United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 02-1472

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St. Paul Fire & Marine Insurance *

Company, *

*

Plaintiff-Appellee, *

*

v. *

*

Amsoil, Inc.; *

*

Defendant-Appellant, *

*

Insurance Company of North *

America; *

*

Defendant-Appellee, *

*

Scottsdale Insurance Company, *

*

Third Party Defendant- *

Appellee. * Appeals from the United States

District Court for the Eastern

__________ District of Arkansas.

No. 02-1556 [UNPUBLISHED]

__________

St. Paul Fire & Marine Insurance *

Company, *

*

Plaintiff, *

*
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v. *

*

Amsoil, Inc.; *

*

Defendant-Appellee, *

*

Insurance Company of North *

America; *

*

Defendant-Appellant, *

*

Scottsdale Insurance Company, *

*

Third Party Defendant. *

__________

No. 02-1568

__________

St. Paul Fire & Marine Insurance *

Company, *

*

Plaintiff-Appellant, *

*

v. *

*

Amsoil, Inc.; *

*

Defendant-Appellee, *

*

Insurance Company of North *

America; *

*

Defendant, *

*

Scottsdale Insurance Company, *
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*

Third Party Defendant. *

__________

No. 02-1590

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St. Paul Fire & Marine Insurance *

Company, *

*

Plaintiff, *

*

v. *

*

Amsoil, Inc.; *

*

Defendant-Appellee, *

*

Insurance Company of North *

America; *

*

Defendant, *

*

Scottsdale Insurance Company, *

*

Third Party Defendant- *

Appellant. *

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Submitted: September 10, 2002

Filed: October 15, 2002

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Before MORRIS SHEPPARD ARNOLD, FAGG, and MELLOY, Circuit Judges.

___________
*

The Honorable William R.Wilson, United States District Judge for the Eastern

District of Arkansas.

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PER CURIAM.

Amsoil, Inc., a manufacturer and distributer of synthetic oil, was sued for

negligence and breach of warranty in the Eastern District of Arkansas by Allen

Engineering Corporation. Allen used Amsoil’s synthetic oil as a lubricant in gear

boxes it produced. Allen claimed the synthetic oil caused property damage to the

gear boxes, resulting in financial harm incurred by Allen when it replaced the

defective gear boxes, recalled all gear boxes with Amsoil oil and replaced the oil, and

as a result, lost profits and market share. The two parties settled: Amsoil agreed to

pay Allen $1.5 million.

Amsoil then sought indemnity under its comprehensive general liability (CGL)

insurance policies with Insurance Company of North America, Scottsdale Insurance

Company, and St. Paul Fire and Marine Insurance. All parties moved for summary

judgment. The district court*

 concluded the insurance companies should reimburse

$169,095.86 of the settlement as direct, covered product damages, but not the balance

of the $1.5 million settlement ($1,330,904.14) which resulted from consequential

economic losses not covered by the CGL policies.

Amsoil appeals, arguing the insurance companies should cover the entire

settlement because the whole settlement paid for qualifying property damage. The

insurance companies cross-appeal, contending they should not be required to

indemnify Amsoil for any of the $1.5 million settlement because none of the expenses

covered by the settlement were for property damage, so the entire settlement was

precluded from insurance coverage under Wisconsin law. Having considered the

parties’ claims in this diversity case and reviewed the grant of summary judgment de
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novo, we affirm the judgment of the district court. Wal-Mart Stores, Inc. v. RLI Ins.

Co., 292 F.3d 583, 586 (8th Cir. 2002) (standard of review).

First, we review the choice of law. We agree with the district court that

although Allen’s initial tort claims were brought in Arkansas, Wisconsin contract law

governs the current dispute between Amsoil and its insurers. The parties reside and

do business in Wisconsin and much of the insurance contract negotiations took place

in Wisconsin. Fuller v. Hartford Life Ins. Co., 281 F.3d 704, 707 (8th Cir. 2002)

(Arkansas courts apply the “most significant relationship” test to resolve a choice of

law dilemma). Further, claims seeking to enforce insurance policies fall under

contract law, not tort law. Wis. Label v. Northbrook Prop. & Cas. Ins. Co., 607

N.W.2d 276, 282 (Wis. 2000) (“Insurance policies are contracts and are governed by

the same rules that govern interpretation of contracts in general.”).

Second, having decided Wisconsin contract law governs this case, we evaluate

the district court’s application of that law. Under Wisconsin law, “CGL polic[ies]

protect[] the insured against liability for [property] damages the insured’s negligence

causes to third parties. . . . [But they] do not provide coverage for the insured’s

liability for repairing or replacing the insured’s defective work . . . .” Id. at 283-84.

Specifically, “[c]overage under a CGL policy does not extend to ‘business

risks’–risks relating to the repair or replacement of the insured’s faulty work or

products, or defects in the insured’s work or product itself.” Vogel v. Russo, 613

N.W.2d 177, 182 (Wis. 2000). Additionally, economic loss which is not “property

damage” is not covered under a CGL policy. Wausau Tile v. County Concrete Corp.,

593 N.W.2d. 445, 460 (Wis. 1999). If an insured’s “claim for repair and replacement

costs is that the [final products] were damaged because one or more of their

ingredients was of insufficient quality and did not work for [the insured’s] intended

purpose[,] [t]his is the essence of a claim for economic loss.” Id. at 454. 
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We agree with the district court that the “damages because of property

damages” clause contained in Amsoil’s CGL insurance contracts does not obligate

the insurers to cover costs beyond the $169,095.86 cost incurred in repairing and

replacing the 48 riding trowels to which the Amsoil synthetic oil caused actual

physical harm. Allen’s publicity of a recall of products using Amsoil synthetic oil

and the replacement of the oil in all recalled items account for $175,030.00 of the

settlement. According to the settlement agreement, $1,155,874.14 (the remainder of

the settlement) “is allocated to the consequential damages suffered by Allen . . . .

[specifically,] the lost production, sales, profits, and market share that flowed from

the damaged machines, i.e., the diminution in value of Allen’s business caused by the

damaged machines.” 

The dissent takes the position that Amsoil should be indemnified for at least

part of the $1,155,874.14 in consequential damages it paid Allen. To reach this

conclusion, however, the dissent relies heavily on a tort case involving a products

liability claim, Daanen & Janssen, Inc. v. Cedarapids, Inc., 573 N.W.2d 842 (Wis.

1998), rather than on a case involving a CGL policy. As we have explained earlier,

under Wisconsin contract law, the portions of the settlement that pay for Allen’s

product recall and for its lost profits and market share are economic losses and

business risks not insured under Amsoil’s CGL policies. Thus, we conclude Amsoil

is not eligible to be reimbursed for these portions of its settlement.

Third, we turn to the insurance companies’ cross-appeals. The insurance

companies contend they should not be obligated to indemnify Amsoil at all because

the $169,095.86 portion of the settlement which the district court concluded was for

qualifying property damage is instead for economic loss. We disagree. According

to the settlement agreement, this portion of the settlement “is allocated to the cost of

repairing or replacing the approximately 48 riding trowels that sustained physical

damage as a result of the use of Amsoil’s” synthetic oil. Because these costs are
1

Therefore, I also agree with that portion of the majority opinion which denies

the cross-appeals made by the insurance companies.

2

I do not believe that Amsoil requested indemnification for this portion of the

settlement on appeal or in its motion for summary judgment in the district court.

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“damages caused by property damages,” they are not exempt economic losses and

must be reimbursed by Amsoil’s insurers under the CGL insurance policies.

For the reasons stated above, we affirm the decision of the district court. 

MELLOY, Circuit Judge, concurring in part and dissenting in part.

I concur with those portions of the majority opinion which find that: (1)

Wisconsin contract and insurance law governs this dispute; (2) the $169,095.86

portion of the settlement constitutes covered property damage under the commercial

general liability (“CGL”) insurance contracts purchased by Amsoil from the

appellees;1

 and (3) the $175,030 portion of the settlement allocated to recall and

replacement of the synthetic oil is a non-covered loss.2

I respectfully dissent, however, from that portion of the decision which finds

that Amsoil is not entitled to indemnification for the consequential damage portion

of the settlement it paid to Allen because these damages constitute uninsured

“economic losses and business risks.” I believe this portion of the decision is

contrary to the Wisconsin Supreme Court’s interpretation and application of the

economic loss doctrine. Under that doctrine, once we determine there was covered

property damage, i.e. damage to property other than the insured’s own product, then

any consequential damages that reasonably flow from the covered property damage

are covered under the CGL insurance policies Amsoil purchased from the appellees.
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The Wisconsin Supreme Court adopted the economic loss doctrine in

Sunnyslope Grading, Inc. v. Miller, Bradford, & Risberg, Inc., 437 N.W.2d 213

(1989). In that case, the court stated “[w]e hold that a commercial purchaser of a

product cannot recover solely economic losses from the manufacturer. . . .” Id. at 217-

218 (emphasis added). Later decisions have interpreted Sunnyslope and the

economic loss doctrine to exclude from coverage, under CGL insurance policies,

claims where there exists no personal injury or damage to property other than the

insured’s own product. See, e.g., Daanen & Janssen, Inc. v. Cedarapids, Inc., 573

N.W.2d 842 (WI 1998); Wausau Tile, Inc. v. County Concrete Corp., 593 N.W.2d

445 (WI 1999); Vogel v. Russo, 613 N.W.2d 177 (WI 2000).

However, when economic losses are coupled with covered property damage the

economic loss doctrine has not been used to prevent an insured from obtaining

indemnification under a CGL policy—both for the property damage and economic

damages, i.e. consequential damages, caused by the damage to the covered property.

This limitation on the economic loss rule has been clearly stated by the Wisconsin

Supreme Court: 

The economic loss doctrine, however, does not bar a commercial

purchaser’s claims based on personal injury or damage to property other

than the product, or economic loss claims that are alleged in

combination with noneconomic losses. 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.

Daanen, 573 N.W.2d at 845(emphasis added) (internal citations omitted); see also

Wausau Tile, 593 N.W.2d at 451(referring to Daanen).

 

In this case, we have unanimously determined that Amsoil has the right to

indemnification for qualifying property damage, i.e. damage which is covered under
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the CGL insurance policies purchased by Amsoil. Therefore, I believe Amsoil is

entitled to indemnification for at least a portion of the amount it paid to settle Allen’s

claims for consequential damages.

I therefore respectfully dissent and would reverse the judgment of the district

court on the issue of consequential damages.

 

A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.