Title: Wausau Tile, Inc. v. County Concrete Corporation

State: wisconsin

Issuer: Wisconsin Supreme Court

Document:

SUPREME COURT OF WISCONSIN 
 
 
Case No.: 
97-2284 
 
 
Complete Title 
of Case: 
 
 
Wausau Tile, Inc., a domestic corporation,  
 
Plaintiff-Appellant, 
 
v. 
County Concrete Corporation, a domestic 
corporation, and American States Ins. Co., a 
foreign insurance corporation,  
 
Defendants, 
The Travelers Indemnity Co., a foreign insurance 
corporation, and Medusa Corporation, d/b/a 
Medusa Cement Company, a foreign corporation,  
 
Defendants-Respondents.  
 
ON CERTIFICATION FROM THE COURT OF APPEALS 
 
 
Opinion Filed: 
May 28, 1999 
Submitted on Briefs: 
 
Oral Argument: 
February 11, 1999 
 
 
Source of APPEAL 
 
COURT: 
Circuit  
 
COUNTY: 
Marathon 
 
JUDGE: 
Vincent K. Howard 
 
 
JUSTICES: 
 
Concurred: 
 
 
Dissented: 
 
 
Not Participating: Bradley, J., did not participate. 
 
 
ATTORNEYS: 
For the plaintiff-appellant, there were briefs by 
Thomas R. Crone, Dana J. Erlandsen, Devon R. Baumbach and Melli, 
Walker, Pease & Ruhly, S.C., Madison and oral argument by Dana J. 
Erlandsen. 
 
 
For the defendant-respondent, Medusa Corporation, 
there was a brief by Keith W. Kostecke and Menn, Nelson, 
Sharratt, Teetaert & Beisenstein, Ltd., Appleton and oral 
argument by Keith W. Kostecke. 
 
 
For the defendant-respondent, The Travelers 
Indemnity Company, there was a brief by John D. Bird, Jr., and 
Bird, Martin & Salomon, S.C., Milwaukee and oral argument by John 
D. Bird, Jr. 
 
 
Amicus curiae brief was filed by Frank A. 
Scherkenbach, Jeffrey S. Fertl and Hinshaw & Culbertson, 
Milwaukee for Wisconsin Gas Company. 
 
No. 
97-2284 
 
1 
 
NOTICE 
This opinion is subject to further editing and 
modification.  The final version will appear in 
the bound volume of the official reports. 
 
 
No. 97-2284 
 
STATE OF WISCONSIN               :        
        
 
 
 
 
IN SUPREME COURT 
 
 
Wausau Tile, Inc., a domestic  
corporation,  
 
          Plaintiff-Appellant, 
 
     v. 
 
County Concrete Corporation, a domestic  
corporation, and American States Ins.  
Co., a foreign insurance corporation,  
 
          Defendants, 
 
The Travelers Indemnity Co., a foreign  
insurance corporation, and Medusa  
Corporation, d/b/a Medusa Cement Company,  
a foreign corporation,  
 
          Defendants-Respondents.  
FILED 
 
MAY 28, 1999 
 
Marilyn L. Graves 
Clerk of Supreme Court 
Madison, WI 
 
 
 
 
 
APPEAL from a judgment of the Circuit Court for Marathon 
County, Vincent K. Howard, Circuit Court Judge.  Affirmed. 
¶1 
N. PATRICK CROOKS, J.   The court of appeals certified 
this case pursuant to Wis. Stat. § (Rule) 809.61 (1997-98),1  
asking this court "to determine the nature, extent and scope of 
the public safety exception to the economic loss doctrine 
enunciated in Northridge Co. v. W.R. Grace & Co., 162 Wis. 2d 
918, 471 N.W.2d 179 (1991)."  Certification at 1.  We hold that 
                     
1 All references to the Wisconsin Statutes are to the 1997-
98 version unless otherwise noted.  
No. 
97-2284 
 
2 
the Northridge rule is not applicable to the tort claims alleged 
in this case.  Because the only non-economic loss alleged by 
Wausau Tile is the personal injury or property damage of third 
persons, we conclude that Wausau Tile's tort claims are barred 
by the economic loss doctrine. 
I.  
¶2 
Wausau Tile, Inc. ("Wausau Tile") manufactures, sells 
and distributes "Terra" pavers to entities around the country.  
Pavers are concrete paving blocks made of cement, aggregate, 
water, and other materials, for use mainly in exterior walkways. 
 Wausau Tile's pavers have been installed in various locations 
throughout the nation. 
¶3 
Wausau 
Tile 
contracted 
with 
Medusa 
Corporation 
("Medusa") to supply the cement for the pavers and arranged for 
County Concrete Corporation ("County Concrete") to supply the 
aggregate.2  Wausau Tile's contract with Medusa contained 
warranties providing that Medusa would remedy or replace cement 
which did not meet particular specifications.3 
                     
2 It is unclear from the record whether a contract also 
existed with County Concrete.  County Concrete is not a party to 
this appeal. 
3 The warranty from Medusa to Wausau Tile stated: 
 
SPECIFICATIONS.  THE CEMENT SHALL CONFORM TO THE 
PRESENT 
STANDARD 
SPECIFICATIONS 
OF 
THE 
AMERICAN 
SOCIETY FOR TESTING MATERIALS AND/OR THE FEDERAL 
SPECIFICATIONS.  THESE EXPRESS WARRANTIES ARE IN LIEU 
OF AND EXCLUDE ALL OTHER WARRANTIES, EXPRESS OR 
IMPLIED, ORAL OR STATUTORY, OF MERCHANTABILITY AND 
FITNESS FOR A PARTICULAR PURPOSE.  SELLER [Medusa] 
SHALL REMEDY OR REPLACE, FREE OF CHARGE, ANY CEMENT 
No. 
97-2284 
 
3 
¶4 
On April 16, 1996, Wausau Tile filed suit in Marathon 
County Circuit Court against Medusa, County Concrete, and their 
insurers, alleging breach of warranty, breach of contract, 
negligence, indemnification, contribution and strict liability 
claims.  Wausau Tile claimed that several of the installed 
pavers had suffered "excessive expansion, deflecting, curling, 
cracking and/or buckling."  Compl. ¶12.  Wausau Tile asserted 
that these problems were caused by alkali-silica gel reactions 
which resulted from high levels of alkalinity in Medusa's cement 
and 
high 
concentrations 
of 
silica 
in 
County 
Concrete's 
aggregate.  
¶5 
Wausau Tile claimed that the expansion and cracking of 
the pavers had led to problems and property damages which have 
given rise to "various claims, demands and suits against Wausau 
                                                                  
WHICH 
DOES 
NOT 
COMPLY 
WITH 
THE 
AFORESAID 
SPECIFICATIONS AND SHALL HAVE NO FURTHER OBLIGATION OR 
LIABILITY 
FOR 
GENERAL, 
SPECIAL 
OR 
CONSEQUENTIAL 
DAMAGES ARISING OUT OF A BREACH OF THE AFORESAID 
EXPRESS WARRANTIES. 
 
Seller, having no control over the use of cement will 
not, therefore, guarantee finished work in which it is 
used, nor shall the Seller be responsible for the 
condition of cement after delivery to Buyer [Wausau 
Tile].  Any charges incident to inspection or tests 
made by or on behalf of Buyer to determine compliance 
with specifications shall be paid by Buyer. 
 
Runde Aff. Ex. B at 2 (emphasis in original). 
 
No. 
97-2284 
 
4 
Tile."4  Compl. ¶12.  Wausau Tile alleged that it had "sustained 
monetary damages in remedying the property damage claims, is 
facing claims for personal injuries, and has suffered and will 
continue to suffer lost business and profits."  Compl. ¶17.  In 
connection with its tort claims, Wausau Tile sought "actual and 
consequential damages arising from said problems and defects, 
including, but not limited to, costs of repair, replacement and 
remedy of any and all defects, complaints and resulting injuries 
which have arisen or will arise in the future as a result of the 
use of said pavers."  Compl. ¶31.   
¶6 
On March 20, 1997, The Travelers Indemnity Company 
("Travelers"), Medusa's insurer, filed a motion to:  (1) dismiss 
Wausau Tile's negligence, indemnification, and contribution 
claims pursuant to Wis. Stat. § 802.06, for failure to state 
causes of action against Medusa and Travelers for which relief 
could be granted;5 and (2) obtain a summary declaration pursuant 
                     
4 Wausau Tile's attorney stated at oral argument that Wausau 
Tile had been presented with three formal personal injury claims 
and had knowledge of six to twelve personal injury claims that 
had not yet been filed.  As of the date of oral argument, Wausau 
Tile had not paid out any amounts in satisfaction of personal 
injury claims, but had paid various sums in connection with 
property damage claims.  In addition, Wausau Tile stated that it 
had expended money removing and replacing problematic pavers in 
an effort to prevent further injuries and property damage. 
5 The strict liability claim was added in Wausau Tile's 
Third Amended Complaint.  The Third Amended Complaint was filed 
after Travelers made this motion pursuant to a stipulation of 
the parties and order of the circuit court.  Like the circuit 
court, we address the allegations contained in the Third Amended 
Complaint. 
No. 
97-2284 
 
5 
to Wis. Stat. § 802.08 that Travelers had no duty to defend 
Medusa on Wausau Tile's breach of contract and warranty claims. 
 Travelers asked the court to issue an order dismissing Wausau 
Tile's complaint and all claims asserted against Travelers on 
their merits.   
¶7 
The circuit court, Judge Vincent K. Howard presiding, 
granted Travelers' motion.  In a written order entered on July 
24, 1997, the court dismissed Wausau Tile's negligence and 
strict liability claims against Medusa with prejudice.  In 
addition, the court entered summary judgment in favor of 
Travelers, holding that Travelers had no duty to defend Medusa 
in this case and dismissing on their merits all pleadings 
asserting a claim against Travelers. 
¶8 
In 
its 
memorandum 
decision, 
the 
circuit 
court 
determined that Wausau Tile's complaint concerned only the 
suitability or quality of Medusa's product and that the loss it 
sought to recover was purely economic.  Although Wausau Tile 
asserted personal injury and property damage in support of its 
negligence and strict liability claims, the third parties who 
were the real parties in interest as to those claims were not 
joined, nor was joinder feasible or necessary for Wausau Tile to 
litigate the economic loss issues.  The court concluded, 
therefore, that the economic loss doctrine precluded Wausau Tile 
from maintaining its tort claims against Medusa.   
¶9 
Based on this conclusion, the circuit court held that 
Travelers had no duty to defend Medusa against Wausau Tile's 
No. 
97-2284 
 
6 
tort claims.  The court found that the Travelers policy6 covered 
exclusively claims for bodily injury and property damage.  Since 
the third-party real parties in interest for Wausau Tile's 
claims of bodily injury and property damage were not joined in 
the suit, the court held that Travelers had no duty to defend.  
¶10 As stated previously, the court of appeals certified 
Wausau Tile's appeal to this court.  This court accepted review 
of all issues raised before the court of appeals. 
II. 
¶11 We begin by determining whether the circuit court 
properly dismissed Wausau Tile's negligence and strict liability 
claims against Medusa as barred by the economic loss doctrine.  
"A motion to dismiss a complaint for failure to state a claim 
tests the legal sufficiency of the complaint."  Watts v. Watts, 
137 Wis. 2d 506, 512, 405 N.W.2d 305 (1987).  See also Doe v. 
Archdiocese of Milwaukee, 211 Wis. 2d 312, 331, 565 N.W.2d 94 
(1997).  Whether the complaint states a claim for relief is a 
question of law which this court reviews de novo.  Daanen & 
Janssen, Inc. v. Cedarapids, Inc., 216 Wis. 2d 395, 400, 573 
N.W.2d 842 (1998); Watts, 137 Wis. 2d at 512.  For purposes of 
review, we must accept the facts stated in the complaint, along 
with all reasonable inferences which may be drawn from them, as 
                     
6 Travelers wrote a total of eight policies for Medusa.  The 
effective date for the first policy was July 1, 1989, and each 
policy period lasted one year.  Because the provisions relevant 
to the duty to defend issue are the same in each Travelers 
policy, we will discuss the insurance policies as though only 
one policy existed.  
No. 
97-2284 
 
7 
true.  Watts, 137 Wis. 2d at 512.  See also Northridge, 162 
Wis. 2d at 923-24.  Unless it seems certain that no relief could 
be granted under any set of facts that the plaintiff could 
prove, dismissal of the complaint is improper.  Northridge, 162 
Wis. 2d at 923; Watts, 137 Wis. 2d at 512.             
A. 
¶12 The economic loss doctrine precludes a purchaser of a 
product from employing negligence or strict liability theories 
to recover from the product's manufacturer loss which is solely 
economic.7  Sunnyslope Grading, Inc. v. Miller, Bradford & 
Risberg, Inc., 148 Wis. 2d 910, 921, 437 N.W.2d 213 (1989).  See 
also East River S.S. Corp. v. Transamerica Delaval, Inc., 476 
U.S. 858, 870-71 (1986); Daanen, 216 Wis. 2d at 400; Northridge, 
162 Wis. 2d at 925.  Economic loss is the loss in a product's 
value which occurs because the product "is inferior in quality 
and does not work for the general purposes for which it was 
manufactured and sold."  Northridge, 162 Wis. 2d at 925-26.  See 
also Daanen, 216 Wis. 2d at 401. 
¶13 Economic loss may be either direct or consequential.  
Daanen, 216 Wis. 2d at 401; Northridge, 162 Wis. 2d at 926.  
                     
7 Sunnyslope Grading, Inc. v. Miller Bradford & Risberg, 
Inc., 148 Wis. 2d 910, 921, 437 N.W.2d 213 (1989), applies the 
economic loss doctrine in a commercial setting, as do many of 
the other cases cited in this opinion.  Recently, in State Farm 
Mut. Auto. Ins. Co. v. Ford Motor Co., No. 97-2594, op. at 2 (S. 
Ct. May 4, 1999), and General Cas. Co. v. Ford Motor Co., No. 
97-3607, op. at 2 (S. Ct. May 4, 1999), this court held that the 
economic loss doctrine applies with equal force to consumer 
transactions.  Nothing in this opinion should be interpreted as 
limiting the holdings in State Farm and General Casualty.   
No. 
97-2284 
 
8 
Direct economic loss is "loss in value of the product itself."  
Daanen, 216 Wis. 2d at 401 (citing Steven R. Swanson, The 
Citadel Survives a Naval Bombardment:  A Policy Analysis of the 
Economic Loss Doctrine, 12 Tul. Mar. L.J. 135, 140 (1987) 
[hereinafter “Swanson”]).  All other economic loss caused by the 
product defect, such as lost profits, is consequential economic 
loss.  Daanen, 216 Wis. 2d at 401; Northridge, 162 Wis. 2d at 
926; Swanson at 140.   
¶14 The economic loss doctrine does not preclude a product 
purchaser's claims of personal injury or damage to property 
other than the product itself.  Daanen, 216 Wis. 2d at 402; 
Northridge, 162 Wis. 2d at 937; Tony Spychalla Farms, Inc. v. 
Hopkins Agric. Chem. Co., 151 Wis. 2d 431, 438, 444 N.W.2d 743 
(Ct. App. 1989).  Similarly, claims which allege economic loss 
in combination with non-economic loss are not barred by the 
doctrine.  Daanen, 216 Wis. 2d at 402.  "In short, economic loss 
is damage to a product itself or monetary loss caused by the 
defective product, which does not cause personal injury or 
damage to other property."  Id. at 402. 
¶15 In Daanen, this 
court identified 
three policies 
supporting the application of the economic loss doctrine to 
commercial transactions.  Id. at 403.  First, the economic loss 
doctrine preserves the fundamental distinction between tort law 
and contract law.  Id.  Second, application of the doctrine 
protects the parties' freedom to allocate economic risk by 
contract.  Id.  Third, the doctrine encourages the purchaser, 
No. 
97-2284 
 
9 
which is the party best situated to assess the risk of economic 
loss, to assume, allocate, or insure against that risk.  Id. 
¶16 The first of these policies recognizes that contract 
law rests on bargained-for obligations, while tort law is based 
on legal obligations.  See id. at 404; Northridge, 162 Wis. 2d 
at 933; E. Allan Farnsworth, Contracts §§ 1.1-.3, at 3-10 (2d 
ed. 1990).  In contract law, the parties' duties arise from the 
terms of their particular agreement; the goal is to hold parties 
to that agreement so that each receives the benefit of his or 
her bargain.  Daanen, 216 Wis. 2d at 404; Sunnyslope, 148 Wis. 
2d at 916.  See also Swanson at 158.  The aim of tort law, in 
contrast, is to protect people from misfortunes which are 
unexpected and overwhelming.  East River, 476 U.S. at 871.  The 
law imposes tort duties upon manufacturers to protect society's 
interest in safety from the physical harm or personal injury 
which may result from defective products.  Daanen, 216 Wis. 2d 
at 405; Northridge, 162 Wis. 2d at 933.  Thus, where a product 
fails in its intended use and injures only itself, thereby 
causing only economic damages to the purchaser, "the reasons for 
imposing a tort duty are weak and those for leaving the party to 
its contractual remedies are strong."  East River, 476 U.S. at 
871.  See also Daanen, 216 Wis. 2d at 405.  
¶17 In this case, the damages sought by Wausau Tile can be 
grouped into three categories:  (1)  the costs of repairing and 
replacing cracked, buckled or expanded pavers; (2) the costs of 
satisfying third parties' claims that the defective pavers 
either caused personal injury or damaged property adjoining the 
No. 
97-2284 
 
10
pavers, such as curbs, mortar beds and walls; and (3) lost 
profits and business.  We consider each of these types of 
damages in turn. 
¶18 Repair and replacement costs are typical measures of 
economic loss.  See East River, 476 U.S. at 870; Miller v. 
United States Steel Corp., 902 F.2d 573, 574 (7th Cir. 1990) 
(applying Wisconsin law); Northridge, 162 Wis. 2d at 931.  
However, it is not the measure of damages which determines 
whether a claim alleges solely economic loss.  Northridge, 162 
Wis. 2d at 931-32.  Physical harm to property other than the 
product itself may also be measured by the cost of repair or 
replacement of the product.  Id. at 932.  Consequently, we must 
determine whether Wausau Tile has alleged repair or replacement 
costs as a measure of harm to property other than the defective 
product. 
¶19 Wausau Tile argues that the costs of repairing and 
replacing the pavers do not constitute economic loss because the 
pavers themselves are property other than the defective product 
(Medusa's cement).  We are not persuaded by that argument. 
¶20 Damage by a defective component of an integrated 
system to either the system as a whole or other system 
components is not damage to "other property" which precludes the 
application of the economic loss doctrine.  See East River, 476 
U.S. at 867-68; Midwest Helicopters Airways, Inc. v. Sikorsky 
Aircraft, 849 F. Supp. 666, 671-72 (E.D. Wis. 1994) (applying 
Wisconsin law); Cincinnati Ins. Co. v. AM Int'l, 224 Wis. 2d 
456, 463, ___ N.W.2d ___ (Ct. App. 1999); Midwhey Powder Co., 
No. 
97-2284 
 
11
Inc. v. Clayton Indus., 157 Wis. 2d 585, 590-91, 460 N.W.2d 426 
(Ct. App. 1990).  Comment e of the Restatement (Third) of Torts 
§ 21 acknowledges this "integrated system" rule.  It states, in 
part: 
 
A defective product that causes harm to property other 
than the defective product itself is governed by the 
rules of this Restatement.  What constitutes harm to 
other property rather than harm to the product itself 
may be difficult to determine.  A product that 
nondangerously fails to function due to a product 
defect has clearly caused harm only to itself.  A 
product that fails to function and causes harm to 
surrounding property has clearly caused harm to other 
property.  However, when a component part of a machine 
or a system destroys the rest of the machine or 
system, the characterization process becomes more 
difficult.  When the product or system is deemed to be 
an integrated whole, courts treat such damage as harm 
to the product itself.  When so characterized, the 
damage 
is 
excluded 
from 
the 
coverage 
of 
this 
Restatement.  A contrary holding would require a 
finding of property damage in virtually every case in 
which a product harms itself and would prevent 
contractual 
rules 
from 
serving 
their 
legitimate 
function in governing commercial transactions. 
Restatement (Third) of Torts § 21 cmt. e (1997) (emphasis 
added). 
¶21 Likewise, 
the 
United 
States 
Supreme 
Court 
has 
recognized that courts have interpreted the Supreme Court's 
decision in East River as standing for the proposition that when 
harm results from a defective component of a product, the 
product itself is deemed to have caused the harm.  Saratoga 
Fishing Co. v. J.M. Martinac & Co., 520 U.S. 875, 883 (1997).  
In emphasizing that its holding in Saratoga did not affect this 
No. 
97-2284 
 
12
rule, the Court quoted East River's explanation of the rule’s 
importance: 
 
Since all but the very simplest of machines have 
component parts, [a holding that a component of a 
machine was "other property"] would require a finding 
of "property damage" in virtually every case where a 
product 
damages 
itself. 
 
Such 
a 
holding 
would 
eliminate the distinction between warranty and strict 
products liability. 
 
Id. (quoting East River, 476 U.S. at 867)).8  Other jurisdictions 
also apply some form of the “integrated system” rule.  See, 
e.g., Casa Clara Condominium Ass'n, Inc. v. Charley Toppino and 
Sons, Inc., 620 So. 2d 1244, 1247 (Fla. 1993); Trans States 
Airlines v. Pratt & Whitney Canada, Inc., 682 N.E.2d 45, 58 
(Ill. 1997).9   
¶22 In the instant case, it is undisputed that the pavers 
were 
integrated 
systems 
comprised 
of 
several 
component 
materials, including Medusa's cement.  See Compl. ¶¶7-9.  The 
                     
8 In Saratoga Fishing Co. v. J.M. Martinac & Co., 520 U.S. 
875, 878, 884 (1997), the United States Supreme Court held that 
the economic loss doctrine did not preclude a second user's 
claim of damages for equipment added to a ship by the initial 
user, when a defective component purchased and installed by the 
ship manufacturer caused the ship to fail.  The Court concluded 
that the added equipment was "other property" under the rule of 
East River and that the ship, as placed in the stream of 
commerce by the manufacturer, constituted the "product itself." 
 Id. at 879. 
9 The Restatement of Torts and the jurisprudence of other 
state and federal courts have guided the development of the 
economic loss doctrine in Wisconsin from its inception.  See, 
e.g., Daanen, 216 Wis. 2d at 403-11; Northridge, 162 Wis. 2d at 
924; Sunnyslope, 148 Wis. 2d at 920-21.    
No. 
97-2284 
 
13
circuit 
court 
determined 
that 
Medusa's 
"concrete 
is 
an 
indistinguishable, integral part of the pavers" which "cannot be 
separately identified from the finished product."  Summary Judg. 
Dec., June 25, 1997 at 10-11 (No. 96-CV-187).  Other courts have 
held that various substances incorporated into finished products 
constitute integral components of those products.  See, e.g., 
Casa Clara, 620 So. 2d at 1247 (Fla. 1993) (holding that 
defective concrete became an integral part of homes purchased by 
the plaintiff such that the homes were not “other property”).  
Because the inference that Medusa's cement was an integral 
component of the pavers reasonably follows from the facts 
alleged in the complaint, we must regard it as true.  See 
Northridge, 162 Wis. 2d at 923; Watts, 137 Wis. 2d at 512.  
Accordingly, we reject Wausau Tile's contention that the pavers 
constitute property other than the defective cement.10  
                     
10 Wausau Tile argues that the Midwhey "integrated system" 
rule 
set 
forth in 
Midwhey 
Powder 
Co., Inc. 
v. Clayton 
Industries, 157 Wis. 2d 585, 590-91, 460 N.W.2d 426 (Ct. App. 
1990), may only be applied when a purchaser buys an entire 
integrated system which later turns out to have a defective 
component.  Wausau Tile contends that the rule does not apply in 
this case because Wausau Tile bought only the component (the 
cement), not the integrated system (the pavers).   
In a similar vein, Wausau Tile argues that it is in the 
position of the "initial user" in Saratoga Fishing.  Therefore, 
Wausau Tile reasons, under the rule of Saratoga Fishing, the 
aggregate, water, and other materials it added to the product it 
purchased (the cement) constitutes "other property" for purposes 
of the economic loss doctrine. 
No. 
97-2284 
 
14
¶23 We conclude that the crux of Wausau Tile's claim for 
repair and replacement costs is that the pavers were damaged 
because one or more of their ingredients was of insufficient 
quality and did not work for Wausau Tile's intended purpose.  
This is the essence of a claim for economic loss.  See 
Northridge, 162 Wis. 2d at 937; Sunnyslope, 148 Wis. 2d at 916. 
 See also D'Huyvetter v. A.O. Smith Harvestore Prod., 164 
Wis. 2d 306, 328, 475 N.W.2d 587 (Ct. App. 1991).     
¶24 Second, Wausau Tile claims damages in the amounts it 
expended, or anticipates that it will expend, in remediation of 
third parties’ claims of damage to property adjoining the pavers 
and pedestrians' claims of personal injury.  These claims do not 
allege any personal injury or property damages on Wausau Tile’s 
part.  Rather, as Wausau Tile acknowledges in its brief, these 
claims are an attempt to recoup the commercial costs of settling 
the claims of third parties which resulted from the product 
                                                                  
Both of these arguments fail in light of the fact we 
determine elsewhere in this opinion that Wausau Tile is not the 
real party in interest as to the tort claims it asserts.  Wausau 
Tile is akin to the ship manufacturer in Saratoga Fishing, not 
the "initial user."  See Saratoga Fishing, 520 U.S. at 878.  See 
also Broan Mfg. Co. v. Westinghouse Elec. Corp., 597 F. Supp. 
435, 436 (E.D. Wis. 1984) (citing Twin Disc, Inc. v. Big Bud 
Tractor, Inc., 582 F. Supp. 208 (E.D. Wis. 1984)) (dismissing a 
plaintiff 
manufacturer's 
tort 
claims 
against 
a 
defendant 
component supplier on the ground that tort claims are premised 
on duties owed to consumers).  The complete packages purchased 
by the "initial users" in this case were the pavers manufactured 
by Wausau Tile, which contained cement as one of their 
components.  If the proper parties were to bring the tort claims 
Wausau Tile is attempting to assert, the damage to the pavers 
would be damage to the "product itself" even under Wausau Tile's 
formulation of the Midwhey rule.    
No. 
97-2284 
 
15
defect.  See Wausau Tile’s Br. at 20.  As such, the claims 
allege consequential economic loss.  See Daanen, 216 Wis. 2d at 
401.  
¶25 Moreover, even if Wausau Tile’s claims were sufficient 
to allege personal injury and/or property damage, it would not 
be permitted to litigate those claims because it would not be a 
real party in interest and, as will be discussed later in this 
opinion, joinder of the real parties in interest would not be 
feasible.  See Wis. Stat. § 803.01(1).11  A real party in 
interest is "one who has a right to control and receive the 
fruits of the litigation."  Mortgage Assocs., Inc. v. Monona 
Shores, Inc., 47 Wis. 2d 171, 179, 177 N.W.2d 340 (1970); 
Schwartz v. Evangelical Deaconess Soc'y, 46 Wis. 2d 432, 442, 
175 N.W.2d 225 (1970).  The basic test is whether the 
plaintiff's suit will prevent the defendant from being harassed 
by other claimants for the same demand, whether it will preclude 
the defendant from asserting any fair defense, offset, or 
counterclaim, and whether the defendant will be fully protected 
when the judgment in behalf of the plaintiff is discharged.  
                     
11 Wis. Stat. § 803.01(1) states: 
(1)  REAL PARTY IN INTEREST.  No action shall be dismissed 
on the ground that it is not prosecuted in the name of 
the real party in interest until a reasonable time has 
been allowed after objection for ratification of 
commencement 
of 
the 
action 
by, 
or 
joinder 
or 
substitution of, the real party in interest; and such 
ratification, joinder, or substitution shall have the 
same effect as if the action had been commenced in the 
name of the real party in interest. 
No. 
97-2284 
 
16
Mortgage Assocs., 47 Wis. 2d at 179; State ex rel. State Bar v. 
Bonded Collections, 36 Wis. 2d 643, 651-52, 154 N.W.2d 250 
(1967).  
¶26 We agree with the circuit court that Wausau Tile would 
not be a real party in interest in regard to any claims of 
personal injury or property damage.12  All property allegedly 
damaged is owned by third parties not joined in this suit.  
Similarly, third parties, not Wausau Tile, sustained any 
personal injury which may have occurred.  Wausau Tile is 
arguably one of the parties responsible for harm caused by the 
defective pavers.  As such, it is clear that Wausau Tile has no 
right to control the litigation or receive the fruits of any 
claims of harm to person or property.  Further, because injured 
third parties may bring their own claims against Medusa, 
recovery for personal injury or property damage by Wausau Tile 
would not save Medusa from further harassment for the same harm. 
 In sum, the third parties, not Wausau Tile, are the real 
parties in interest for any claims of personal injury or 
property damage.  Other courts have rejected similar attempts by 
                     
12 Wausau Tile also does not meet the criteria which would 
allow it to pursue claims on behalf of those who are real 
parties in interest as a representative under Wis. Stat. § 
803.01(2).  Wis. Stat. § 803.01(2) provides: 
(2) 
REPRESENTATIVES. 
 
A 
personal 
representative, 
executor, administrator, guardian, bailee, trustee of 
an express trust, a party with whom or in whose name a 
contract has been made for the benefit of another, or 
a party authorized by statute may sue in the party's 
name without joining the person for whose benefit the 
action is brought. 
No. 
97-2284 
 
17
plaintiffs to escape application of the economic loss doctrine 
by accompanying their allegations of economic loss with claims 
of property damage or personal injury suffered by third parties 
not joined in the suit.  See Midwest Helicopters Airways, Inc. 
v. Sikorsky Aircraft, 849 F. Supp. 666, 672 (E.D. Wis. 
1994)(holding, 
under 
Wisconsin 
law, 
that 
neither 
the 
owner/operator of a defective helicopter nor its insurer could 
recover in tort the cost of claims asserted against them by 
third-party owners of property damaged when the helicopter 
crashed, when the third-party owners were not parties to the 
suit); Washington Courte Condominium Assoc.-Four v. Washington-
Golf Corp., 501 N.E.2d 1290, 1294 (Ill. App. 1986) (holding that 
injuries sustained by a third party not joined in the action did 
not constitute “personal injury” which would allow plantiffs to 
avoid the application of the economic loss doctrine).13 
¶27 In addition, as the circuit court recognized, joinder 
of the third-party real parties in interest would be difficult, 
if not impossible.  See Wis. Stat. § 803.03(1), (3).14  According 
                     
13 Contrary to Wausau Tile's assertions, the fact that 
Wausau Tile actually incurred expenses in remedying property 
damage and repairing faulty pavers does not distinguish this 
case from Midwest Helicopters.  Wausau Tile voluntarily incurred 
the costs it did when it chose to take on the responsibility of 
remediating the damage to the pavers and other property of third 
parties.  It is possible that Wausau Tile assumed the duty to 
make such reparations contractually through warranties it may 
have given to the purchasers of its pavers.  In any event, 
Wausau Tile could have declined to repair the pavers or pay for 
the property damage and left the affected third parties to their 
remedies.    
14 Wis. Stat. § 803.03 states in part:   
No. 
97-2284 
 
18
                                                                  
(1) PERSONS TO BE JOINED IF FEASIBLE.  A person who is 
subject to service of process shall be joined as a 
party in the action if: 
(a) In the person's absence complete relief 
cannot be accorded among those already parties; 
or 
(b) The person claims an interest relating to the 
subject of the action and is so situated that the 
disposition of the action in the person's absence 
may: 
1. 
As a practical matter impair or impede 
the 
person's 
ability 
to 
protect 
that 
interest; or 
2. 
Leave 
any 
of 
the 
persons 
already 
parties subject to a substantial risk of 
incurring 
double, 
multiple 
or 
otherwise 
inconsistent obligations by reason of his or 
her claimed interest. 
. . .  
(3) DETERMINATION BY COURT WHENEVER JOINDER NOT FEASIBLE.  If any 
such person has not been so joined, the judge to whom 
the case has been assigned shall order that the person 
be made a party.  If the person should join as a 
plaintiff but refuses to do so, the person may be made 
a defendant, or, in a proper case, an involuntary 
plaintiff.  If a person as described in subs. (1) and 
(2) cannot be made a party, the court shall determine 
whether in equity and good conscience the action 
should proceed among the parties before it, or should 
be dismissed, the absent person being thus regarded as 
indispensable.  The factors to be considered by the 
court include: 
(a) To what extent a judgment rendered in the 
person's absence might be prejudicial to the 
person or those already parties; 
(b) The extent to which, by protective provisions 
in the judgment, by the shaping of relief, or 
other measures, the prejudice can be lessened or 
avoided; 
No. 
97-2284 
 
19
to the complaint, Wausau Tile's pavers were sold and installed 
in large quantities nationwide.  See Compl. ¶11.  Third parties 
having claims of property damage or personal injury are likely 
scattered throughout the country.  Moreover, as the circuit 
court aptly pointed out, there is no way to know how many 
potential plaintiffs have yet to be harmed or will come forward 
with their claims. 
¶28 Finally, Wausau Tile claims lost business and profits. 
 Wausau Tile's lost business and profits are indirect losses 
attributable to the inferior quality of the pavers.  See Cooper 
Power Systems, Inc. v. Union Carbide Chem. & Plastics Co., 123 
F.3d 675, 681 (1997) (applying Wisconsin law); Daanen, 216 Wis. 
2d at 401; Swanson at 140.  Accordingly, they constitute 
economic loss which is not recoverable in tort.  See Cooper 
Power, 123 F.3d at 681;  Northridge, 162 Wis. 2d at 926; Bocre 
Leasing Corp. v. General Motors Corp., 645 N.E.2d 1195, 1199 
(N.Y. 1995). 
¶29 We conclude that Wausau Tile's complaint alleges only 
economic loss.  Therefore, the first policy set forth by this 
court in Daanen supports the application of the economic loss 
doctrine in this case.  Wausau Tile's claims involve failed 
economic expectations, which are the province of contract law.  
See Daanen, 216 Wis. 2d at 406-07.   
                                                                  
(c) Whether a judgment rendered in the person's 
absence will be adequate; and 
(d) Whether the plaintiff will have an adequate 
remedy if the action is dismissed for nonjoinder. 
No. 
97-2284 
 
20
¶30 The second policy reason for applying the economic 
loss doctrine is to protect parties' freedom to allocate 
economic risk via contract.  Daanen, 216 Wis. 2d at 403.  
Allowing purchasers to elect recovery under tort theories 
instead of requiring them to rely on their contractual remedies 
"rewrites the agreement by allowing a party to recoup a benefit 
that was not part of the bargain."  Daanen, 216 Wis. 2d at 408 
(quoting Stoughton Trailers, Inc. v. Henkel Corp., 965 F. Supp. 
1227, 1230 (W.D. Wis. 1997)).  It strips sellers of the ability 
to protect themselves from foreseeable risk by negotiating sales 
agreements.  Daanen, 216 Wis. 2d at 408.  
¶31 Wausau Tile and Medusa entered into a contract with a 
warranty which specifically addressed the suitability of the 
cement for use in the pavers.15  We do not find it appropriate to 
address whether the warranty covers Wausau Tile's alleged 
damages; the breach of warranty and breach of contract claims 
are still pending.  It is clear, however, that Wausau Tile had 
the opportunity to negotiate a warranty and did so.  Presumably, 
Wausau Tile paid a price commensurate with the warranty it 
received.  See East River, 476 U.S. at 873; Bocre Leasing, 645 
N.E.2d at 1196; Daanen, 216 Wis. 2d at 409.  If Wausau Tile were 
permitted to reap the benefits of a broader warranty by 
recovering its damages in tort, it would receive more than it 
                     
15 There is no evidence that Wausau Tile and Medusa had 
unequal bargaining power.  In general, a commercial situation 
involves entities with similar bargaining power.  See East 
River, 476 U.S. at 873.    
No. 
97-2284 
 
21
bargained for (and paid for) and Medusa would receive less than 
it bargained for (and was paid for).  Consequently, the second 
policy set forth in Daanen also supports the application of the 
economic loss doctrine in this case. 
¶32 The third policy reason for applying the economic loss 
doctrine is that the doctrine "encourages the party with the 
best understanding of the attendant risks of economic loss, the 
commercial purchaser, to assume, allocate, or insure against the 
risk of loss caused by a defective product."  Daanen, 216 
Wis. 2d at 410.  Purchasers are generally better equipped than 
sellers to anticipate the economic loss which a defective 
product could cause their particular businesses.  See id. at 
411-12.  Accordingly, courts have required purchasers to guard 
against foreseeable economic loss by allocating the risk by 
contract or by purchasing insurance.  See Daanen, 216 Wis. 2d at 
412-13; Trans States Airlines, 682 N.E.2d at 58-59.  The result 
is a more efficient, more predictable marketplace.  See Daanen, 
216 Wis. 2d at 410-12.  If tort recovery were permitted, sellers 
of products would be "potentially liable for unbargained-for and 
unexpected risks," id. at 411, leading eventually to higher 
prices for consumers.  See id. at 410-12; Bocre Leasing, 645 
N.E.2d at 1198.   
¶33 Wausau Tile should reasonably have expected that it 
might receive defective or unsuitable cement.  Because cement is 
one of the main components of pavers, Wausau Tile should also 
have foreseen that defective cement might produce defects in the 
pavers.  Evidently, Wausau Tile did foresee this risk because it 
No. 
97-2284 
 
22
attempted to allocate the risk contractually with Medusa.  
Wausau Tile may not now turn to tort law in hopes of obtaining 
benefits for which it may not have bargained.    
¶34 We find that the three policy reasons for applying the 
economic loss doctrine support the application of the doctrine 
in this case.  Because Wausau Tile has alleged purely economic 
loss, the economic loss doctrine prevents Wausau Tile from 
maintaining its negligence and strict liability claims against 
Medusa. 
B. 
¶35 Next, we consider whether the  rule of Northridge Co. 
v. W.R. Grace & Co., 162 Wis. 2d 918, 471 N.W.2d 179 (1991), 
permits Wausau Tile to maintain its tort claims in spite of the 
economic loss doctrine.  In doing so, we address the certified 
question:  "the nature, extent and scope of the public safety 
exception 
to 
the 
economic 
loss 
doctrine 
enunciated 
in 
[Northridge]."  Certification at 1.  
¶36 Wausau Tile alleges that the damaged pavers present a 
risk of injury to pedestrians on the walkways in which they have 
been installed.  According to Wausau Tile, this risk of injury 
to pedestrians amounts to a public safety hazard which entitles 
it to bring its tort claims under an exception to the economic 
loss doctrine contained in Northridge. 
¶37 In 
Northridge, 
the 
defendant 
sold 
Monokote, 
a 
fireproofing material containing asbestos, to the plaintiffs' 
contractor for use in the construction of the plaintiffs' 
shopping centers.  Northridge, 162 Wis. 2d at 922.  The 
No. 
97-2284 
 
23
plaintiffs later sued the defendant for breach of warranty, 
strict products liability and negligence, claiming that the 
asbestos in the Monokote rendered it defective, contaminated 
plaintiffs' building, and "presented unreasonable danger to 
persons and property."  Id.  Plaintiffs sought to recover the 
amounts it had expended in inspecting the building and removing 
the asbestos, as well as the decrease in value of the property. 
 Id.  The defendant argued that the tort claims were barred by 
the economic loss doctrine.  Id. at 929-30.  
¶38 This court held that the plaintiffs had stated claims 
for negligence and strict liability.  Id. at 923.  We identified 
the issue as "whether the plaintiffs have alleged a tort claim 
for physical harm to property (property other than the allegedly 
defective product itself) or whether the losses complained of by 
the plaintiffs are only recoverable under a theory of contract." 
 Id. at 931.  We found that the plaintiffs did not allege in 
their tort claims that "the Monokote itself was inferior in 
quality or did not work for its intended purpose, the essence of 
a claim for economic loss,"  id. at 937, nor had plaintiffs 
alleged that damages resulted because of harm to the product 
itself.  Id.  Rather, "[t]he essence of the plaintiffs' claim is 
that Monokote releases toxic substances in the environment 
thereby causing damage to the building and a health hazard to 
its occupants."  Id.  This court stated:   
 
We conclude that the complaint in this case can be 
interpreted as alleging that a defect in the product 
has caused physical harm to property, property other 
than the product itself.  The alleged physical harm to 
No. 
97-2284 
 
24
other property consists of the contamination of the 
plaintiffs' 
buildings 
with 
asbestos 
from 
the 
defendant's product, posing a health hazard. 
Id. at 922.  
¶39 For several reasons, the holding we reached in 
Northridge is inapplicable to the facts of this case.  First, 
the heart of Wausau Tile's claim is that Medusa's cement was 
inferior in quality and therefore unsuitable for its intended 
use as an ingredient of the pavers.  As we determined in 
Northridge, that type of allegation is "the essence of a claim 
for economic loss."  Northridge, 162 Wis. 2d at 937.  We 
specifically pointed out in Northridge that the plaintiffs in 
that case had not sought damages for harm to the fireproofing 
material itself or alleged that the fireproofing material was 
inferior in quality.  Id.   
¶40 Second, we developed the Northridge rule in response 
to the unique facts of that case.  Northridge involved a 
defective 
product 
which 
contained 
asbestos, 
an 
inherently 
dangerous material.  Northridge, 162 Wis. 2d at 923.  Exposure 
to asbestos has been linked to asbestosis (scarring of the 
lungs), various types of cancer, and disruption in lung 
functioning.  Board of Educ. of Chicago v. A, C & S, Inc., 546 
N.E.2d 580, 588 (Ill. 1989); 80 S. Eighth St. Ltd. Partnership 
v. Carey-Canada, Inc., 486 N.W.2d 393, 398-99 (Minn. 1992), 
amended by 492 N.W.2d 256 (Minn. 1992).  Courts generally view 
asbestos cases as unique in the law.  Christopher Scott 
D’Angelo, The Economic Loss Doctrine:  Saving Contract Warranty 
Law from Drowning in a Sea of Torts, 26 U. Tol. L. Rev. 591, 601 
No. 
97-2284 
 
25
(1995); Reeder R. Fox and Patrick J. Loftus, Riding the Choppy 
Waters of East River:  Economic Loss Doctrine Ten Years Later, 
64 Def. Couns. J. 260, 264-65 (April 1997).  E.g., Detroit Bd. 
of Educ. v. Celotex Corp., 493 N.W.2d 513, 518 (Mich. Ct. App. 
1992).     
¶41 We pointed out in Northridge that “[s]everal courts 
have commented on the difficulty of trying to fit a claim for 
asbestos damage within the framework of physical harm or 
economic loss which has been established for more traditional 
tort and contract actions."  Northridge, 162 Wis. 2d at 932.  
Because of the health hazards posed by asbestos, most courts 
permit tort recovery for claims of property damage to buildings 
caused by asbestos contamination in spite of the economic loss 
doctrine, using various rationales.16  The Restatement (Third) of 
                     
16 Special treatment for claims of asbestos contamination to 
buildings is necessary to avoid the application of the rule that 
damage caused by a component of the building is damage caused by 
the "product" to itself for which tort recovery would not be 
permitted. 
Christopher 
Scott 
D’Angelo, 
The 
Economic 
Loss 
Doctrine:  Saving Contract Warranty Law from Drowning in a Sea 
of Torts, 26 U. Tol. L. Rev. 591, 601 (1995).  Even Wausau Tile 
acknowledges that “[i]t could be argued that strict application 
of the Midwhey [“integrated system”] rule would change the 
result in Northridge, because arguably the owner alleged 
property damage to the package it purchased (the mall) by a 
component of the mall (asbestos coating on the walls).”  Wausau 
Tile’s Br. at 17.       
In Northridge, we cited numerous cases and commentary 
discussing the application of the economic loss doctrine to 
claims of asbestos contamination to buildings.  See Northridge, 
162 Wis. 2d at 932 nn.9-10, 935-36 nn.12-13.  One authority sums 
up the various approaches taken by courts faced with tort claims 
for asbestos damage as follows: 
 
No. 
97-2284 
 
26
Torts § 21, which compiles and discusses cases involving 
recovery for economic loss, explains: 
 
One category of claims stands apart.  In the case of 
asbestos contamination in buildings, most courts have 
taken the position that the contamination constitutes 
harm to the building as other property.  The serious 
health threat caused by asbestos contamination has led 
the courts to this conclusion.  Thus, actions seeking 
recovery for the costs of asbestos removal have been 
held to be within the purview of products liability 
law rather than commercial law. 
Restatement (Third) of Torts § 21 cmt. e (1997). 
¶42 In Northridge, this court chose to align Wisconsin 
with the jurisdictions which permit tort recovery for asbestos 
damage to buildings.  See Northridge, 162 Wis. 2d at 937-38.  
Like courts in these other jurisdictions, we designed the rule 
in Northridge to address the special public safety concerns 
present 
in 
claims 
involving 
contamination 
by 
inherently 
hazardous substances like asbestos.  See id.  Northridge does 
not create a broad "public safety exception" to the economic 
                                                                  
In 
what 
are 
generally 
viewed 
as 
the 
unique 
circumstances of asbestos cases involving property 
damage, courts have held that the economic loss 
doctrine does not apply and that the plaintiff may 
recover in tort for the removal of the asbestos.  
Courts employ the rationale that asbestos contaminates 
or harms “other property” in the building.  Courts 
also have justified these decisions on the grounds 
that the contamination has endangered the health of 
the occupants or that it has rendered the property 
unfit for occupation. 
 
Reeder R. Fox and Patrick J. Loftus, Riding the Choppy Waters of 
East River:  Economic Loss Doctrine Ten Years Later, 64 Def. 
Couns. J. 260, 264-65 (April 1997) (internal footnotes omitted).  
No. 
97-2284 
 
27
loss doctrine, as even Wausau Tile acknowledges.17  Federal 
courts have read Northridge narrowly, refusing to apply its rule 
in cases not involving asbestos or other inherently dangerous 
contaminants.  See Midwest Helicopters Airways, Inc. v. Sikorsky 
Aircraft, 849 F. Supp. 666, 671-72 (E.D. Wis. 1994).  Cf. Trans 
States Airlines, 682 N.E.2d at 55 (confining to its facts the 
Illinois case which held that asbestos damage to a building is 
not economic loss).    
¶43 The facts of this case do not involve asbestos or any 
other material which is inherently dangerous to the health and 
safety of humans.  There is no allegation that Medusa's cement, 
standing alone, posed any health risk or threat of contaminating 
                     
17 Wausau Tile admits, "The certified question in itself may 
reflect a misunderstanding.  Strictly speaking, Northridge did 
not address whether the risk to safety alone created an 
exception to the economic loss rule because Northridge concluded 
that the plaintiff alleged damage to 'other property' in the 
form of asbestos contamination of the plaintiff's building."  
Wausau Tile's Br. at 24.  Nevertheless, Wausau Tile urges us to 
extend Northridge and create an exception to the economic loss 
doctrine under which purchasers of products which present an 
"unreasonable risk to health and safety" could recover in tort 
for damage to the product itself.  Wausau Tile's Br. at 25.  The 
United States Supreme Court rejected a similar argument in East 
River when it held that it would be "unsatisfactory" to 
condition the availability of a tort action on the degree of 
risk which a defective product might pose to persons or other 
property.  See East River, 476 U.S. at 870.  Other courts 
apparently are divided on this issue.  Compare Bocre Leasing 
Corp. v. General Motors Corp., 645 N.E.2d 1195, 1198 (N.Y. 
1995), with Salt River Project Agric. Improvement and Power 
Dist. v. Westinghouse Elec. Corp., 694 P.2d 198, 210 (Ariz. 
1985).  Because we have determined that this case does not 
involve an inherently unsafe product, we do not further address 
the argument.  
No. 
97-2284 
 
28
other property.  Instead, the claim is that a reaction between 
an ingredient of the cement and other ingredients in the pavers 
rendered the pavers capable of causing injury to passing 
pedestrians.  Northridge does not address claims of this kind.  
¶44 Finally, this case is dissimilar procedurally from 
Northridge.  Northridge was not a suit initiated by the 
purchaser of a defective product against the manufacturer, as is 
the suit in this case.  In Northridge, the owner of other 
property (the building) damaged by the defective product (the 
asbestos-laden fireproofing material) sued the manufacturer of 
the product.  This case would be more analogous to Northridge 
procedurally if the plaintiff were a third-party owner of 
property damaged by the defective pavers or even a pedestrian 
injured by the pavers.  Wausau Tile and the plaintiffs in 
Northridge simply are not similarly situated.  
¶45 For these reasons, we hold that the rule of Northridge 
is inapplicable in this case.  We refuse to pass on to society 
the economic loss of a purchaser such as Wausau Tile who may 
have failed to bargain for adequate contract remedies.  See 
Daanen, 216 Wis. 2d at 412-13.  Wausau Tile's complaint alleges 
solely economic loss, and therefore, the circuit court properly 
dismissed Wausau Tile's negligence and strict liability claims. 
III. 
¶46 Finally, we examine whether the circuit court properly 
determined that Travelers has no duty to defend Medusa in this 
suit.  We review a circuit court's grant of summary judgment de 
novo.  Nierengarten v. Lutheran Soc. Serv., 219 Wis. 2d 687, 
No. 
97-2284 
 
29
695, 580 N.W.2d 320 (1998).  In our review, we use the same 
methodology as the circuit court and we benefit from the 
analyses of the circuit court and court of appeals (where 
applicable).  Id.; Jackson v. Benson, 218 Wis. 2d 835, 852, 578 
N.W.2d 602 (1998).  Summary judgment must be granted when there 
is no genuine issue of material fact and the moving party is 
entitled to judgment as a matter of law.  See Wis. Stat. § 
802.08(2); Jackson, 218 Wis. 2d at 852.  
¶47 An insurer has a duty to defend an insured in a third-
party suit if the allegations contained within the four corners 
of the complaint, would, if proved, result in liability of the 
insurer under the terms of the insurance policy.  Doyle v. 
Engelke, 219 Wis. 2d 277, 284-85, 580 N.W.2d 245 (1998); General 
Cas. Co. of Wisconsin v. Hills, 209 Wis. 2d 167, 176, 561 N.W.2d 
718 (1997); Newhouse ex rel. Skow v. Citizens Sec. Mut. Ins. 
Co., 176 Wis. 2d 824, 834-35, 501 N.W.2d 1 (1993); School Dist. 
of Shorewood v. Wausau Ins. Cos., 170 Wis. 2d 347, 364, 488 
N.W.2d 82 (1992).  Thus, the duty to defend hinges on the 
nature, not the merits, of the claim.  School Dist. of 
Shorewood, 170 Wis. 2d at 364.  Any doubt as to the existence of 
the duty to defend must be resolved in favor of the insured.  
Id.; Newhouse, 176 Wis. 2d at 835. 
¶48 Since we have already determined that Wausau Tile's 
negligence and strict liability claims against Medusa are barred 
by the economic loss doctrine, Travelers can have no duty to 
defend Medusa on those claims.  To determine whether Travelers 
No. 
97-2284 
 
30
has a duty to defend Wausau Tile's other claims, however, we 
must examine the language of the insurance policy.  
¶49 The 
Travelers policy 
covers 
claims 
which 
allege 
"bodily 
injury" 
or 
"property 
damage" 
arising 
out 
of 
an 
“occurrence.”18  As we have already explained, Wausau Tile seeks 
                     
18 The relevant insurance policy provisions state: 
COVERAGE A.  BODILY INJURY AND PROPERTY DAMAGE 
LIABILITY 
 
1. 
Insuring Agreement. 
a. 
We 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.  We will have 
the right and duty to defend any "suit" seeking 
those damages. 
. . . 
b. 
This insurance applies to "bodily injury" 
and "property damage" only if: 
(1) The 
"bodily 
injury" 
or 
"property 
damage" is caused by an "occurrence" that 
takes place in the "coverage territory"; and 
(2) The 
"bodily 
injury" 
or 
"property 
damage" occurs during the policy period. 
. . . 
SECTION V - DEFINITIONS 
. . . 
3. 
"Bodily injury" means bodily injury, sickness or 
disease 
sustained 
by 
a 
person, 
including 
death 
resulting from any of these at a time. 
. . . 
No. 
97-2284 
 
31
only economic loss, which is not “bodily injury” or “property 
damage” under the plain language of the policy.  Because we have 
determined that Wausau Tile may not litigate its claims of 
personal injury and property damage suffered by third persons 
not joined in this suit, those claims are not capable of 
resulting in Travelers' liability under the policy.19  In 
                                                                  
9. 
"Occurrence" 
means 
an 
accident, 
including 
continuous or repeated exposure to substantially the 
same general harmful conditions. 
. . . 
12. "Property damage" means: 
a. 
Physical 
injury 
to 
tangible 
property, 
including all resulting loss of use of that 
property.  All such loss of use shall be deemed 
to occur at the time of the physical injury that 
caused it; or 
b. 
Loss of use of tangible property that is not 
physically injured.  All such loss shall be 
deemed to occur at the time of the "occurrence" 
that caused it. 
 . . .  
Bird Aff. Ex. E at 1, 7-9 (emphasis in original).  
19 Wausau Tile insists that Sola Basic Industries v. United 
States Fidelity & Guaranty Co., 90 Wis. 2d 641, 280 N.W.2d 211 
(1979), requires that we hold that Travelers has a duty to 
defend Wausau Tile's claims of damage to third parties' 
property.  We disagree.  Sola Basic was decided a decade before 
this 
court 
first 
adopted 
the 
economic 
loss 
doctrine 
in 
Sunnyslope Grading, Inc. v. Miller, Bradford & Risberg, Inc., 
148 Wis. 2d 910, 921, 437 N.W.2d 213 (1989).  The issue in Sola 
Basic was whether the purchaser's alleged damages were covered 
by the language of the insurance policy.  See Sola Basic, 90 
Wis. 2d at 645-46.  There was no contention that the purchaser 
could not have maintained its property damage claims.   
No. 
97-2284 
 
32
addition, it is undisputed that the breach of a contract or 
warranty is not a covered "occurrence" under the Travelers 
policy.  Accordingly, we hold that Travelers has no duty to 
defend any of Wausau Tile's tort or contract claims. 
¶50 Similarly, Travelers has no duty to defend Wausau 
Tile's claims of contribution and indemnification.  Medusa may 
be liable for contribution and indemnification based on Wausau 
Tile's remaining claims for breach of contract and breach of 
warranty.  As the circuit court recognized, however, Travelers' 
liability, and thus, its duty to defend, is dependent upon 
whether Wausau Tile has stated claims for "bodily injury" or 
"property damage" covered by the policy.  See generally 
Whirlpool Corp. v. Ziebert, 197 Wis. 2d 144, 155, 539 N.W.2d 883 
(1995).  We have already determined that Wausau Tile has failed 
to allege such covered claims.  Therefore, we conclude that 
Travelers 
has 
no 
duty 
to 
defend 
the 
contribution 
and 
indemnification claims.         
IV. 
                                                                  
In this case, in contrast, we have held that the economic 
loss doctrine bars Wausau Tile from litigating its claims of 
property damage.  Under the insurance policy in this case, 
Travelers does not have a duty to defend claims which cannot be 
brought.  See City of Edgerton v. General Cas. Co., 184 Wis. 2d 
750, 769, 781, 517 N.W.2d 463 (1994).  Consequently, it is not 
necessary for us to decide precisely which property damage is 
covered under the policy, the question to which Sola Basic might 
be relevant.   
We note that we do not decide whether Travelers might have 
a duty to defend Medusa against any claims of personal injury or 
property damage which might be asserted by third-party real 
parties in interest.    
No. 
97-2284 
 
33
¶51 We hold that Wausau Tile's negligence and strict 
liability tort claims are barred by the economic loss doctrine 
because they allege only economic loss and do not fall within 
the ambit of Northridge.  Wausau Tile may not escape the 
application of the economic loss doctrine by alleging personal 
injury and property damage suffered by third persons not joined 
in this suit.  Accordingly, we affirm the circuit court's 
dismissal of Wausau Tile's tort claims against Medusa.   
¶52 Further, we find that Travelers has no duty to defend 
Medusa in this suit because Wausau Tile's remaining claims, if 
proved, would not result in Travelers' liability under the 
insurance policy.  We affirm the circuit court's entry of 
summary judgment in favor of Travelers and dismissal of all 
claims against Travelers. 
¶53 This holding does not leave Wausau Tile or other 
injured parties without remedy for damages allegedly caused by 
the defective pavers.  Wausau Tile may proceed against Medusa on 
its breach of warranty and breach of contract claims.  We hold 
only that Travelers has no duty to defend those claims.  In 
addition, third parties harmed by the faulty pavers are free to 
assert their own claims against Medusa and Travelers may have a 
duty to defend Medusa in such suits.   
By the Court.—The judgment of the circuit court is 
affirmed. 
¶54 ANN WALSH BRADLEY, J., did not participate. 
  
No. 97-2284 
 
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