Wisconsin 
Label Corp. v. Northbrook Property & Cas. Ins. Co., 2000 WI 26, 
¶23, 233 Wis. 2d 314, 607 N.W.2d 276.  Insurance polices are 
construed as they would be understood by a reasonable person in 
the position of the insured.  Kremers-Urban Co. v. American 
Employers Ins. Co., 119 Wis. 2d 722, 735, 351 N.W.2d 156 (1984).  
However, we do not interpret insurance policies to provide 
coverage for risks that the insurer did not contemplate or 
underwrite and for which it has not received a premium.  
Wisconsin Label, 233 Wis. 2d 314, ¶25.   
¶24 Our procedure follows three steps.  First, we examine 
the facts of the insured's claim to determine whether the 
policy's insuring agreement makes an initial grant of coverage.  
If it is clear that the policy was not intended to cover the 
claim asserted, the analysis ends there.  If the claim triggers 
the initial grant of coverage in the insuring agreement, we next 
No. 
01-1871   
 
11 
 
examine the various exclusions to see whether any of them 
preclude coverage of the present claim.  Exclusions are narrowly 
or strictly construed against the insurer if their effect is 
uncertain.  Cardinal v. Leader Nat'l Ins. Co., 166 Wis. 2d 375, 
382, 480 N.W.2d 1 (1992).  We analyze each exclusion separately; 
the inapplicability of one exclusion will not reinstate coverage 
where another exclusion has precluded it.  Exclusions sometimes 
have exceptions; if a particular exclusion applies, we then look 
to see whether any exception to that exclusion reinstates 
coverage.  An exception pertains only to the exclusion clause 
within which it appears; the applicability of an exception will 
not create coverage if the insuring agreement precludes it or if 
a separate exclusion applies.  Silverton Enters. v. Gen. Cas. 
Co., 143 Wis. 2d 661, 422 N.W.2d 154 (Ct. App. 1988). 
III.  DISCUSSION 
A.  The CGL policies 
¶25 The precursor of today's standard commercial liability 
insurance contract was promulgated in 1940 and has since 
undergone five principal revisions, the most recent of which 
came into use in 1986.  Today, most CGL insurance in the United 
States is written on standardized forms developed by the 
Insurances Services Office, Inc. (ISO).  Wisconsin Label, 233 
Wis. 2d 26, ¶26.  See also 2 Jeffrey  W. Stempel, Law of 
Insurance Contract Disputes §§ 14.01, 14.02 (2d ed. 1999). 
¶26  Until 1966, standard CGL policies provided coverage 
for liabilities arising out of injury or damage "caused by an 
accident." 16 Eric Mills Holmes, Holmes' Appelman on Insurance 
No. 
01-1871   
 
12 
 
§ 117.3, 240  (2d ed. 2000).  In response to uncertainty over 
whether the term "accident" included harm caused by gradual 
processes, 
the 
insurance 
industry 
removed 
the 
"accident" 
language from the insuring agreement and replaced it with the 
broader term "occurrence," defined as an accident, but also 
including gradual accidental harm; this coverage language is 
used to this day.  16 Holmes, supra, § 117.4, 297.   
¶27  Standard CGL policies, including those at issue in 
this case, now cover "sums that the insured becomes legally 
obligated to pay as damages because of 'bodily injury' or 
'property damage' . . . caused by an 'occurrence' that takes 
place in the 'coverage territory.'"   
¶28 The CGL insuring agreement is a broad statement of 
coverage, and insurers limit their exposure to risk through a 
series of specific exclusions.  There are exclusions for 
intended 
or 
expected 
losses; 
for 
contractually-assumed 
liabilities; for obligations under worker's compensation and 
related laws; for injury and damage arising out of aircraft and 
automobiles; and for several so-called "business risks." 
¶29  The "business risk" exclusions, also known as "your 
work," "your product," and "your property" exclusions, have 
generated substantial litigation.  2 Stempel, supra, § 14.13, 
14-127.  "[I]nsurers draft liability policies with an eye toward 
preventing policyholders from . . . converting their liability 
insurance into protection from nonfortuitous losses such as 
claims based on poor business operations.  The 'own work' and 
'owned property' exclusions are two important and frequently 
No. 
01-1871   
 
13 
 
litigated 
policy 
provisions 
designed 
to 
accomplish 
this 
purpose."  Id.  The 1986 version of the CGL contains a modified 
"business risk" exclusion that provides an exception for the 
work of subcontractors, id., and will be discussed in greater 
detail below. 
¶30  The CGL policies at issue here contain 15 separate 
exclusions lettered "a" through "n" of subsection I.A.2.  This 
case requires an examination of several of these: exclusion (a), 
for 
expected 
or 
intended 
losses; 
exclusion 
(b), 
for 
contractually-assumed liabilities; and exclusions (j) and (l), 
the business risk exclusions for property damage to the 
insured's work.  As we have noted, however, our first task is to 
determine whether the claimed loss is covered by the language of 
the insuring agreement's initial grant of coverage.      
B.  The CGL's insuring agreement 
¶31 The 
insuring agreement in 
American 
Family's CGL 
policies states that the insurer "will pay those sums that the 
insured becomes legally obligated to pay as damages because of 
'bodily injury' or 'property damage' to which this insurance 
applies."  It further states that "[t]his insurance applies to 
'bodily injury' and 'property damage' only if: . . . The 'bodily 
injury' or 'property damage' is caused by an 'occurrence' that 
takes place in the 'coverage territory.'" 
¶32  The parties do not dispute that Renschler's liability 
to Pleasant arose within the coverage territory.  Therefore, 
whether the insuring agreement confers coverage depends upon 
No. 
01-1871   
 
14 
 
whether there has been "property damage" resulting from an 
"occurrence" within the meaning of the CGL policy language. 
i.  "Property damage" and the economic loss doctrine 
¶33  The policy defines "property damage" as "physical 
injury to tangible property, including all resulting loss of use 
of that property."  The sinking, buckling, and cracking of the 
94DC as a result of the soil settlement qualifies as "physical 
injury to tangible property."   
¶34  American Family characterizes Pleasant's claim against 
Renschler as one for economic loss rather than property damage, 
and argues that the economic loss doctrine bars coverage.  The 
economic loss doctrine generally precludes recovery in tort for 
economic losses resulting from the failure of a product to live 
up to contractual expectations.  Wausau Tile, Inc. v. County 
Concrete Corp., 226 Wis. 2d 235, 245-46, 593 N.W.2d 445 (1999).  
The economic loss doctrine is "based on an understanding that 
contract law and the law of warranty, in particular, is better 
suited than tort law for dealing with purely economic loss in 
the commercial arena."  Daanen & Janssen, Inc. v. Cedarapids, 
Inc., 216 Wis. 2d 395, 403-04, 573 N.W.2d 842 (1998). 
¶35  The economic loss doctrine operates to restrict 
contracting parties to contract rather than tort remedies for 
recovery of economic losses associated with the contract 
relationship.  Vogel v. Russo, 2000 WI 85, ¶15, 236 Wis. 2d 504, 
613 N.W.2d 177.  The economic loss doctrine is a remedies 
principle.  It determines how a loss can be recovered——in tort 
or in contract/warranty law.  It does not determine whether an 
No. 
01-1871   
 
15 
 
insurance policy covers a claim, which depends instead upon the 
policy language.  Id. at ¶16. 
¶36  The economic loss doctrine may indeed preclude tort 
recovery here (the underlying claim is in arbitration and not 
before us); regardless, everyone agrees that the loss remains 
actionable in contract, pursuant to specific warranties in the 
construction agreement between Pleasant and Renschler.4  To the 
extent that American Family is arguing categorically that a loss 
giving rise to a breach of contract or warranty claim can never 
constitute "property damage" within the meaning of the CGL's 
coverage grant, we disagree.  "The language of the CGL policy 
and the purpose of the CGL insuring agreement will provide 
coverage 
for 
claims 
sounding 
in 
part 
in 
breach-of-
contract/breach-of-warranty 
under 
some 
circumstances." 
2 
                                                 
4 Accordingly, we generally agree with Justice Crooks' 
articulation of the principles underlying the economic loss 
doctrine.  See generally, Justice Crooks' dissent, ¶¶95-98.  
Although the underlying claim between Pleasant and Renschler is 
in arbitration and not before us, we have assumed for purposes 
of this opinion that the economic loss doctrine applies, and 
have decided the insurance coverage questions as though the 
claim between Pleasant and Renschler is actionable in breach of 
contract/breach of warranty only.  The question here is not 
whether Pleasant is confined to a contract rather than tort 
remedy in its claim against Renschler (we assume for purposes of 
this opinion that it is), but whether Renschler's insurance 
policy with American Family covers the loss.  Our conclusion 
that the loss is covered is fully consistent with the economic 
loss doctrine.  The contract parties allocated their risks by 
warranty, 
and 
Renschler 
insured 
against 
that 
risk 
where 
subcontractor fault gives rise to liability under the warranty, 
because Renschler's CGL policies with American Family contained 
a subcontractor exception to the business risk exclusion.  See 
Part IIIE, infra. 
No. 
01-1871   
 
16 
 
Stempel, 
supra, 
§ 
14A.02[d],14A-10. 
 
This 
is 
such 
a 
circumstance.  Pleasant's claim against Renschler for the damage 
to the 94DC is a claim for "property damage" within the meaning 
of the CGL's coverage grant. 
ii.  "Occurrence" 
 
¶37 Liability for "property damage" is covered by the CGL 
policy if it resulted from an "occurrence."  "Occurrence" is 
defined as "an accident, including continuous or repeated 
exposure to substantially the same general harmful conditions."  
The term "accident" is not defined in the policy.  The 
dictionary definition of "accident" is:  "an event or condition 
occurring by chance or arising from unknown or remote causes."  
Webster's Third New International Dictionary of the English 
Language 11 (2002).  Black's Law Dictionary defines "accident" 
as follows:  "The word 'accident,' in accident policies, means 
an 
event 
which 
takes 
place 
without 
one's 
foresight 
or 
expectation. A result, though unexpected, is not an accident; 
the means or cause must be accidental."  Black's Law Dictionary 
15 (7th ed. 1999).   
¶38  No one seriously contends that the property damage to 
the 94DC was anything but accidental (it was clearly not 
intentional), nor does anyone argue that it was anticipated by 
the parties.  The damage to the 94DC occurred as a result of the 
continuous, substantial, and harmful settlement of the soil 
underneath the building.  Lawson's inadequate site-preparation 
advice was a cause of this exposure to harm.  Neither the cause 
No. 
01-1871   
 
17 
 
nor the harm was intended, anticipated, or expected.5  We 
conclude that the circumstances of this claim fall within the 
policy's definition of "occurrence." 
¶39  American Family argues that because Pleasant's claim 
is for breach of contract/breach of warranty it cannot be an 
"occurrence," because the CGL is not intended to cover contract 
claims arising out of the insured's defective work or product.  
We agree that CGL policies generally do not cover contract 
claims arising out of the insured's defective work or product, 
but this is by operation of the CGL's business risk exclusions, 
not because a loss actionable only in contract can never be the 
result of an "occurrence" within the meaning of the CGL's 
initial grant of coverage.  This distinction is sometimes 
overlooked, and has resulted in some regrettably overbroad 
generalizations about CGL policies in our case law.   
¶40 For example, in Bulen v. West Bend Mut. Ins. Co., 125 
Wis. 2d 259, 371 N.W.2d 392 (Ct. App. 1985), the court of 
appeals found no coverage under a CGL policy for damage caused 
by the collapse of a basement wall during construction of a 
private residence.  The court held that certain of the policy's 
                                                 
5 Justice 
Roggensack's 
dissent 
asserts 
that 
the 
soil 
settlement and resultant property damage were expected by the 
parties because the construction contract contained a warranty 
against defects.  Justice Roggensack's dissent, ¶¶108, 117, 119.  
While the warranty in question was specifically inserted in the 
construction 
contract 
under 
the 
subheading 
"Additional 
Warranties," it is nevertheless stated in broad and general 
terms.  The provision of a general warranty against defects does 
not support a conclusion that the contract parties expected a 
particular loss to occur.  
No. 
01-1871   
 
18 
 
business risk exclusions applied to the circumstances presented.  
In doing so, the court quoted from Weedo v. Stone-E-Brick, Inc., 
405 A.2d 788 (N.J. 1979): 
The insured, as a source of goods or services, may be 
liable as a matter of contract law to make good on 
products or work which is defective or otherwise 
unsuitable because it is lacking in some capacity.  
This may even extend to an obligation to completely 
replace or rebuild the deficient product or work.  
This liability, however, is not what the coverages in 
question are designed to protect against.  The 
coverage is for tort liability for physical damages to 
others and not for contractual liability of the 
insured for economic loss because the product or 
completed work is not that for which the damaged 
person bargained. 
Bulen, 125 Wis. 2d at 265 (quoting Weedo, 405 A.2d at 791).  In 
this passage, the Weedo court was itself quoting Dean Henderson, 
Insurance 
Protection for 
Products 
Liability 
and 
Completed 
Operations: What Every Lawyer Should Know, 50 Neb. L. Rev. 415, 
441 (1971).  Bulen, and the Weedo passage it cited (derived from 
Henderson), re-appear continually in CGL coverage litigation.  
See 
Vogel, 
236 
Wis. 2d 504, 
¶17; 
Wisconsin 
Label, 
233 
Wis. 2d 314, ¶27. 
 
¶41  Despite this broad generalization, however, there is 
nothing in the basic coverage language of the current CGL policy 
to support any definitive tort/contract line of demarcation for 
purposes of determining whether a loss is covered by the CGL's 
initial grant of coverage.  "Occurrence" is not defined by 
No. 
01-1871   
 
19 
 
reference to the legal category of the claim.  The term "tort" 
does not appear in the CGL policy.6 
¶42  Bulen and Weedo, interpreting pre-1986 CGL policies, 
never discussed the insuring agreement's initial grant of 
coverage; rather, the cases were decided on the basis of the 
business risk exclusions.  Indeed, the Weedo court explicitly 
stated that "but for the exclusions in the policy, coverage 
would obtain.  Hence we need not address the validity of one of 
the carrier's initially-offered grounds of non-coverage, namely, 
that the policy did not extend coverage for the claims made even 
absent the exclusions."  Weedo, 405 A.2d at 790 n.2.  In short, 
Weedo does not hold that losses actionable as breaches of 
contract cannot be CGL "occurrences," and therefore neither does 
Bulen. 
¶43 For the same reason, our decision in Vogel, which 
relied at length on the broad Bulen/Weedo quote from Henderson, 
is not controlling on the meaning of "occurrence" in a CGL 
                                                 
6 In this regard, we cannot agree with the position advanced 
by Justice Crooks' dissent that a loss actionable as a breach of 
contract/breach of warranty can never constitute an "occurrence" 
within the meaning of the CGL policy's coverage grant.  Justice 
Crooks' dissent, ¶¶89, 93. The CGL policy's basic coverage 
language does not distinguish between losses actionable in tort 
and losses actionable in contract.  As we have noted, the 
definition of "occurrence" in the CGL policy does not refer to 
the legal category of the claim; there is no language limiting 
the term to those occurrences that are actionable only in tort.  
While an insured's breach of contract/breach of warranty 
liability will often fall within the business risk exclusions, 
see Part IIIE, infra, it does not categorically fall outside the 
policy's definition of "occurrence." 
No. 
01-1871   
 
20 
 
policy.  In Vogel, we held that the business risk exclusions in 
a CGL policy precluded coverage for damage caused by the faulty 
masonry work of a subcontractor.  Vogel, 236 Wis. 2d 504, ¶19.  
Our no-coverage conclusion in Vogel rested on the business risk 
exclusion, not on any inherent limitation in the initial grant 
of coverage.  Accordingly, we caution that neither Bulen nor 
Vogel should be read for the conclusion that a loss actionable 
in contract rather than tort can never constitute a covered 
"occurrence" under a CGL policy. 
¶44  Indeed, this court has never held that the CGL 
insuring agreement only covers torts.  In Doyle v. Engelke, 219 
Wis. 2d 277, 580 N.W.2d 245 (1998), for instance, we decided a 
CGL coverage dispute involving a policy that used the term 
"event" instead of "occurrence," but which defined "event" in 
exactly the same way that "occurrence" is defined in the CGL 
policy here.  We took note of the "common, everyday meaning" of 
"accident:" 
"'an 
unexpected, 
undesirable 
event' 
or 
'an 
'unforeseen incident' which is characterized by a 'lack of 
intention.'"  Id. at 289 (quoting The American Heritage 
Dictionary of the English Language 11 (3d ed. 1992)).  We also 
noted the commonalities in the standard dictionary definitions 
of "accident" and "negligence," and remarked that "[I]t is 
significant that both definitions center on an unintentional 
occurrence 
leading 
to 
undesirable 
results." 
 
Doyle, 
219 
Wis. 2d at 289-90. 
¶45  Doyle did not, however, equate the term "accident," as 
used in the CGL policy, with negligence as a form of legal 
No. 
01-1871   
 
21 
 
liability; we simply held that negligent acts were "accidental" 
within the meaning of the CGL's definition of "event."  Id. 
("[W]e have little trouble concluding that a reasonable insured 
would expect the Policy provision defining 'event' to include 
negligent acts.")  Doyle did not imply that there could never be 
CGL coverage unless the accidental "event" (here, "occurrence") 
was actionable in tort as negligence. 
¶46  Furthermore, contrary to American Family's suggestion, 
Wausau Tile did not establish a "generally accepted" rule that a 
breach of contract or warranty cannot be an "occurrence" for 
purposes of CGL coverage.  In Wausau Tile, we concluded that 
certain tort claims between Wausau Tile and its cement supplier, 
Medusa Cement, were barred by the economic loss doctrine.  
Wausau Tile, 226 Wis. 2d at 247-254.  Having disposed of the 
tort claims in the case, we briefly addressed Medusa's insurer's 
duty to defend the remaining contract/warranty claims, noting 
only that the issue of whether the alleged breach of contract or 
warranty was a covered "occurrence" under the insurer's policy 
was "undisputed."  Id. at 268-69.  Here, unlike in Wausau Tile, 
the issue is disputed.  
¶47  If, as American Family contends, losses actionable in 
contract are never CGL "occurrences" for purposes of the initial 
coverage grant, then the business risk exclusions are entirely 
unnecessary.  The business risk exclusions eliminate coverage 
for liability for property damage to the insured's own work or 
product——liability that is typically actionable between the 
parties pursuant to the terms of their contract, not in tort.  
No. 
01-1871   
 
22 
 
If the insuring agreement never confers coverage for this type 
of liability as an original definitional matter, then there is 
no need to specifically exclude it.  Why would the insurance 
industry exclude damage to the insured's own work or product if 
the damage could never be considered to have arisen from a 
covered "occurrence" in the first place? 
¶48  The court of appeals has previously recognized that 
the faulty workmanship of a subcontractor can give rise to 
property damage caused by an "occurrence" within the meaning of 
a CGL policy.  In Kalchthaler v. Keller Construction Co., 224 
Wis. 2d 387, 395, 591 N.W.2d 169 (Ct. App. 1999), a general 
contractor subcontracted out all the work on a construction 
project; the completed building subsequently leaked, causing 
over $500,000 in water damage.  The court of appeals noted that 
the CGL defined "occurrence" as "an accident," and further noted 
that "[a]n accident is an 'event or change occurring without 
intention 
or 
volition 
through 
carelessness, 
unawareness, 
ignorance, 
or 
a 
combination 
of 
causes 
and 
producing 
an 
unfortunate result.'" Id. at 397 (quoting Webster's Third New 
International Dictionary 11 (1993)).  The court of appeals 
concluded that the leakage was an accident and therefore an 
occurrence for purposes of the CGL's coverage grant.  Id. 
¶49  The same is true here.  We conclude that the property 
damage to the 94DC was the result of an "occurrence" within the 
No. 
01-1871   
 
23 
 
meaning of the insuring agreement.7  This brings us to the policy 
exclusions.  American Family invokes several. 
C. The "expected or intended" exclusion 
¶50  Exclusion (a) eliminates coverage for "'property 
damage' expected or intended from the standpoint of the 
insured.'"  American Family argues that given the poor soil 
conditions at the site, and Renschler's recognition that special 
measures were required to prepare the soil to carry the weight 
of the 94DC, Renschler expected that some settlement would 
occur, and therefore this exclusion applies.  We disagree.   
 
¶51  American Family does not argue that "property damage" 
was expected or intended by the insured (which is what the 
exclusion requires), only that some degree of settlement must 
have been expected under the circumstances. This is insufficient 
to trigger the exclusion.  American Family cites two cases, 
Pachucki v. Republic Insurance Co., 89 Wis. 2d 703, 278 N.W.2d 
898 (1979), and Raby v. Moe, 153 Wis. 2d 101, 450 N.W.2d 452 
(1990).  Both of these involved intentional infliction of bodily 
injury and are therefore inapplicable here.   
D.  The "contractually-assumed liability" exclusion 
  
                                                 
 
7  The parties cite numerous extra-jurisdictional cases on 
the question of whether defective workmanship can be a CGL 
"occurrence."  The authorities are split; some cases hold yes, 
others no.  Some rely on the overbroad generalizations about CGL 
policies that we have identified and discussed above.  All are 
highly fact-specific.  For these reasons we confine our analysis 
on this issue to Wisconsin case law.  
  
No. 
01-1871   
 
24 
 
 
¶52 The court of appeals held that exclusion (b), for 
contractually-assumed liabilities, applied to preclude coverage 
under all the policies at issue in this case.  Exclusion (b) 
states: 
This insurance does not apply to: 
. . . .  
b.  "Bodily injury" or "property damage" for which the 
insured is obligated to pay damages by reason of the 
assumption of liability in a contract or agreement.  
This exclusion does not apply to liability for 
damages: 
(1)  Assumed in a contract or agreement that is 
an 
"insured 
contract," 
provided 
the 
"bodily 
injury" or "property damage" occurs subsequent to 
the execution of the contract or agreement; or 
(2)  That the insured would have in the absence 
of the contract or agreement. 
¶53 The court of appeals held that Renschler's construction 
contract 
for 
the 
94DC 
constituted 
a 
contractually-assumed 
liability within the meaning of the exclusion, citing Nelson, 
158 Wis. 2d 647.  In Nelson, the insured, an auction company, 
was sued by the owner of an automobile who had placed the 
automobile with the company to auction for a specified reserve 
price.  Id. at 650.  Due to an employee's negligence, the 
auction company sold the automobile for far less than the 
agreed-upon reserve price, and the owner refused to deliver the 
automobile to the purchaser.  When the purchaser sued the owner 
for specific performance, the owner impleaded the auction 
company and its CGL insurance carrier. 
No. 
01-1871   
 
25 
 
¶54  The CGL policy in Nelson included an exclusion for 
contractually-assumed liabilities identical to the one at issue 
in this case.  After quoting the relevant exclusion language, 
the Nelson court concluded summarily that the policy "clearly 
excludes coverage for incidents involving purely contractual 
liabilities." Id. The court offered no authority for this broad 
proposition, nor did it discuss the exclusion language or any 
other language from the policy in its opinion.    
¶55 In applying Nelson to this case, the court of appeals 
noted that it "arguably conflicts" with a subsequent court of 
appeals' decision, Meyer v. United States Fire Insurance Co., 
218 Wis. 2d 499, 582 N.W.2d 40 (Ct. App. 1998).  In Meyer, the 
court considered whether an employer's commercial umbrella 
policy provided coverage for an employee's injury caused by a 
co-employee.8  The policy excluded coverage for bodily injury to 
an employee arising out of employment with the insured, but also 
provided: "We will pay on behalf of the 'Insured' those sums in 
excess of the 'Retained Limit' which the 'Insured' by reason of 
liability imposed by law, or assumed by the 'Insured' under 
contract prior to the 'Occurrence,' shall become legally 
obligated to pay as damages for [bodily injury]."  Id. at 504-05 
                                                 
8 The insurance policy in Meyer v. United States Fire 
Insurance Co., 218 Wis. 2d 499, 582 N.W.2d 40 (Ct. App. 1998), 
was not a CGL but a commercial umbrella policy, and the 
"contractually-assumed liability" language is contained in a 
coverage grant rather than a coverage exclusion.  These 
distinctions do not appear to account for the difference in 
legal analysis between Meyer and Nelson v. Motor Tech, Inc., 158 
Wis. 2d 647, 462 N.W.2d 903 (Ct. App. 1990).  
No. 
01-1871   
 
26 
 
(emphasis in original).  The employer had a motor vehicle 
liability 
policy 
with 
another 
insurer 
that 
contained 
an 
endorsement deleting the standard exclusion for co-employee 
liability.  If the exclusion had not been deleted, the remedy 
against the employer would have been circumscribed by the terms 
of the worker's compensation statute. 
¶56  The precise issue in Meyer was whether by deleting the 
co-employee exclusion, the employer had "assumed . . . under 
contract" liability for its employee's injury.  To resolve this 
issue, the Meyer court adopted the reasoning of Dreis & Krump 
Manufacturing Co. v. Phoenix Insurance Co., 548 F.2d 681 (7th 
Cir. 1977), which held that "'liability assumed [by the insured] 
under any written contract' means 'a specific written agreement 
between the insured and a third party whereby the insured agrees 
to 'indemnify' the third party."  Meyer, 218 Wis. 2d at 505 
(quoting Dreis & Krump, 548 F.2d at 684).  The Meyer court found 
no coverage under the employer's umbrella policy because the 
deletion 
of 
the 
co-employee 
liability 
exclusion 
did 
not 
constitute an indemnification agreement with a third party.  Id. 
¶57  The Meyer/Dreis interpretation of "contractually-
assumed liability" is more consistent with the actual CGL policy 
language than the broader Nelson interpretation, and appears to 
be generally accepted by commentators and courts around the 
country.  "The key to understanding this exclusion . . . is the 
concept of liability assumed."  2 Rowland H. Long, The Law of 
Liability Insurance § 10.05[2], 10-56, 10-57 (2002).  As one 
important commentator has noted, 
No. 
01-1871   
 
27 
 
Although, 
arguably, 
a 
person 
or 
entity 
assumes 
liability (that is, a duty of performance, the breach 
of which will give rise to liability) whenever one 
enters into a binding contract, in the CGL policy and 
other liability policies an "assumed" liability is 
generally understood and interpreted by the courts to 
mean the liability of a third party, which liability 
one "assumes" in the sense that one agrees to 
indemnify or hold the other person harmless. 
21 Holmes, supra, § 132.3, 36-37. 
¶58  The term "assumption" must be interpreted to add 
something to the phrase "assumption of liability in a contract 
or agreement."  Reading the phrase to apply to all liabilities 
sounding in contract renders the term "assumption" superfluous.  
We conclude that the contractually-assumed liability exclusion 
applies 
where 
the 
insured 
has 
contractually 
assumed 
the 
liability of a third party, as in an indemnification or hold 
harmless agreement; it does not operate to exclude coverage for 
any and all liabilities to which the insured is exposed under 
the terms of the contracts it makes generally.   
¶59 This reading is consistent with the general purposes 
of liability insurance because it enables insurers to enforce 
the fortuity concept by excluding from coverage any policyholder 
agreements to become liable after the insurance is in force and 
the liability is a certainty.  See 2 Stempel, supra, § 14.14, 
14-141.  Limiting the exclusion to indemnification and hold-
harmless agreements furthers the goal of protecting the insurer 
from exposure to risks whose scope and nature it cannot control 
or even reasonably foresee.  The relevant distinction "is 
between incurring liability as a result of a breach of contract 
No. 
01-1871   
 
28 
 
and specifically contracting to assume liability for another's 
negligence."  Olympic, Inc. v. Providence Washington Ins. Co., 
648 P.2d 1008, 1011 (Ala. 1982). 
¶60  Courts in other jurisdictions have held that the 
contractually-assumed liability exclusion "refers to a specific 
contractual 
assumption 
of 
liability 
by 
the 
insured 
as 
exemplified by an indemnity agreement."  21 Holmes, supra, 
§ 132.3, 40.  See also Musgrove v. Southland Corp., 898 F.2d 
1041, 1044 (5th Cir. 1990); Action Auto Stores v. United Capitol 
Ins. Co., 845 F.Supp. 428, 442 (W.D. Mich. 1993); Gibbs M. 
Smith, Inc. v. United States Fidelity & Guar. Co., 949 P.2d 337, 
341 (Utah 1997); Marlin v. Wetzel Co. Bd. Of Educ., 569 S.E.2d 
462, 469 (W.Va. 2002).   
¶61 This interpretation of exclusion (b) is consistent 
with the evolution of the CGL policy over time.  Prior to the 
1986 
revision, 
the 
exclusion 
for 
contractually-assumed 
liabilities was achieved through language in the insuring 
agreement that granted coverage for "contractual liabilities."  
Coverage 
was 
extended 
to 
certain 
types 
of 
contractual 
obligations but not others.  With the 1986 revision, however, 
this language was moved into the exclusions section, and the 
basic coverage for certain contractual obligations was retained 
by inserting an exception to the exclusion for "insured 
contracts."   
¶62  Accordingly, we conclude that the language in Nelson 
that the contractually-assumed liability exclusion "clearly 
excludes coverage for incidents involving purely contractual 
No. 
01-1871   
 
29 
 
liabilities" is overbroad, and hereby overrule that portion of 
Nelson's holding.  This case does not involve a claim for 
"contractually-assumed liability," properly understood.  The 
breach 
of 
contract/warranty 
liability 
at 
issue 
here 
is 
Renschler's direct liability to its contract partner, Pleasant, 
pursuant to warranties in the construction contract.  Renschler 
is not claiming coverage for a claim made against it pursuant to 
a third-party indemnification or hold harmless agreement. 
E.  The "business risk" exclusions 
 
¶63 The business risk exclusions (j) through (n) preclude 
coverage generally for property damage to the work of the 
insured.  Several of these are implicated here.  The first, 
exclusion (j), contains the following language:   
This insurance does not apply to: 
j.  "Property damage" to: 
. . . .  
(6)  That particular part of any property that must be 
restored, repaired or replaced because "your work" was 
incorrectly performed on it. 
 . . . .  
Paragraph (6) of this exclusion does not apply to 
"property damage" included in the "products-completed 
operations hazard. 
The policy defines "your work" as: 
a.  Work or operations performed by you or on your 
behalf; 
. . . .  
"Your work" includes: 
No. 
01-1871   
 
30 
 
a.  Warranties or representations made at any time 
with respect to the fitness, quality, durability, 
performance or use of "your work;"  
¶64  Renschler's work on the 94DC, as well as Lawson's 
engineering work under subcontract to Renschler, both fall 
within the definition of "your work."  Exclusion (j) comes into 
play because Pleasant's claim against Renschler involves the 
repair and replacement of the 94DC. 
¶65  However, if the property damage that occurred falls 
within the "products-completed operations hazard," exclusion (j) 
does not apply.  The "products-completed operations hazard" 
includes: 
[A]ll "bodily injury" and "property damage" occurring 
away from premises you own or rent and arising out of 
"your product" or "your work" except: 
(1)  Products that are still in your physical 
possession; or 
(2)  Work that has not yet been completed or 
abandoned. 
¶66  The damage to the 94DC occurred away from premises 
that Renschler owns or rents, and it arose out of Renschler's 
"own work" because, as we have indicated, Renschler's work on 
the 94DC falls within the policy definition of "your work."  
Work on the 94DC was substantially completed in August 1994, and 
Pleasant occupied the premises at that time.  The settlement was 
noticed in March 1995.  Damage to the property therefore 
occurred after the work had been completed, so exception (2) 
does not apply.  Thus the property damage at issue in this case 
No. 
01-1871   
 
31 
 
falls within the "products-completed operations hazard" and 
exclusion (j) does not apply.  
¶67 This brings into play exclusion (l), for "property 
damage to your work" inside the "products-completed operations 
hazard": 
This insurance does not apply to: 
l.  "Property damage" to "your work" arising out of it 
or any part of it and included in the "products-
completed operations hazard."   
This exclusion does not apply if the damaged work or 
the work out of which the damage arises was performed 
on your behalf by a subcontractor.   
By its terms, exclusion (l) would operate to exclude coverage 
under the circumstances of this case but for the exception that 
specifically restores coverage when the property damage arises 
out of work performed by a subcontractor.  It is undisputed that 
Lawson's negligent soils engineering work was a cause of the 
soil settlement and resultant property damage to the 94DC.   
¶68 This 
subcontractor 
exception 
dates 
to 
the 
1986 
revision of the standard CGL policy form.  Prior to 1986 the CGL 
business risk exclusions operated collectively to preclude 
coverage 
for 
damage 
to 
construction 
projects 
caused 
by 
subcontractors.  Many contractors were unhappy with this state 
of affairs, since more and more projects were being completed 
with the help of subcontractors.  In response to this changing 
reality, insurers began to offer coverage for damage caused by 
subcontractors through an endorsement to the CGL known as the 
Broad Form Property Damage Endorsement, or BFPD.  Introduced in 
No. 
01-1871   
 
32 
 
1976, the BFPD deleted several portions from the business risk 
exclusions and replaced them with more specific exclusions that 
effectively broadened coverage.  Among other changes, the BFPD 
extended coverage to property damage caused by the work of 
subcontractors.  In 1986 the insurance industry incorporated 
this aspect of the BFPD directly into the CGL itself by 
inserting the subcontractor exception to the "your work" 
exclusion.  See generally 21 Holmes, supra, § 132.9, 152-53. 
¶69 Cases in Wisconsin and in other jurisdictions have 
consistently recognized that the 1986 CGL revisions restored 
otherwise excluded coverage for damage caused to construction 
projects by subcontractor negligence.  In Kalchthaler, the court 
of appeals concluded that "[t]he only reasonable reading of [the 
1986 exception] is that it restores coverage for damage to 
completed 
work 
caused 
by 
the 
work 
of 
a 
subcontractor."  
Kalchthaler, 224 Wis. 2d at 391. 
¶70  The court of appeals' straightforward reading of the 
subcontractor exception to the business risk exclusion in 
Kalchthaler was buttressed by a similar holding in a case from 
Minnesota, O'Shaughnessy v. Smuckler Corp., 543 N.W.2d 99 (Minn. 
Ct. App. 1996), in which the Minnesota Court of Appeals found 
coverage for improper subcontractor performance that caused 
damage to a residential home project. 
¶71  Like the O'Shaughnessy court, the court in Kalchthaler 
recognized that the effect of the 1986 revision of the CGL could 
not be defeated by reliance upon broad judicial holdings 
interpreting 
pre-1986 
policies 
that 
did 
not 
contain 
the 
No. 
01-1871   
 
33 
 
subcontractor exception.  "For whatever reason, the industry 
chose to add the new exception to the business risk exclusion in 
1986.  We may not ignore that language when interpreting case 
law decided before and after the addition.  To do so would 
render 
the 
new 
language 
superfluous." 
 
Kalchthaler, 
224 
Wis. 2d at 400.   
¶72 Courts in other jurisdictions have reached the same 
conclusion 
when 
interpreting 
the 
post-1986 
subcontractor 
exception or policy endorsements containing identical language.  
See Wanzek Constr., Inc. v. Employers Ins. of Wausau, 667 
N.W.2d 473 (Minn. Ct. App. 2003); Kvaerner Metals v. Commercial 
Union Ins. Co., 825 A.2d 641 (Pa. Super. Ct. 2003); L-J, Inc. v. 
Bituminous Fire and Marine Ins. Co., 567 S.E.2d 489 (S.C. Ct. 
App. 2002)(certiorari granted May 15, 2003); CU Lloyd's of Texas 
v. Main Street Homes, Inc., 79 S.W.3d 687 (Tex. Ct. App. 2002). 
¶73  American Family cites conflicting authorities which 
appear to hold that damage to an insured's work caused by a 
subcontractor is not covered because of the "your work" 
exclusion, but these authorities are no longer controlling 
because they construed policies that did not include the 
subcontractor exception.  Noting the apparent conflict between 
O'Shaughnessy, Kalchthaler, and similar cases on the one hand, 
and contrary cases on the other, one commentator has pointed out 
that "those cases [finding no coverage] involved the older 
policy language while the current policy specifically provides 
that the 'own work' exclusion does not apply 'if the damaged 
work or the work out of which the damage arises was performed on 
No. 
01-1871   
 
34 
 
your behalf by a subcontractor.'"  2 Stempel, supra, § 14.13[a], 
14-132. 
¶74 This interpretation of the subcontractor exception to 
the business risk exclusion does not "create coverage" where 
none existed before, as American Family contends.  There is 
coverage under the insuring agreement's initial coverage grant.  
Coverage would be excluded by the business risk exclusionary 
language, except that the subcontractor exception to the 
business risk exclusion applies, which operates to restore the 
otherwise excluded coverage. 
¶75  Accordingly, Renschler's CGL base policies with 
American Family cover Pleasant's claim.  We also agree with the 
circuit court's application of the "continuous trigger" holdings 
of Society Insurance v. Town of Franklin, 2000 WI App 35, ¶¶8-
10, 233 Wis. 2d 207, 607 N.W.2d 342, and Wisconsin Electric 
Power Co. v. California Union Insurance Co., 142 Wis. 2d 673, 
419 N.W.2d 255 (Ct. App. 1987).  The "continuous trigger" theory 
generally applies where an injury or damage occurs over more 
than one policy period.  Society Insurance, 233 Wis. 2d at 215; 
Wisconsin Electric, 142 Wis. 2d at 681.  The continuous trigger 
theory interprets the term "occurrence" in CGL policies to 
include continual, recurring damage as well as damage that 
occurs at one moment in time.  Id. 
¶76  The property damage to the 94DC occurred continuously 
over a period extending from the later part of the 1994-95 
policy term, throughout the 1995-96 policy term, and well into 
the 1996-97 policy term.  Settlement had reached eight inches by 
No. 
01-1871   
 
35 
 
the spring of 1995, when the first policy was still in force, 
and continued throughout 1996 and into 1997, by which time it 
was approaching one foot.  Accordingly, under the continuous 
trigger holdings of Society Insurance and Wisconsin Electric, 
the policies for the years 1994-95, 1995-96, and 1996-97 cover 
this loss. 
F.  American Family's excess policies 
 
¶77 Renschler also had excess liability policies with 
American Family for the years 1993-94, 1994-95, 1995-96, and 
1996-97.  The circuit court held that there was no coverage 
under the 1993-94 policy because there had been no occurrence 
before the end of the 1993-94 policy term, and no coverage under 
the remaining excess policies because the professional services 
liability exclusions in those policies excluded coverage. 
¶78  The court of appeals affirmed, but did so because of 
the contractually-assumed liability exclusion in the policies.  
We have rejected the court of appeals' interpretation of the 
contractually-assumed liability exclusion.  We agree, however, 
with the circuit court's conclusion that the professional 
services liability exclusion in the excess policies excludes 
coverage. 
¶79  Renschler's Commercial Blanket Excess Liability Policy 
contains the following endorsement: 
Professional liability exclusion. 
Insurance under this policy does not apply to any 
liability arising out of the rendering of or failure 
to render professional services in the conduct of your 
business or profession.  (Emphasis in original.) 
No. 
01-1871   
 
36 
 
¶80  It is undisputed that Lawson's inadequate soil 
engineering advice was a substantial factor in causing the 
excessive soil settlement and resulting property damage to the 
94DC.  Renschler is responsible to Pleasant for the flaws in 
Lawson's professional services pursuant to the broad warranty in 
the construction contract.  Accordingly, the liability here 
arises out of the rendering of professional services, and by its 
terms, this exclusion applies. 
¶81  Pleasant and Renschler argue that Leverence v. United 
States Fidelity & Guaranty, 158 Wis. 2d 64, 462 N.W.2d 218 (Ct. 
App. 1990), compels a contrary conclusion.  Leverence involved 
claims by homeowners against a builder whose negligence in the 
construction of their homes caused excessive moisture retention, 
which in turn promoted the growth of hazardous mold, mildew, 
fungus, and other toxins.  The builder's insurer argued that the 
professional services liability exclusion in the insurance 
policy barred coverage. 
¶82  The court of appeals disagreed, concluding that 
because "the claims arise out of manufacture of an allegedly 
defective product and not malpractice in rendering of a 
professional service," the exclusion did not apply.  Leverence, 
158 Wis. 2d at 83.  The court declined to separate the builder's 
professional design services from its construction services for 
purposes of evaluating the applicability of the exclusion: "to 
break down [the builder's] activities into separate components, 
and then bar claims arising out of its manufactured product 
because intellectual skills were employed would go beyond the 
No. 
01-1871   
 
37 
 
normal rules of contract interpretation."  Id. at 84.  The court 
noted that "[a]lthough the homes' design allegedly contributed 
to 
the 
claimed 
injuries, 
the 
primary 
objective 
of 
[the 
builder's] operations was the production of a prefabricated 
home, not a design of a home," and therefore the professional 
services liability exclusion did not apply.  Id. at 85. 
¶83  The court in Leverence cautioned, however, that it was 
not concluding "that nothing constitutes a professional service 
[within the meaning of the exclusion] if it results at some 
point in the production of a commodity," giving as an example 
the rendering of architectural design services in connection 
with the construction of a building.  Id. 
¶84  We conclude that this case falls outside the holding 
of Leverence.  While it is true, as Pleasant notes, that 
Renschler furnished a building, the liability at issue here 
"arises out of the rendering of professional services"——Lawson's 
faulty site-preparation advice——which falls squarely within the 
language of the exclusion.  This case thus does not pose the 
analytical dilemma that troubled the court in Leverence; there, 
the 
professional 
services 
inextricably 
combined 
with 
the 
manufacturing services to produce the claimed injury.  Here, it 
is undisputed that flawed professional soil engineering services 
were a substantial factor in causing the excessive soil 
settlement 
and 
resultant 
property 
damage 
to 
the 
94DC.  
Accordingly, 
we 
conclude 
that 
the 
professional 
services 
liability 
exclusion 
in 
American 
Family's 
excess 
policies 
applies.    
No. 
01-1871   
 
38 
 
G.  The four other insurers 
 
¶85 Renschler also had insurance policies from four other 
insurers: Ohio Casualty Insurance Company and West American 
Insurance Company, which issued CGL and excess liability 
policies respectively for April 1, 1997, through April 1, 1999, 
and General Casualty Insurance Company and Regent Insurance 
Company, which issued CGL and umbrella liability policies, 
respectively, thereafter.  The circuit court held that the known 
loss or loss-in-progress doctrine precluded coverage under all 
of these policies.9  We agree.    
 
¶86   The known loss doctrine holds that insurers are not 
obligated to cover losses which are already occurring when the 
coverage is written or which has already occurred.  Estate of 
Logan 
v. 
Northwestern 
Nat'l, 
144 
Wis. 2d 318, 
348, 
424 
N.W.2d 179 (1988).  Here, the fact that settlement was occurring 
on the 94DC was known as early as March of 1995, and the extent 
of the damage was substantially known by the time of the meeting 
in January or February, 1997.  The policies of these remaining 
insurers post-date this period.  Accordingly, the known loss 
doctrine precludes coverage under these policies. 
¶87 By the Court.—The decision of the court of appeals is 
reversed and the cause remanded for proceedings consistent with 
this opinion.   
                                                 
 
9    The court of appeals resolved the coverage question as 
to these additional policies by reference to its interpretation 
of the contractually-assumed liability exclusion, which we have 
rejected. 
  
No. 
01-1871   
 
39 
 
¶88 SHIRLEY S. ABRAHAMSON, C.J. and JON P. WILCOX, J., did 
not participate.             
 
 
 
 
 
No.  01-1871.npc 
 
1 
 
¶89 N. PATRICK CROOKS, J.   (dissenting).  I disagree with 
the majority's conclusion that there is coverage under the CGL 
policies issued by American Family.  Although I agree with 
Justice Roggensack's dissent, I write separately to address an 
issue the majority concedes is relevant, yet touches on only 
briefly.  In this case, there are contract claims for breach of 
warranty resulting in economic loss.  Breach of contract/breach 
of warranty resulting in economic loss is not a covered 
"occurrence" under the plain language of the CGL policies' 
general grant of coverage.  American Family and the other CGL 
insurers have no duty to defend or indemnify Renschler against 
Pleasant's damage claims, since the CGL policies at issue do not 
cover the contract claims, and the economic loss doctrine 
prevents any tort claim as well.  Thus, I conclude there can be 
no coverage in this case, as the requirements for both liability 
and recovery of damages are not satisfied. 
¶90 As the majority 
acknowledges, the 
economic 
loss 
doctrine confines the parties to contract remedies for recovery 
of 
purely 
economic 
losses 
associated 
with 
the 
contract 
relationship. 
 
Majority 
op., 
¶35. 
 
Economic 
loss 
is 
characterized by the pecuniary damage that occurs due to the 
loss in a product's value because the product is "'inferior in 
quality and does not work for the general purposes for which it 
was manufactured and sold.'"  Wausau Tile, Inc. v. County 
Concrete Corp., 226 Wis. 2d 235, 246, 593 N.W.2d 445 (1999) 
(citation omitted).  It includes both direct economic losses 
(i.e., 
harm 
to 
the 
product 
itself) 
and 
any 
resulting 
No.  01-1871.npc 
 
2 
 
consequential damages (i.e., lost profits).  Id.  Repair and 
replacement costs are common signs of economic loss.  Id. at 
248.  Damages causing personal injury or harm to property other 
than the defective product fall outside the economic loss 
doctrine and find suitable remedy in tort law.  Id. at 247. 
¶91 Pleasant asserts the following damages resulted from 
Renschler’s construction of building 94DC: deformation of steel 
supports, cracks in floor, movement of sewer lines, crinkling, 
screws being ripped out, cracks in the drywall, cringing of the 
walls, 
leaking 
of 
exterior 
panels 
and 
windows, 
roofline 
settlement, and beam separation.  All of these asserted damages 
meet the requirements for economic losses.  The damages fall 
within the definition of economic loss because Renschler's work 
product was alleged to be of inferior quality and failed its 
intended 
purpose. 
 
Furthermore, 
Pleasant 
made 
no 
claims 
asserting personal injury or damage to property other than to 
the product——building 94DC—— itself.   
¶92 Renschler 
allegedly 
breached 
its 
contract 
with 
Pleasant by failing to construct a building free from defects, 
as warranted.  Under the terms of the contract, Renschler was 
liable for any consequential damages if there were defects in 
the 
distribution 
center 
warehouse 
designated 
as 
94DC.  
Determining whether breach of contract/breach of warranty is 
covered as an "occurrence" within the meaning of a CGL policy 
requires an analysis of the policy language. 
¶93 The CGL policies at issue do not cover the insured's 
contractual liability for economic loss.  The CGL policies 
No.  01-1871.npc 
 
3 
 
purchased by Renschler from American Family cover "sums that the 
insured becomes legally obligated to pay as damages because of 
'bodily injury' or 'property damage' . . . only if  . . . the 
'bodily 
injury' 
or 
'property 
damages' 
is 
caused 
by 
an 
'occurrence'  . . . ."  The policies define an "occurrence" as 
"an accident."  The policy language does not list breach of 
contract/breach of warranty as a covered damage, nor can breach 
of contract/breach of warranty fall within the policies' 
definition 
of 
"occurrence." 
 
In 
Wausau 
Tile, 
Inc., 
226 
Wis. 2d at 269, we stated that "it is undisputed that the breach 
of a contract or warranty is not a covered 'occurrence' under 
the Travelers policy."  That policy used the same definition of 
"occurrence" as the one at issue here.  Because breach of 
contract/breach of warranty is not covered by the CGL policies 
issued by American Family, it has no duty to defend or indemnify 
Renschler against Pleasant's claims. 
¶94 The majority states that there are some circumstances 
where a breach of contract or warranty may constitute "property 
damage" under a CGL policy.  Majority op., ¶36.  The majority 
summarily holds this to be such a circumstance, but does not 
clearly explain why what happened here constitutes such an 
exception to our holdings in previous opinions of this court.  
Its decision departs from the authorities previously cited by 
this court that CGL policy "coverage is for tort liability for 
physical damages to others and not for contractual liability of 
the insured for economic loss."  Vogel v. Russo, 2000 WI 85, 
¶17, 236 Wis. 2d 504, 613 N.W.2d 177.  CGL policies exist to 
No.  01-1871.npc 
 
4 
 
protect the insured from tort damages resulting from personal 
injury or harm to property other than the product itself.  
Wausau Tile Inc., 226 Wis. 2d at 248.  The American Family 
policies, as well as the CGL policies issued by the other 
insurers, were not meant to cover the business risk that 
Renschler's services would not be performed properly.  By 
finding coverage in this case, the majority is essentially 
transforming these CGL policies into performance bonds.  Vogel, 
236 Wis. 2d, ¶17. 
¶95 In Wausau Tile, Inc., this court recognized three 
policy reasons supporting the application of the economic loss 
doctrine to commercial transactions.  Wausau Tile, Inc., 226 
Wis. 2d at 247.  First, it is important to preserve the 
distinction between contract and tort law.  The two areas of law 
have varying goals.  Id.  Contract law aims to protect a party's 
bargained-for obligations, while tort law seeks to protect 
society from unanticipated, overwhelming misfortunes.  Id. at 
248.  Without actively maintaining the differences between the 
two areas of law, tort law could easily engulf contract law.  
The second policy reason supporting the application of the 
economic loss doctrine is that it protects the parties' ability 
to draft contracts that best allocate economic risk between the 
parties.  Id. at 247.  Lastly, the economic loss doctrine 
encourages parties to assume, allocate or insure against the 
risks involved in a commercial transaction.  Id. 
¶96 Applying the economic loss doctrine to Pleasant’s 
claims against Renschler satisfies the doctrine's three main 
No.  01-1871.npc 
 
5 
 
objectives.  First, finding coverage for breach of contract in 
CGL policies that routinely restrict coverage to tort damages 
blurs the line between contract and tort.  Renschler and 
Pleasant should only receive the benefit of their bargained-for 
agreement.  In this case, finding American Family liable for 
Renschler's contractual breach allows Renschler to receive more 
benefits than it bargained for.   
¶97 Second, the economic 
loss 
doctrine 
protects the 
parties' freedom to allocate economic risk through contract.  
Renschler assumed the risk that the building may sink when it 
warranted to Pleasant that the construction would be free of 
defects, and in the event that there were defects, Renschler 
would be liable for any consequential damages.  Again, allowing 
Renschler to shirk this assumed liability by finding coverage in 
the CGL policies exceeds the parties' bargained-for agreement.   
¶98 Third, the economic loss doctrine encourages the 
parties to assume, allocate, or insure against the risks 
involved in a commercial transaction.  Pleasant and Renschler 
were best situated to assess the risk of settlement and insure 
against that risk.  Pleasant allocated the risk to Renschler by 
inserting 
a 
warranty 
into 
the 
construction 
contract, 
specifically addressing the land’s known poor subsoil conditions 
and the risk of settlement.  By finding liability here, the 
majority unnecessarily negates the parties' agreed-upon terms. 
¶99 Some commentators have stated that every case denying 
relief based on the economic loss doctrine contains two common 
characteristics.  Harper, James & Gray, The Law of Torts 622 
No.  01-1871.npc 
 
6 
 
(1986).  First, the defendant's wrong does not occur outside the 
realm of lawful conduct.  Id.  Renschler's wrong clearly fits 
into this category because, as the majority itself notes, the 
settlement 
damages 
were 
the 
unintentional 
result 
of 
the 
company’s legitimate business activity.  Majority op., ¶5. 
¶100 Second, the economic loss doctrine applies when the 
plaintiff's loss is purely economic and would be recoverable if 
a negligence test of duty were applied.  The Law of Torts at 
622.  Pleasant's loss fits into this category as well, because 
damages were purely economic and would be recoverable if a 
negligence test were applied.  The test of negligence in 
Wisconsin requires a plaintiff to demonstrate: (1) a duty of 
care on the part of the defendant; (2) a breach of that duty; 
(3) a causal connection between the breach and the injury; and 
(4) actual loss or damage resulting from the injury.  Lemke-
Wojnicki v. Kolodziaj, 2002 WI App 316, ¶7, 258 Wis. 2d 950, 655 
N.W.2d 212.  Arguably, Renschler had a common law duty of care 
to carry out the contract's intended purposes.  When Renschler's 
subcontractor negligently performed the soil analysis, Renschler 
breached that duty of care.  The faulty soil analysis by the 
subcontractor, for whom Renschler was liable, caused the 
settlement that led to the physical damages.  Under the analysis 
favored by the aforementioned commentators, coverage should be 
denied in this case, as both of the necessary factors are 
present that make the economic loss doctrine applicable. 
¶101 Through the contractual warranty, Renschler assumed 
liability for defects in the construction of building 94DC.  
No.  01-1871.npc 
 
7 
 
Because Renschler's services allegedly failed in the intended 
purpose of the contract, Renschler breached the contractual 
warranty.  Breach of a contract or a warranty resulting in 
economic loss is not a covered "occurrence" under American 
Family's CGL policy.  Since the CGL policies at issue do not 
cover the contract claims, and since the economic loss doctrine 
prevents any tort claim, American Family has no duty to defend 
or indemnify Renschler against Pleasant's damage claims.  The 
same reasoning applies to the claims against the other insurers 
involved here.   
¶102 For the foregoing reasons, I respectfully dissent, and 
also join the dissent of Justice Patience D. Roggensack. 
¶103 I am authorized to state that JUSTICE PATIENCE D. 
ROGGENSACK joins this dissent. 
 
 
 
No.  01-1871.pdr 
 
1 
 
¶104 PATIENCE D. ROGGENSACK, J.   (dissenting).  Before 
considering exceptions to coverage in the American Family 
insurance policy, we must first conclude that there has been an 
"occurrence" because the policy does not provide coverage under 
any circumstances unless the "'property damage' is caused by an 
'occurrence.'"  Renschler Company asserts that the act that 
caused damage to the Pleasant Company's building was Clifton 
Lawson's allegedly inaccurate advice concerning compaction of 
the 
subsoil 
prior 
to 
the 
building's 
construction, 
which 
permitted the building to sink.10  However, it was known that if 
subsoil compaction was not properly done, the completed building 
would sink and the damage to the building that has occurred 
would very likely occur.  Therefore, the cause of the damage was 
simply the continuation of prior existing unstable subsoil 
conditions.  Accordingly, I conclude the property damage at 
issue here was not caused by an accident, which is how 
"occurrence" is defined in the policy.  Without an "occurrence," 
there is no potential coverage under Renschler's CGL policy. 
Because 
the 
majority 
concludes 
otherwise, 
I 
respectfully 
dissent. 
I.  BACKGROUND 
¶105 Pleasant's breach of warranty claim against Renschler 
arises from the construction of a warehouse that sank after 
construction, causing, among other problems, cracking of the 
                                                 
10 Throughout this appeal the full blame for the building's 
failure has been set at Clifton Lawson's feet.  We have no 
record to show that this is true, but we will assume it is for 
the purposes of this analysis, as the parties do. 
No.  01-1871.pdr 
 
2 
 
concrete floor, buckling of the walls and malfunctioning 
windows.  The warehouse was constructed on land that was known 
by Renschler and Pleasant, before construction, to have poor 
subsoil conditions that would lead to the building's sinking 
after construction unless those conditions were corrected.  
Because of the soil conditions, Renschler obtained the services 
of Clifton Lawson, a soils engineer, to analyze the soil 
conditions of the site and to direct how to correct them so that 
the building could be constructed in the location that Pleasant 
preferred.   
¶106 Lawson recommended and measured the effects of a 
compaction process known as surcharging.  Renschler performed 
the surcharging by placing large amounts of soil on top of the 
area where the building was to be constructed, and Lawson took 
compression measurements, eventually telling Renschler that the 
subsoil was compacted sufficiently to begin construction. 
¶107 Renschler's construction of the building was subject 
to a written agreement with Pleasant.  Although Renschler was 
contractually obligated to obtain some insurance, a project 
performance bond was not required.   
¶108 Article 18 of the contract required Renschler to 
correct any defective work within one year from the date of 
substantial completion of the project.  Article 20.3 contained 
additional warranties and representations wherein Renschler 
[warranted and represented] that the Building and the 
Work will be constructed in a good and workmanlike 
manner, . . . and, in particular, without limitation 
because of enumeration, Contractor warrant[ed] that 
the design and structural components of the Building, 
No.  01-1871.pdr 
 
3 
 
meaning without limitation the foundation, electrical, 
plumbing, walls, roof, floors, windows, doors and 
drives are free from defects.  
¶109 The building was substantially completed on or about 
August 15, 1994, and by March of 1995, the southeast corner of 
the building was beginning to sink.  By April 3, 1995, it had 
sunk 8.5 inches, and it continued to sink, such that eventually 
the building had to be entirely dismantled.  Because the 
contract between Renschler and Pleasant required arbitration, 
Pleasant sought arbitration.  American Family, who issued the 
CGL policy to Renschler during the time the building was 
constructed 
and 
sank 
significantly, 
intervened 
in 
the 
arbitration, asked for a stay of the proceedings and filed the 
action now before this court to declare its obligations in 
regard to potential coverage.11  On summary judgment, the circuit 
court concluded there was potential coverage under the CGL 
policy; the court of appeals reversed and we granted Renschler's 
petition for review.  
II.  STANDARD OF REVIEW 
¶110 We review decisions to grant summary judgment de novo, 
using the same standards applied by the circuit court and the 
court of appeals.  Guenther v. City of Onalaska, 223 Wis. 2d 
206, 210, 588 N.W.2d 375 (Ct. App. 1998).  Additionally, we 
review an insurance policy as a question of law, Vogel v. Russo, 
2000 WI 85, ¶14, 236 Wis. 2d 504, 613 N.W.2d 177, giving no 
deference to the circuit court.  See id.  We also decide whether 
                                                 
11 Because I agree with the majority's conclusions in regard 
to coverage for all other insurance policies at issue, I do not 
discuss them in this dissent. 
No.  01-1871.pdr 
 
4 
 
the economic loss doctrine applies to a particular transaction 
as a matter of law.  Wausau Tile, Inc. v. County Concrete Corp., 
226 Wis. 2d 235, 245-46, 593 N.W.2d 445 (1999). 
III.  THE CGL POLICY 
¶111 The interpretation of an insurance policy is governed 
by rules of construction that are similar to those applied to 
other contracts.  Vogel, 236 Wis. 2d 504, ¶14.  We review an 
insurance policy to determine whether the words and phrases used 
in the policy are susceptible to more than one reasonable 
construction.  If they are, the terms are ambiguous.  Smith v. 
Atlantic Mut. Ins. Co., 155 Wis. 2d 808, 810-11, 456 N.W.2d 597 
(1990).  We construe an ambiguous policy as it would be 
understood by a reasonable insured.  Holsum Foods v. Home Ins. 
Co., 162 Wis. 2d 563, 568-69, 469 N.W.2d 918 (Ct. App. 1991).  
However, if the policy is not ambiguous, we will not rewrite it 
by construction to impose liability for a risk the insurer did 
not contemplate and for which it has not been paid.  Vogel, 236 
Wis. 2d 504, ¶14. 
¶112 Because Renschler claimed for damages to the building 
that were caused by its sinking after construction, the question 
presented in this case is whether the continuation of known, 
unstable subsoil conditions that caused the building to sink was 
an "occurrence" thereby yielding potential coverage.  See 
Nichols v. American Employers Ins. Co., 140 Wis. 2d 743, 749-50, 
412 N.W.2d 547 (Ct. App. 1987).  That question is determined in 
part by whether Renschler could be "legally obligated to pay" a 
particular claim.  Furthermore, the CGL policy applies to 
No.  01-1871.pdr 
 
5 
 
property damage "only if" it has been "caused by an occurrence," 
which is defined as an "accident," and no policy exclusion 
applies.  No one has asserted these terms are ambiguous and we 
agree they are not. 
A.  "Legally obligated to pay" 
¶113 The American Family policy covers only those sums of 
money that Renschler is "legally obligated to pay as damages 
because of 'bodily injury' or 'property damage' to which this 
insurance applies."  Am. Fam. Policy, ¶ I.A.1.  Pleasant asked 
for arbitration of claims sounding in tort (negligence) and in 
contract (breach of warranty).  However, the parties agreed at 
oral argument that Pleasant has only a contract claim for breach 
of warranty.   
¶114 Additionally, while the economic loss doctrine is not 
directly applicable to the insurance policy Renschler purchased 
from American Family, it is implicated in the coverage question 
because through the operation of the economic loss doctrine, 
Renschler cannot become "legally obligated to pay" Pleasant for 
a tort claim.  Wausau Tile, 226 Wis. 2d at 245-46 (holding that 
the economic loss doctrine precludes a party to a contract from 
using tort theories of recovery for a claim based on the 
inferior quality of the object produced under the contract 
between the parties).  "Repair and replacement costs are typical 
measures of economic loss."  Id. at 248.   
¶115 It is also important to note that in jurisdictions 
where suits for this type of loss are permitted as both contract 
and tort claims, success on the contract claim does not always 
No.  01-1871.pdr 
 
6 
 
result in success on the tort claim.  See Hartrick v. Great 
American Lloyds Ins. Co., 62 S.W.3d 270 (Texas App. 2001) 
(plaintiff sued for breach of warranty and negligent performance 
in preparing the soil and constructing a building, and the jury 
found for the plaintiff on the breach of warranty claim, but not 
on the negligence claim).  Therefore, because Pleasant could not 
prevail on a negligence claim against Renschler for this loss, 
the only damages Renschler could be found "legally obligated to 
pay" are those arising from a contract claim, here, breach of 
warranty.  Accordingly, it is only the breach of warranty claim, 
i.e., that Renschler contracted to correct the unstable subsoil 
conditions, which can be examined to determine whether there was 
an "occurrence." 
B.  "Occurrence" 
¶116 "Occurrence" is defined in the CGL policy as "an 
accident, 
including 
continuous 
or 
repeated 
exposure 
to 
substantially the same general harmful conditions."  Am. Fam. 
Policy, ¶ V.9.  The terms "occurrence" and "accident" have been 
reviewed by many Wisconsin courts.  However, we have not 
previously decided whether the continuation of a known condition 
adverse to contract performance, which continuation results in 
No.  01-1871.pdr 
 
7 
 
property damage of a type that was likely to occur if the 
condition persisted, is an "accident."12   
¶117 The majority bottoms its analysis of the "occurrence" 
issue in the following major premise:  "No one seriously 
contends that the property damage to the [building] was anything 
but accidental (it was clearly not intentional), nor does anyone 
argue that it was anticipated by the parties."  Majority op., 
¶38.  That assertion is contrary to the central argument 
American Family is making:  Pleasant and Renschler, the parties 
to the construction contract, recognized the risk that the 
subsoil might not be sufficient to support the building.  As 
American Family points out, Pleasant, the purchaser of the 
completed building, was so aware of the possibility of the 
building settling that it secured a warranty from Renschler in 
which Renschler agreed to shoulder the risk of financial loss if 
settling occurred as a result of the continuation of the 
unstable subsoil conditions. 
¶118 The 
majority's 
equation 
of 
"accidental" 
with 
"unintentional" begs the question presented here:  whether the 
sinking of the building was an unforeseen event or one that 
resulted from an unknown cause.  "Accident" is the operative 
                                                 
12 I recognize that in Wausau Tile, Inc. v. County Concrete 
Corporation, 226 Wis. 2d 235, 269, 593 N.W.2d 445 (1999), we 
said that a breach of warranty was not an occurrence under a 
Traveler's insurance policy that employed the same definition of 
occurrence at issue there.  However, the issue of whether a 
breach of warranty could be an occurrence was not disputed in 
Wausau Tile.  It simply was assumed that a breach of warranty 
was not an accident.  Id. 
No.  01-1871.pdr 
 
8 
 
word in the policy definition of "occurrence."  An "accident" 
has been variously defined as: 
an event that takes place without one's foresight or 
expectation——an event that proceeds from an unknown 
cause, or is an unusual effect of a known cause, and 
therefore not expected.   
10 Couch on Insurance § 139:14 (3d ed. 2000); or 
an event or condition occurring by chance or arising 
from unknown or remote causes . . . .   
Webster’s Third New International Dictionary of the English 
Language, Unabridged, 11 (3d ed. 1961); or  
The word 'accident,' in accident policies, means an 
event which takes place without one's foresight or 
expectation.  A result, though unexpected, is not an 
accident; the means or cause must be accidental.  
(Emphasis added). 
Black’s Law Dictionary, 15 (7th ed. 1999).  Here, the settling 
was not an unexpected outcome of construction.  It was a known 
possibility.  Furthermore, the settling did not take place due 
to an unknown cause.  It was well recognized that the soil 
conditions 
were 
unfavorable 
to 
construction 
and 
if 
they 
continued there would be problems. 
 
¶119 In sum, all the definitions of "accident" require, at 
a minimum, an unexpected event or an unexpected cause.13  Here, 
it does not matter whether we focus on the sinking building or 
the continuation of unstable subsoil conditions, neither was 
unexpected.  The unstable subsoil conditions were known and 
                                                 
13 It could be argued that both an unexpected event and an 
unexpected cause are required to constitute an accident.  
Because in this case neither the sinking of the building nor the 
cause of the sinking was unexpected, I do not address it. 
No.  01-1871.pdr 
 
9 
 
their correction required to prevent the building from sinking.  
In 
fact, 
the 
risk 
that 
the 
building 
would 
sink 
after 
construction was assumed by Renschler in its contract with 
Pleasant, showing a continuation of the unstable subsoil 
conditions was a potential and known risk of constructing the 
building on the site Pleasant chose.  
¶120 Furthermore, 
we 
have 
equated 
"accident" 
with 
negligence.  Doyle v. Engelke, 219 Wis. 2d 277, 289-90, 580 
N.W.2d 245 (1998) (further citations omitted).  However, 
negligence is a tort, and as we have earlier explained, Pleasant 
cannot sue Renschler for a tort.  Therefore, if we use the 
definition in Doyle, there will be no coverage under the policy 
because Renschler will never be "legally obligated to pay" 
Pleasant based on negligence.  See Wausau Tile, 226 Wis. 2d at 
245-46. 
¶121 Additionally, this analysis fits squarely within the 
purpose of a CGL policy.  It is written to cover the risks of 
injury to third parties and damage to the property of third 
parties caused by the insured's completed work.  It is not 
written to cover the business risk of failing to provide goods 
or services in a workmanlike manner to the second party to the 
contract.  L.B. Foster, Point/Counterpoint:  No Coverage under 
the CGL Policy for Standard Construction Defect Claims, 22 Spg. 
Construction Law., 18; Bulen v. West Bend Mut. Ins. Co., 125 
Wis. 2d 259, 264-65, 371 N.W.2d 392 (Ct. App. 1985). 
¶122 And finally, the happening of an accident is entirely 
unpredictable; by its very definition, it is not something one 
No.  01-1871.pdr 
 
10 
 
can plan to occur.  Therefore, a contractor would have 
difficulty budgeting to meet that risk; hence the need for 
insurance.  However, here, the risk that the unstable subsoil 
conditions would continue was a known risk.  If Renschler did 
not want to shoulder that risk, it could have required a 
performance bond or a warranty from Lawson similar to the one 
Pleasant obtained from it.   
¶123 The majority also asserts that if contract claims are 
never "occurrences" then there is no need to have the business 
risk exclusion.  Majority op., ¶47.  That argument ignores the 
fact that the policy at issue is a standard CGL policy.  It is 
issued to many contractors to cover myriad circumstances that 
may be very dissimilar from the facts that form the basis for 
Pleasant's claim.  Therefore, in a claim based on different 
facts, there may be an occurrence and yet the business risk 
exclusion may preclude coverage.  For example, if a contractor 
builds a building and a wall spontaneously collapses on a 
passer-by because of poor workmanship in constructing the wall, 
there would be an occurrence in regard to the unforeseen falling 
of the wall, and the damage to the injured person would be 
covered.  However, the repair of the defective wall would be 
excluded from coverage under the business risk exclusion. 
¶124 The majority also relies on reasoning similar to the 
court of appeals opinion in Kalchthaler v. Keller Construction 
Company, 224 Wis. 2d 387, 591 N.W.2d 169 (Ct. App. 1999), for 
its conclusion that the damage to the building was caused by an 
occurrence because the damage was accidental.  Majority op., 
No.  01-1871.pdr 
 
11 
 
¶¶48-49.  In Kalchthaler, the building that Keller constructed 
had faulty windows that leaked and caused damage to other parts 
of the building.  The court began its analysis by recognizing 
that it had decided in Bulen that there is a difference between 
an "accident of faulty workmanship" and "faulty workmanship that 
causes an accident."  Kalchthaler, 224 Wis. 2d at 395-96 (citing 
Bulen, 125 Wis. 2d at 265).  However, Kalchthaler discarded that 
distinction by mixing tort elements with contract elements based 
on the parties' stipulation that a tort had occurred and by 
failing 
to 
focus 
on 
whether 
faulty 
workmanship 
was 
an 
"accident": 
[The parties] stipulated that fifty percent of the 
damages were due to Keller's negligence.  Furthermore, 
there is no question that an event occurred:  the 
windows leaked.  This is an accident.  So we have 
property damage caused by an occurrence and the policy 
applies.   
Kalchthaler, 224 Wis. 2d at 397.  Here, there can be no finding 
that Renschler was negligent.  Both the economic loss doctrine 
and the parties' statements to the court at oral argument 
preclude it.   
¶125 In my view, this court correctly interpreted the 
reasonable expectation of an insured under a CGL policy in 
Vogel, where we acknowledged the differing expectations that an 
insured has in purchasing a CGL policy and a performance bond.  
We explained: 
A CGL policy's sole purpose is to cover the risk that 
the insured's goods, products, or work will cause 
bodily injury or damage to property other than the 
product or the completed work of the insured.  . . . A 
CGL policy, therefore, is not a performance bond.  
No.  01-1871.pdr 
 
12 
 
Vogel, 236 Wis. 2d 504, ¶17 (emphasis in original) (additional 
citations omitted).  The majority tries to limit the usefulness 
of Vogel by saying it should not "be read for the conclusion 
that a loss actionable in contract rather than tort can never 
constitute a covered 'occurrence' under a CGL policy."  Majority 
op., ¶43.  But, its statement misses the heart of Vogel, which 
was based on long-standing precedent that has held that faulty 
workmanship is not covered under a CGL policy.  See Wisconsin 
Label Corp. v. Northbrook Property & Cas. Ins. Co., 2000 WI 26, 
¶58, 233 Wis. 2d 314, 607 N.W.2d 276; St. John's Home of 
Milwaukee v. Continental Cas. Co., 147 Wis. 2d 764, 788-89, 434 
N.W.2d 112 (Ct. App. 1988); Bulen, 125 Wis. 2d at 264-65; Jacob 
v. Russo Builders, 224 Wis. 2d 436, 446-47, 592 N.W.2d 271 (Ct. 
App. 1999).  And finally, this interpretation is not just the 
opinion of the dissent, but it is also the opinion of the 
majority of courts that have addressed this question.  See 
Foster, supra, at ¶18. 
¶126 Accordingly, I conclude that under the facts of this 
case, there was no occurrence, and from that it follows that 
there is no coverage.   
¶127 For the foregoing reasons I respectfully dissent. 
¶128 I am authorized to state that Justice N. PATRICK 
CROOKS joins this dissent.  
No.  01-1871.pdr 
 
1