Title: Wis. Pharmacal Co., LLC v. Neb. Cultures of Cal., Inc.
Citation: N/A
Docket Number: 2013AP000687, 2013AP000613
State: Wisconsin
Issuer: Wisconsin Supreme Court
Date: March 1, 2016

2016 WI 14 
 
SUPREME COURT OF WISCONSIN 
 
 
 
 
 
CASE NO.: 
2013AP613 & 2013AP687 
COMPLETE TITLE: 
Wisconsin Pharmacal Company, LLC, 
          Plaintiff, 
     v. 
Nebraska Cultures of California, Inc. and 
Evanston Insurance Company, 
          Defendants, 
Jeneil Biotech, Inc., 
          Defendant-Appellant, 
The Netherlands Insurance Company, 
          Defendant-Respondent-Petitioner. 
------------------------------------------------ 
Wisconsin Pharmacal Company, LLC, 
          Plaintiff, 
     v. 
Nebraska Cultures of California, Inc., 
          Defendant-Appellant, 
Jeneil Biotech, Inc. and The Netherlands 
Insurance Company, 
          Defendants, 
Evanston Insurance Company, 
          Defendant-Respondent-Petitioner. 
 
 
 
 
REVIEW OF A DECISION BY THE COURT OF APPEALS 
(Reported at 358 Wis. 2d 673, 856 N.W.2d 505) 
(Ct. App. 2014 Published) 
PDC No: 2014 WI App 111 
 
 
 
OPINION FILED: 
March 1, 2016 
SUBMITTED ON BRIEFS: 
        
ORAL ARGUMENT: 
September 22, 2015 
 
 
SOURCE OF APPEAL: 
 
 
COURT: 
Circuit 
 
COUNTY: 
Ozaukee 
 
JUDGE: 
Thomas R. Wolfgram 
 
 
 
JUSTICES: 
 
 
CONCURRED: 
      
 
DISSENTED: 
ABRAHAMSON, A.W. BRADLEY, J.J., dissent. 
(Opinion Filed) 
 
NOT PARTICIPATING: ZIELGER, R.G. BRADLEY, J.J., did not 
participate.    
 
 
 
 
 
 
 
2 
ATTORNEYS: 
 
For the defendant-respondent-petitioners, there were joint 
briefs by Thomas R. Schrimpf and Hinshaw & Culbertson, LLP, 
Milwaukee, 
Mark 
F. 
Wolfe 
and 
Traub 
Lieberman 
Straus 
& 
Shrewsberry, Chicago.  Oral argument by Thomas Schrimpf and Mark 
F. Wolfe.  
 
For the defendant-appellant, Jeneil Biotech, Inc., there 
was a brief by Douglas M. Raines, James A. Baxter and von 
Briesen & Roper, S.C., Milwaukee, and oral argument by Douglas 
M. Raines. 
 
For 
the 
defendant-appellant, 
Nebraska 
Cultures 
of 
California, Inc., there was a brief by Patryk Silver, Borgelt, 
Powell, Peterson & Frauen, S.C., Madison, and oral argument by 
Patryk Silver. 
 
There was an amicus curiae brief by James A. Friedman, Todd 
G. Smith, and Godfrey & Kahn, S.C., Madison on behalf of the 
Wisconsin Insurance Alliance.  
 
 
 
 
 
 
2016 WI 14
NOTICE 
This opinion is subject to further 
editing and modification.  The final 
version will appear in the bound 
volume of the official reports.   
No.  2013AP613 & 2013AP687   
(L.C. No. 
2011CV32) 
STATE OF WISCONSIN  
 
 
   : 
IN SUPREME COURT 
 
 
Wisconsin Pharmacal Company, LLC, 
 
          Plaintiff, 
 
     v. 
 
Nebraska Cultures of California, Inc., 
 
          Defendant-Appellant, 
 
Jeneil Biotech, Inc. and The Netherlands 
Insurance Company, 
 
          Defendants, 
 
Evanston Insurance Company, 
 
          Defendant-Respondent-Petitioner. 
 
FILED 
 
MAR 1, 2016 
 
Diane M. Fremgen 
Clerk of Supreme Court 
 
 
 
Wisconsin Pharmacal Company, LLC, 
 
          Plaintiff, 
 
     v. 
 
Nebraska Cultures of California, Inc., 
 
          Defendant-Appellant, 
 
Jeneil Biotech, Inc. and The Netherlands 
Insurance Company, 
 
          Defendants, 
 
Evanston Insurance Company, 
 
Nos. 2013AP613 & 2013AP687 
 
2 
 
 
          Defendant-Respondent-Petitioner. 
 
 
 
REVIEW of a decision of the Court of Appeals.  Reversed.   
 
¶1 
PATIENCE 
DRAKE 
ROGGENSACK, 
C.J.   We 
review 
a 
published decision of the court of appeals1 reversing an order of 
the Ozaukee County Circuit Court2 that granted summary judgment 
to The Netherlands Insurance Company (Netherlands) and Evanston 
Insurance Company (Evanston).  Our review centers on a coverage 
dispute between the insurers and their respective insureds, 
Jeneil 
Biotech, 
Inc. 
(Jeneil) 
and 
Nebraska 
Cultures 
of 
California, Inc. (Nebraska Cultures).  The underlying claims 
against the insureds arise from their supplying a defective 
ingredient for incorporation into the plaintiff's, Wisconsin 
Pharmacal Company (Pharmacal), probiotic supplement tablets. 
¶2 
The insurers argue that the insurance policies do not 
provide coverage for damages that may arise out of the 
underlying claims against the insureds.  Specifically, the 
issues before us are:  (1) whether the incorporation of a 
defective ingredient into the supplement tablets constitutes 
"property damage" caused by an "occurrence" under the policies' 
                                                 
1 Wis. Pharmacal Co. v. Neb. Cultures of Cal., Inc., 2014 WI 
App 111, 358 Wis. 2d 673, 856 N.W.2d 505. 
2 The Honorable Thomas R. Wolfgram of Ozaukee County 
presided. 
Nos. 2013AP613 & 2013AP687 
 
3 
 
language; and (2) if there is "property damage" caused by an 
"occurrence," whether any of the policies' exclusions apply to 
negate coverage.   
¶3 
We conclude that there is no "property damage" caused 
by an "occurrence" because the incorporation of a defective 
ingredient into the supplement tablets did not damage other 
property and did not result in loss of use of property.  We 
further conclude that, even if the incorporation of a defective 
ingredient were to constitute "property damage" caused by an 
"occurrence," certain exclusions in both policies apply to 
negate coverage.  Accordingly, we reverse the decision of the 
court of appeals.  
I.  BACKGROUND 
¶4 
Pharmacal 
supplies 
a 
Daily 
Probiotic 
Feminine 
Supplement to a major retailer.  This supplement is in the form 
of a chewable tablet and contains various ingredients, including 
a probiotic bacterial species known as Lactobacillus rhamnosus 
(LRA).  In July of 2008, Pharmacal contacted Nutritional 
Manufacturing Services, LLC to manufacture supplement tablets 
containing LRA.  Nutritional Manufacturing agreed to procure LRA 
and manufacture supplement tablets containing that ingredient.  
In order to procure LRA for production of supplement tablets, 
Nutritional Manufacturing contacted Nebraska Cultures, which 
agreed to supply LRA.  Nebraska Cultures then contracted with 
Jeneil to supply LRA to Nebraska Cultures for subsequent sale to 
Nutritional Manufacturing.  Nutritional Manufacturing thereafter 
Nos. 2013AP613 & 2013AP687 
 
4 
 
obtained the ingredient from Nebraska Cultures along with a 
"Certificate of Analysis," representing the ingredient as LRA.   
¶5 
Having supposedly acquired LRA from Nebraska Cultures, 
Nutritional Manufacturing manufactured supplement tablets using 
the 
provided 
ingredient, 
which 
was 
defective 
because 
it 
constituted a different species of bacteria, Lactobacillus 
acidophilus (LA), rather than LRA.  This manufacturing process 
required blending other ingredients that were obtained from 
other vendors, with the defective probiotic ingredient supplied 
by Nebraska Cultures and Jeneil.  Once all of the ingredients 
were blended together, they were compressed into tablet form.  
Once mixed and compressed into tablet form, none of the 
ingredients could be separated from one another.  After 
manufacturing 
supplement 
tablets, 
Nutritional 
Manufacturing 
supplied them to Pharmacal, which, in turn, packaged and shipped 
them to the retailer.  
¶6 
In April of 2009, the retailer notified Pharmacal that 
the supplement did not contain LRA but, rather, it contained LA.  
Pharmacal performed independent testing on supplement tablets 
and confirmed that they contained LA rather than the contracted-
for LRA.  Upon this confirmation, Pharmacal notified the 
retailer that the supplements were mislabeled as containing LRA 
when they actually contained LA.  In May of 2009, the retailer 
recalled the supplement.  After the recall, Pharmacal destroyed 
the supplement tablets containing the defective ingredient.  
¶7 
Nutritional Manufacturing assigned any and all of its 
causes of action against Nebraska Cultures and Jeneil to 
Nos. 2013AP613 & 2013AP687 
 
5 
 
Pharmacal.  On January 14, 2011, Pharmacal filed suit against 
Nebraska Cultures and its general liability insurer, Evanston, 
as 
well 
as 
Jeneil 
and 
its 
general 
liability 
insurer, 
Netherlands.  Pharmacal alleged numerous causes of action,3 
including various tort and contract claims.  Additionally, 
Nebraska Cultures filed a cross claim against Jeneil for 
negligence.  In October of 2011, the circuit court dismissed 
with prejudice all of Pharmacal's claims against Jeneil and 
Netherlands.  With respect to the claims against Nebraska 
Cultures 
and 
Evanston, 
the 
circuit 
court 
dismissed 
with 
prejudice all tort claims.  Therefore, the remaining claims 
include:  (1) Nebraska Cultures' cross claim against Jeneil for 
negligence;4 and (2) Pharmacal's various contract-based claims 
against Nebraska Cultures.  All of these claims allege that 
Jeneil 
and 
Nebraska 
Cultures 
incorrectly 
supplied 
LA 
to 
Nutritional Manufacturing and Pharmacal when the parties had 
contracted for LRA.  
¶8 
Subsequently, 
Netherlands 
and 
Evanston 
moved 
to 
bifurcate and stay the merits of the proceedings pending the 
circuit court's determination of whether their respective 
                                                 
3 Because Nutritional Manufacturing assigned all claims to 
Pharmacal, we refer to all claims as Pharmacal's claims.  
4 At oral argument, counsel indicated that Jeneil had 
elected not to move to dismiss this claim.  The merits of the 
underlying claims between the various parties are not before us, 
and therefore, we do not address the propriety of this remaining 
cross claim for negligence.  
Nos. 2013AP613 & 2013AP687 
 
6 
 
insurance policies provided coverage, thereby triggering the 
insurers' duties to defend and indemnify.  Netherlands and 
Evanston moved for summary judgment, arguing that the insurance 
policies did not cover any damages that may arise out of the 
remaining causes of action against Jeneil and Nebraska Cultures 
because there was no property damage caused by an occurrence. 
¶9 
In October of 2012 and January of 2013, the circuit 
court held two hearings5 on the coverage issue and ultimately 
granted the insurers' motions for summary judgment.  The circuit 
court concluded that the facts of the case did not trigger the 
insurers' duties to defend.  Specifically, the circuit court 
concluded that the incorporation of a defective probiotic 
ingredient into the tablets did not constitute property damage 
caused by an occurrence because it harmed only the product 
itself, which is an integrated system.  
¶10 The court of appeals reversed the circuit court's 
grant of summary judgment, concluding that the policies provided 
coverage.  Wis. Pharmacal Co. v. Neb. Cultures of Cal., Inc., 
2014 WI App 111, 358 Wis. 2d 673, 856 N.W.2d 505.  The court of 
appeals concluded that the integrated system rule was not 
relevant to the coverage dispute and that the incorporation of a 
defective ingredient constituted property damage to the product 
(the probiotic supplement tablets) caused by an occurrence under 
the policies' language and that no exclusion negated coverage.  
                                                 
5 After the first hearing, the circuit court allowed the 
parties to conduct discovery on the coverage issue.  
Nos. 2013AP613 & 2013AP687 
 
7 
 
Id., ¶¶20-26.  The court of appeals also held that Netherlands 
breached its duty to defend6 by "reject[ing] Jeneil's initial 
tender, prior to the discovery of additional facts bearing on 
coverage."  Id., ¶39.  
¶11 We granted the insurers' joint petition for review.  
II.  DISCUSSION 
A.  Standard of Review 
¶12 Reviewing 
a 
grant 
of 
summary 
judgment, 
we 
independently apply the same methodology as the circuit court 
and the court of appeals while benefitting from their analyses.  
Preisler v. Gen. Cas. Ins. Co., 2014 WI 135, ¶16, 360 Wis. 2d 
129, 857 N.W.2d 136.  "The standards set forth in Wis. Stat. 
§ 802.08 are our guides."  Id.  Summary judgment "shall be 
rendered 
if 
the 
pleadings, 
depositions, 
answers 
to 
interrogatories, and admissions on file, together with the 
affidavits, if any, show that there is no genuine issue as to 
any material fact and that the moving party is entitled to a 
judgment as a matter of law."  Wis. Stat. § 802.08(2) (2013-14). 
¶13 While the parties do not dispute the facts giving rise 
to the underlying causes of action, our review requires us to 
interpret the insurance policies.  "The interpretation of an 
insurance [policy] is a question of law that we review 
                                                 
6 At oral argument, counsel indicated that Netherlands 
refused to provide Jeneil with any defense, while Evanston had 
provided Nebraska Cultures with an initial defense.  
Nos. 2013AP613 & 2013AP687 
 
8 
 
independently."  Siebert v. Wis. Am. Mut. Ins. Co., 2011 WI 35, 
¶28, 333 Wis. 2d 546, 797 N.W.2d 484.  
B.  Choice of Law 
¶14 Initially, we note that there are two insurance 
policies at issue in this case.  Jeneil's coverage is governed 
by the Netherlands policy, while Nebraska Cultures' coverage is 
governed by the Evanston policy.  The parties agree that the 
Netherlands policy should be interpreted according to Wisconsin 
law, while the Evanston policy should be interpreted according 
to California law.  We agree as well.  
¶15 When parties do not specifically provide a choice of 
law provision in the policy, we have "adopted the 'grouping-of-
contacts' approach for resolving conflicts questions raised as 
to a disputed contract."  Utica Mut. Ins. Co. v. Klein & Son, 
Inc., 157 Wis. 2d 552, 556, 460 N.W.2d 763 (Ct. App. 1990).  
This approach provides that insurance coverage is "determined by 
the law of the [jurisdiction] with which the contract has its 
most significant relationship."  State Farm Mut. Auto. Ins. Co. 
v. Gillette, 2002 WI 31, ¶26, 251 Wis. 2d 561, 641 N.W.2d 662 
(alteration in original) (internal quotation marks and citation 
omitted). 
¶16 We conclude, as agreed by the parties, that Wisconsin 
has the most significant relationship to the Netherlands policy.  
Accordingly, we interpret the Netherlands policy in accordance 
with Wisconsin law.  We further conclude, as agreed by the 
parties, that California has the most significant relationship 
Nos. 2013AP613 & 2013AP687 
 
9 
 
to the Evanston policy.  Accordingly, we interpret the Evanston 
policy in accordance with California law. 
C.  Duty to Defend 
¶17 As another initial matter, we address the court of 
appeals' conclusion that Netherlands breached its duty to defend 
by "reject[ing] Jeneil's initial tender, prior to the discovery 
of additional facts bearing on coverage."  Wis. Pharmacal, 358 
Wis. 2d 673, ¶39.  At oral argument, Jeneil contended that a 
remand 
is 
necessary 
to 
determine 
the 
consequences 
of 
Netherlands' breach of the duty to defend.  
¶18 Contrary to the court of appeals' holding, "[a]n 
insurer does not breach its contractual duty to defend by 
denying coverage where the issue of coverage is fairly debatable 
as long as the insurer provides coverage and defense once 
coverage is established."  Elliott v. Donahue, 169 Wis. 2d 310, 
317, 485 N.W.2d 403 (1992).  An insurer may avoid breaching the 
duty to defend by requesting "a bifurcated trial on the issues 
of 
coverage 
and 
liability[] 
[and] 
mov[ing] 
to 
stay 
any 
proceedings on liability until the issue of coverage is 
resolved."  Id. at 318.  However, "[a]n insurer may need to 
provide a defense to its insured when the separate trial on 
coverage does not precede the trial on liability and damages."  
Mowry v. Badger State Mut. Cas. Co., 129 Wis. 2d 496, 528, 385 
N.W.2d 171 (1986) (emphasis added); Elliott, 169 Wis. 2d at 318.   
¶19 In this case, Netherlands and Evanston jointly moved 
to bifurcate and stay the proceedings pending a determination of 
coverage.  Although Evanston provided an initial defense, the 
Nos. 2013AP613 & 2013AP687 
 
10 
 
circuit court ultimately concluded that the insurers' duties to 
defend were not triggered because their respective policies did 
not provide coverage.  As this coverage determination by the 
circuit court properly came prior to any proceedings regarding 
the merits of the underlying claims, Netherlands did not breach 
its duty to defend.  We now turn to the discussion of whether 
there is coverage under the policies.   
D.  Coverage, General Principles 
¶20 We interpret insurance policies from the perspective 
of a reasonable insured.  Acuity v. Bagadia, 2008 WI 62, ¶13, 
310 Wis. 2d 197, 750 N.W.2d 817.  When the language of an 
insurance contract is unambiguous, we apply its plain and 
ordinary meaning.  Preisler, 360 Wis. 2d 129, ¶18.   
¶21 However, if terms of an insurance contract are "fairly 
susceptible to more than one reasonable interpretation," the 
policy is ambiguous.  Id., ¶19 (quoting Hirschhorn v. Auto-
Owners Ins. Co., 2012 WI 20, ¶23, 338 Wis. 2d 761, 809 N.W.2d 
529).  "Policy language is not ambiguous merely because more 
than one dictionary definition exists or the parties disagree 
about its meaning."  Id.  Similarly, policy language is not 
ambiguous 
merely 
because 
courts 
have 
come 
to 
differing 
interpretations.  Peace v. Nw. Nat'l Ins. Co., 228 Wis. 2d 106, 
¶60, 596 N.W.2d 429 (1999).  If the policy is ambiguous, the 
court's 
construction 
is 
constrained 
and 
ambiguities 
are 
construed 
against 
the 
insurer, 
in 
favor 
of 
coverage.  
Hirschhorn, 338 Wis. 2d 761, ¶23.   
Nos. 2013AP613 & 2013AP687 
 
11 
 
¶22 Bearing the foregoing in mind, we determine whether 
the policies provide coverage for incorporation of a defective 
ingredient 
into 
supplement 
tablets. 
 
Our 
procedure 
for 
determining whether coverage exists under an insurance policy 
follows three steps.  First, "we examine the facts of the 
insured's claim to decide whether the policy makes an initial 
grant of coverage."  Preisler, 360 Wis. 2d 129, ¶22.  If the 
policy terms clearly do not cover the claim, generally, our 
analysis ends.  Id.  However, "if the claim . . . triggers a 
potential grant of coverage, we secondly examine whether any of 
the policy's exclusions preclude coverage for that claim."  Id.  
And third, "if an exclusion precludes coverage, we analyze 
exceptions to the exclusion to determine whether any exception 
reinstates coverage."  Id.  
E.  Initial Grant of Coverage 
1.  Netherlands policy 
¶23 Netherlands' commercial general liability (CGL) policy 
provides coverage for Jeneil's losses that "the insured becomes 
legally obligated to pay as damages because of 'bodily injury'7 
or 'property damage' . . . caused by an 'occurrence.'"  The 
policy defines property damage as "(a) Physical injury to 
tangible property, including all resulting loss of use of that 
property. . . .; or (b) Loss of use of tangible property that is 
                                                 
7 As the parties agree that no "bodily injury" has occurred, 
we do not address that policy language.  
Nos. 2013AP613 & 2013AP687 
 
12 
 
not physically injured."  We first discuss whether there is 
property damage under either definition.   
a.  property damage (physical injury) 
¶24 With respect to the standard CGL definition of 
property damage, we previously have concluded that,  
The risk intended to be insured [in a CGL policy] is 
the possibility that the goods, products or work of 
the insured, once relinquished or completed, will 
cause bodily injury or damage to property other than 
to the product or completed work itself, and for which 
the insured may be found liable.  
Wis. Label Corp. v. Northbrook Prop. & Cas. Ins. Co., 2000 WI 
26, ¶27, 233 Wis. 2d 314, 607 N.W.2d 276 (alteration in 
original) 
(emphasis 
added) 
(internal 
quotation 
marks 
and 
citation omitted).  Stated otherwise, the insured risk (i.e., 
physical injury to tangible property) applies to physical injury 
to tangible property other than, but which is caused by, a 
defect in the product or work the insured supplied.  Vogel v. 
Russo, 2000 WI 85, ¶17, 236 Wis. 2d 504, 613 N.W.2d 177) 
abrogated, in part, on other grounds by Ins. Co. of N. Am. v. 
Cease Elec. Inc., 2004 WI 139, ¶25 n.6, 276 Wis. 2d 361, 688 
N.W.2d 462. 
¶25 In Vogel, where the CGL policy defined property damage 
using the same terms as does the Netherlands' policy, we 
carefully explained the risk to which CGL policies apply.  We 
again said that, 
[t]he risk intended to be insured [in a CGL policy] is 
the possibility that the goods, products or work of 
the insured, once relinquished or completed, will 
cause bodily injury or damage to property other than 
Nos. 2013AP613 & 2013AP687 
 
13 
 
to the product or completed work itself, and for which 
the insured may be found liable. 
Id. (emphasis and alteration in original) (quoting Bulen v. W. 
Bend Mut. Ins. Co., 125 Wis. 2d 259, 264-65, 371 N.W.2d 392 (Ct. 
App. 1985).   
¶26 We emphasized the nature of coverage afforded by a CGL 
policy:  "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."  Id. at 513 (emphasis in original).  "A 
CGL policy, therefore, is not a performance bond."8  Id. (further 
citations omitted).  Therefore, we must determine whether the 
incorporation of LA, the defective component Jeneil provided, 
into the supplement tablets constitutes physical injury to 
tangible property other than the LA itself.   
¶27 To answer the question of what constitutes other 
property that has suffered physical injury, we analyze whether a 
supplement tablet is an integrated system because if it is, 
damage to the system has been defined as damage to the product 
itself, not damage to other property.  See Wausau Tile, Inc. v. 
Cnty. Concrete Corp., 226 Wis. 2d 235, 249, 593 N.W.2d 445 
                                                 
8 A performance bond ensures successful completion of a 
contractual obligation.  As Couch on Insurance explains, 
performance bonds protect the person to whom a contractual 
obligation is owed from the risk of loss directly arising from 
another's failure to perform according to the terms of a 
contract.  Steven Plitt, Daniel Maldonado & Joshua D. Rogers, 1 
Couch on Insurance § 1:15 (3d ed. 2009). 
Nos. 2013AP613 & 2013AP687 
 
14 
 
(1999).  We have explained how an integrated system affects the 
determination of what property is "other property" as follows:  
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. 
Id. at 249-50 (emphasis in original) (quoting Restatement 
(Third) of Torts § 21 cmt. e (1997)).9  In short, "[d]amage 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' . . . "  Id. at 249 (citing East River S.S. Corp. v. 
Transamerica Delaval, Inc., 476 U.S. 858, 867-68 (1986)).   
¶28 An integrated system analysis is necessary when 
evaluating coverage under a CGL policy because we must decide 
whether the product is to be treated as a unified whole or 
whether a defective component can be separated out such that the 
claimed damage constitutes damage to property other than the 
defective component itself.  Id. at 250-52.   
¶29 For example, in Wausau Tile, the manufacturer sold and 
distributed concrete paving blocks, which were "made of cement, 
                                                 
9 We note there is no allegation that tablets containing LA 
were dangerous. 
Nos. 2013AP613 & 2013AP687 
 
15 
 
aggregate, water, and other materials, for use mainly in 
exterior walkways."  Id. at 241.  The manufacturer contracted 
with another company to supply the cement and yet another 
company to supply the aggregate for incorporation into the 
paving blocks.  Id.  After incorporation, the paving blocks 
"suffered excessive expansion, deflecting, curling, cracking 
and/or buckling."  Id. at 242 (internal quotation marks and 
citation omitted).  These problems with the paving blocks 
resulted from defects in both cement and aggregate.  Id.   
¶30 We employed an integrated system analysis to determine 
whether paving blocks were integrated systems comprised of 
cement, aggregate, and other components because if they were, 
damage by a defective component of an integrated system to other 
system components is not property damage to other property.  Id. 
at 251-52.  We concluded that because all components were 
combined to form paving blocks and the components could not be 
separated from the finished product, all components were part of 
an integrated system.  Id. at 251.  As such, we rejected the 
manufacturer's 
"contention 
that 
the 
[paving 
blocks] 
Nos. 2013AP613 & 2013AP687 
 
16 
 
constitute[d] property other than the defective cement" itself.10  
Id. at 251-52.   
¶31 While in Wausau Tile we employed the economic loss 
doctrine to preclude tort claims for breaches of contract and/or 
warranty, id. at 246, more importantly, we explained that it is 
through an integrated system analysis that we determine what 
constitutes "other property."  Id. at 250-51.  Deciding whether 
the complained of injury is to other property is important 
because it is only damage to other property that is covered 
under a CGL policy.  Vogel, 236 Wis. 2d 504, ¶17; Wis. Label, 
233 Wis. 2d 314, ¶27. 
¶32 The court of appeals correctly discerned that the 
economic loss doctrine does not control a coverage dispute and, 
therefore is not at issue here.  However, the court of appeals 
overlooked significant portions of our decision in Wausau Tile, 
where we also discussed whether there was insurance policy 
coverage for the claimed damage.  Wausau Tile, 226 Wis. 2d at 
266-69.  Simply stated, the court of appeals did not perceive 
the importance of an integrated system analysis when deciding 
                                                 
10 The Supreme Court also has discussed integrated systems.  
In East River S.S. Corp. v. Transamerica Delaval, Inc., 476 U.S. 
858 (1986), the Court considered whether there was damage to 
other property where defective component parts were incorporated 
into a turbine.  As a result of the defective parts, the turbine 
failed and was damaged.  Id. at 867-68.  Although recognizing 
that the integrated system had been negligently manufactured, 
the Court held that the turbine must be regarded as a single 
unit.  Id. at 867.  Therefore, any resulting damage to it or its 
component parts constituted only damage to the property itself.  
Id.     
Nos. 2013AP613 & 2013AP687 
 
17 
 
whether claimed damage arose from physical injury to tangible 
property other than to the LA.  See Wis. Pharmacal, 358 Wis. 2d 
673, ¶19.  Instead, the court of appeals applied law from other 
jurisdictions to reason that a product may be "physically 
injured by the incorporation of a defective, faulty, or 
inadequate part."  Id., ¶20.  Thereafter, the court of appeals 
incorrectly 
concluded 
that 
incorporation 
of 
a 
defective 
ingredient into the supplement tablets caused property damage by 
physically injuring other ingredients in the tablets.  Id.   
¶33 The policy language at issue in Wausau Tile is 
substantively identical to Netherlands' policy language.  Wausau 
Tile, 226 Wis. 2d at 267 n.18.  There, we concluded that the 
manufacturer's claims did not allege property damage because, as 
set forth above, damage by a defective component of an 
integrated system to either the system as a whole or other 
system components is not separable as damage to other property 
for which coverage is provided by a CGL policy.  See id. at 250-
52, 267-68. 
¶34 Similarly, applying an integrated system analysis to 
the instant case, we conclude that combining a defective 
ingredient with other ingredients and incorporating them into 
supplement tablets, formed an integrated system.  Pharmacal 
could not separate out the LA from the other ingredients or the 
other ingredients from each other.  No damage resulted to 
property other than ingredients of the integrated system and the 
completed product, the tablets.  Stated otherwise, upon blending 
Nos. 2013AP613 & 2013AP687 
 
18 
 
LA, rather than LRA, with other ingredients, all of the 
ingredients were integrated into one product, the tablets.   
¶35 Therefore, similar to the effect of cement being 
incorporated with other components into the paving blocks in 
Wausau Tile, the effect of LA being incorporated with the other 
ingredients into tablets cannot be said to constitute damage to 
other property.  Accordingly, we conclude that the complained of 
injury was sustained by the integrated system itself, i.e. the 
tablets, such that no other property was injured.   
¶36 Furthermore, there was no physical injury to tangible 
property caused by LA.  To constitute "physical injury," 
property other than LA must have been physically altered by the 
LA.  Vogel, 236 Wis. 2d 504, ¶17; Wis. Label, 233 Wis. 2d 314, 
¶31; Travelers Ins. Co. v. Eljer Mfg., Inc., 757 N.E.2d 481, 496 
(Ill. 2001).  Additionally, there must be an element of 
causation.  Wis. Label, 233 Wis. 2d 314, ¶32; Smith v. Katz, 226 
Wis. 2d 798, 822, 595 N.W.2d 345 (1999).    
¶37 Pharmacal argues that there was physical injury due to 
blending other ingredients with LA into tablets.  However, there 
was no factual foundation presented from which one could 
conclude that creating tablets using LA physically altered other 
ingredients in a way that would not have occurred if LRA had 
been used in the same tableting process.  Stated otherwise, any 
changes to other ingredients were not a result of the defective 
ingredient; rather, any changes were a result of the tableting 
process that would have occurred regardless of which probiotic 
ingredient was supplied.  Yet, property damage under the first 
Nos. 2013AP613 & 2013AP687 
 
19 
 
definition in the Netherlands policy requires physical injury to 
tangible property that is caused by the insured.  Accordingly, 
we conclude that there was no "physical injury to tangible 
property.  
¶38 Finally, Jeneil asserts that the cartons, shippers, 
inserts, tooling and dies associated with the supplement tablets 
suffered physical injury, thereby constituting property damage 
to tangible property.  However, the materials associated with 
shipping the supplement tablets did not undergo any physical 
alterations due to LA.  The presence of the defective ingredient 
in the tablets did not cause any alterations to these materials 
that would not have otherwise occurred.  For example, the 
defective ingredient did not cause the tablets to explode or 
corrode through the shipping materials such that they underwent 
some physical alteration that would not have occurred if the 
tablets had contained the contracted-for LRA.  Therefore, we 
conclude that there is no physical injury to the cartons, 
shippers, inserts, tooling and dies caused by the defective 
ingredient. 
¶39 We next consider whether the incorporation of a 
defective ingredient constitutes property damage due to "loss of 
use of tangible property that is not physically injured" under 
the Netherlands policy.   
b.  property damage (loss of use) 
¶40 As set forth above, Pharmacal's underlying claims 
allege that Jeneil incorrectly supplied LA to Nutritional 
Manufacturing and Pharmacal when the parties agreed upon, and 
Nos. 2013AP613 & 2013AP687 
 
20 
 
paid for, LRA.  According to Jeneil, the incorporation of a 
defective ingredient rendered the other ingredients and the 
supplement 
tablets 
totally 
useless 
to 
Pharmacal, 
thereby 
constituting property damage due to "loss of use of tangible 
property that is not physically injured."   
¶41 However, we previously have stated that "[d]iminution 
in value——even to the point of worthlessness——is not the same as 
'loss of use' under the insurance policy, which by its plain 
language contemplates some sort of loss of use in fact, not a 
reduction in value."  Vogel, 236 Wis. 2d 504, ¶26.    
¶42 In Vogel, the plaintiffs hired a contractor to build 
their home.  Id., ¶3.  The contractor, in turn, hired a 
subcontractor to perform the foundational work, concrete work 
and brick work.  Id.  Upon completion of the home, a number of 
deficiencies in the workmanship were discovered.  Id., ¶¶4-7.  
Among 
other 
things, 
the 
plaintiffs 
could 
not 
use 
their 
fireplaces, the brickwork was incomplete, and the walls were 
shoddily constructed.  Id., ¶¶6-7.  After trial, the circuit 
court found that the home was "essentially a 'tear-down'" and 
that the entire home was worthless as constructed.  Id., ¶¶12-
13.  The plaintiffs were awarded various damages, including cost 
of repair and replacement damages for the defective masonry 
work.  Id., ¶12.  The subcontractor sought coverage under its 
CGL policy.  See id.  We held that, although the home was 
essentially worthless in value due to the defective workmanship 
and needed to be reconstructed, such damages for diminution in 
value did not constitute "property damage" caused by "loss of 
Nos. 2013AP613 & 2013AP687 
 
21 
 
use."  Id., ¶26.  The homeowners lost the entire value of their 
home; they did not simply lose its use for some period of time.  
Id.   
¶43 Here, Jeneil similarly failed to perform in the manner 
in which it had contractually agreed to perform.  Jeneil 
erroneously supplied LA, which was incorporated into the 
supplement tablets.  Once Pharmacal and the retailer realized 
that the tablets contained LA rather than LRA, the tablets were 
recalled.  The recalled tablets were worthless due to the 
inclusion of LA rather than LRA and were subsequently discarded.  
As with the homeowners in Vogel who lost the entire value of 
their home, Pharmacal did not lose the use of the tablets; 
rather, it permanently lost the entire value of the tablets.  
¶44 Furthermore, although Wisconsin appellate courts have 
held that property damage caused by loss of use may occur with 
temporary loss, they never have concluded that loss of use may 
occur when the loss of the property is permanent.   
¶45 For example, the court of appeals held that there was 
loss of use when a farmer temporarily could not use his field 
for an entire growing season.  W. Cas. & Sur. Co. v. Budrus, 112 
Wis. 2d 348, 352, 332 N.W.2d 837 (Ct. App. 1983).  In Budrus, 
the farmer purchased 400 pounds of seed labeled "Birdsfoot," 
which is feed for cows.  Id. at 350.  However, after planting 
the seed on his 40-acre field, he discovered that the seed had 
been mislabeled and that it was actually "Rape" seed, which is 
feed for pigs and was useless to him.  Id.  The farmer sued the 
seed supplier for damages resulting from crop loss and loss of 
Nos. 2013AP613 & 2013AP687 
 
22 
 
production, as it was too late into the season to replant.  Id.; 
Wis. Label, 233 Wis. 2d 314, ¶54.  The supplier sought coverage 
under his insurance policy, and the court of appeals concluded 
that there was property damage due to loss of use of the 
farmer's 40-acre field.  Budrus, 112 Wis. 2d at 352.   
¶46 As the farmer was temporarily unable to use his 
property until the next growing season, such damages constituted 
loss of use under the insurance policy.  See id.  However, in 
contrast to Pharmacal's tablets, the farmer's property was not 
rendered permanently worthless such that he lost the entire 
value of the field without the possibility of restoration.  
¶47 Similarly, we have held that loss of use includes 
damages arising from the removal and repair of a manufacturer's 
defective transformer.  Sola Basic Indus., Inc. v. U.S. Fid. & 
Guar. Co., 90 Wis. 2d 641, 654, 280 N.W.2d 211 (1979).  In Sola 
Basic, the manufacturer used a transformer to operate its 
electric furnace, which, in turn powered the manufacturer's 
plant.  Id. at 647.  When a defective transformer had to be 
removed 
and 
repaired, 
the 
electric 
furnace 
was 
rendered 
unusable, causing the manufacturer to sustain additional costs 
in order to operate its plant.  Id.  We concluded that these 
damages, resulting from the inability to use the electric 
furnace while the transformer was being repaired, constituted 
loss of use under the insurance policy's language.  Id. at 654.   
¶48 It is also significant that the temporary inability to 
use the electric furnace during repair of the transformer in 
Sola Basic was a loss of use of property other than the 
Nos. 2013AP613 & 2013AP687 
 
23 
 
defective product (the transformer), just as the loss of use of 
the farmer's field in Budrus was a temporary inability to use 
property other than the defective product (the seed).  By 
contrast, in the case before us, the claim for loss of use is a 
permanent loss of use of the defective product itself, the 
tablets.   
¶49 While Jeneil argues that the incorporation of a 
defective ingredient rendered the tablets and other ingredients 
useless, thereby constituting loss of use, Pharmacal did not 
actually 
lose 
use 
of 
the 
tablets. 
 
Instead, 
Pharmacal 
permanently lost the entire value of the tablets.  Accordingly, 
we conclude that the Netherlands policy does not provide 
coverage because there is no property damage due to "loss of use 
of tangible property that has not been physically injured."11   
¶50 As we have concluded that incorporation of LA, the 
defective ingredient, into the tablets does not constitute 
property damage under either definition of the Netherlands 
policy, there is no initial grant of coverage.  However, in the 
interest of completeness, we proceed to consider whether there 
has been an "occurrence." 
c.  occurrence 
¶51 The policy defines "occurrence" as "an accident, 
including continuous or repeated exposure to substantially the 
                                                 
11 For these same reasons, we further conclude that the 
policy does not provide coverage for the permanent loss of use 
of the cartons, shippers, inserts, tooling and dies associated 
with the supplement tablets.   
Nos. 2013AP613 & 2013AP687 
 
24 
 
same general harmful conditions."  While Jeneil intentionally 
provided a probiotic ingredient, the parties do not dispute that 
Jeneil's provision of a defective ingredient was accidental.  
However, we are not persuaded, simply because Jeneil accidently 
supplied a defective ingredient, that this constitutes an 
"occurrence" for purposes of coverage under the policy.   
¶52 To 
the 
contrary, 
we 
note 
that, 
while 
faulty 
workmanship "can give rise to property damage caused by an 
'occurrence,'" it does not follow that faulty workmanship itself 
constitutes an occurrence.  Glendenning's Limestone & Ready-Mix 
Co. v. Reimer, 2006 WI App 161, ¶30, 295 Wis. 2d 556, 721 N.W.2d 
704 (quoting Am. Fam. Mut. Ins. Co. v. Am. Girl, Inc., 2004 WI 
2, ¶48, 268 Wis. 2d 16, 673 N.W.2d 65).   
¶53 For example, in American Girl, a soil engineer 
negligently gave faulty advice regarding the ability of the soil 
to support a building.  Am. Girl, 268 Wis. 2d 16, ¶¶12-13.  
After the building was constructed pursuant to that advice, the 
soil began to settle, which caused the building to sink and 
sustain damage.  Id., ¶¶13-14.  We held that soil settlement, 
which lead to sinking and cracking of the building, constituted 
an "occurrence" under the policy.  Id., ¶5; see Glendenning's 
Limestone, 295 Wis. 2d 556, ¶27.  Importantly, although the soil 
engineer negligently, or accidentally, rendered the faulty 
advice, this advice was not an "occurrence."  Am. Girl, 268 
Wis. 2d 16, ¶5.  Rather, the faulty advice 
caused the 
"occurrence," which, in turn, caused property damage.  Id. 
Nos. 2013AP613 & 2013AP687 
 
25 
 
¶54 Similarly, where windows were defectively constructed, 
that defective construction did not, in itself, constitute an 
"occurrence" simply because defects arose via an accident.  
Glendenning's 
Limestone, 
295 
Wis. 2d 
556, 
¶28 
(citing 
Kalchthaler v. Keller Constr. Co., 224 Wis. 2d 387, 391, 392 
n.2, 591 N.W.2d 169 (Ct. App. 1999)).  However, when defective 
windows allowed rain to leak inside, thereby causing property 
damage to wooden floors within the building, the leaking of the 
windows constituted an "occurrence."  Id., ¶29.   
¶55 In light of the foregoing, we conclude that, although 
a breach of contract may give rise to property damage caused by 
an "occurrence," a breach of contract, standing alone, does not 
constitute an "occurrence."  See id., ¶39 (explaining that "[a]n 
'accident' may be caused by faulty workmanship, but every 
failure to adequately perform a job, even if that failure may be 
characterized as negligence, is not an 'accident,' and thus not 
an 'occurrence' under the policy.").   
¶56 In the instant case, Jeneil's provision of a defective 
ingredient is analogous to the soil engineer's faulty advice and 
the defectively constructed windows.  An accidental provision of 
a defective ingredient does not constitute an "occurrence" in 
and of itself.  Therefore, we conclude that there is no property 
damage caused by an "occurrence" as defined by the Netherlands 
policy.  Consequently, this also precludes an initial grant of 
coverage under the Netherlands policy.  We now consider whether 
there is an initial grant of coverage under the Evanston policy.   
Nos. 2013AP613 & 2013AP687 
 
26 
 
2.  Evanston policy  
¶57 Evanston's CGL policy similarly provides coverage for 
Nebraska Cultures' losses arising out of "bodily injury" or 
"property damage" caused by an "occurrence."  The policy defines 
"property damage" as "physical injury to or destruction of 
tangible property including, consequential loss of use thereof; 
o[r] loss of use of tangible property which has not been 
physically injured or destroyed."   
¶58 California 
CGL 
policies 
have 
been 
described 
as 
follows: 
General liability policies, such as the ones in 
dispute here, are not designed to provide contractors 
and developers with coverage against claims [that] 
their work is inferior or defective.  The risk of 
replacing and repairing defective materials or poor 
workmanship has generally been considered a commercial 
risk which is not passed on to the liability insurer.  
Rather[,] liability coverage comes into play when the 
insured's defective materials or work cause injury to 
property 
other 
than 
the 
insured's 
own 
work 
or 
products. . . .  "This distinction is significant.  
Replacement and repair costs are to some degree within 
the control of the insured.  They can be minimized by 
careful purchasing, inspection of material, quality 
control and hiring policies.  If replacement and 
repair costs were covered, the incentive to exercise 
care or to make repairs at the least possible cost 
would be lessened since the insurance company would be 
footing the bill for all scrap." 
Maryland Cas. Co. v. Reeder, 221 Cal. App. 3d 961, 967 (Cal. Ct. 
App. 1990) (citations omitted).   
¶59 Bearing these principles in mind, we first discuss 
whether there is property damage under either policy definition.  
Nos. 2013AP613 & 2013AP687 
 
27 
 
a.  property damage (physical injury) 
¶60 Under 
California 
law, 
"property 
damage 
is 
not 
established by the mere failure of a defective product to 
perform as intended."  F & H Constr. v. ITT Hartford Ins. Co. of 
the Midwest, 118 Cal. App. 4th 364, 372 (Cal. Ct. App. 2004); 
Reeder, 221 Cal. App. 3d at 969.  Simply stated, a liability 
insurance policy is not a performance bond.  F & H Constr., 118 
Cal. App. 4th at 373.   
¶61 Also, when considering whether a defective product has 
caused property damage, California courts examine whether the 
defective product is hazardous.  If the defective product is 
hazardous, courts have found immediate property damage to other 
property caused by a defective product.  See Watts Indus., Inc. 
v. Zurich Am. Ins. Co., 121 Cal. App. 4th 1029, 1044-46 (Cal. 
Ct. App. 2004) (concluding that a hazardous product manufactured 
with excessive lead percentages permitted lead to leach into 
water flowing in contact with the product, causing damage to 
other property).   
¶62 However, under California law, when contractually 
nonconforming pile caps were welded onto steel composite piles 
that had been driven into the ground to support a water pumping 
facility, no property damage occurred because the nonconforming 
caps did not result in physical injury to other property.  F & H 
Constr., 118 Cal. App. 4th at 373-74.  To explain further, the 
parties contracted for grade A-50 caps, but grade A-36 caps were 
supplied and subsequently welded onto the piles, thereby 
rendering the pilings inadequate to support the building.  Id.  
Nos. 2013AP613 & 2013AP687 
 
28 
 
The court determined that, even though the contractually 
nonconforming caps rendered the pilings inadequate for their 
intended purpose, there was no property damage to the piles or 
any other property.  Id. 
¶63 This is in contrast to a situation in which hazardous 
property is connected to a building such that it damages the 
building.  For example, property damage was found where asbestos 
was connected and linked to a building, thereby rendering the 
entire building's air supply hazardous.  Armstrong World Indus., 
Inc. v. Aetna Cas. & Sur. Co., 45 Cal. App. 4th 1, 92-94 (Cal. 
Ct. App. 1996).  Similarly, where a nut cluster cereal was 
contaminated by wood splinters, there was property damage 
because 
the 
splinters 
rendered 
the 
cereal 
hazardous 
for 
consumption.  Shade Foods, Inc. v. Innovative Prods. Sales & 
Mktg., Inc., 78 Cal. App. 4th 847, 865-66 (Cal. Ct. App. 2000).  
The court stated that there may be a "finding [of] property 
damage where a potentially injurious material in a product 
causes loss to other products."  Id.  However, "property damage 
is not established by the mere failure of a defective product to 
perform as intended."  F & H Constr., 118 Cal. App. 4th at 372.   
¶64 In the instant case, a defective ingredient was 
incorporated into the supplement tablets.  Unlike the obvious 
hazardousness of asbestos connected to a building or wood 
splinters in cereal, there is no evidence suggesting that the 
defective probiotic ingredient, LA, is hazardous.  The tablets 
were simply labeled as containing one probiotic ingredient when 
they actually contained another.  Therefore, due to the 
Nos. 2013AP613 & 2013AP687 
 
29 
 
incorporation of a defective ingredient, the tablets were not 
the product for which the parties had contracted.   
¶65 Although a defective ingredient rendered the tablets 
inadequate for their contracted purpose, the mere presence of a 
defective 
ingredient 
did 
not 
render 
them 
hazardous.  
Accordingly, we conclude that there is no property damage under 
this policy definition.12  We next consider whether there is 
property damage due to "loss of use of tangible property that 
has not been physically injured" under the Evanston policy.  
b.  property damage (loss of use) 
¶66 Under California law, loss of use damages refer to the 
rental value of temporary replacement property, rather than the 
value of replacing the property itself.  Advanced Network, Inc. 
v. Peerless Ins. Co., 190 Cal. App. 4th 1054, 1062-63 (Cal. Ct. 
App. 2010).  Such damages for loss of use of property are 
distinct from loss of property.  Id. at 1062.  California courts 
utilize the following example to illustrate this distinction: 
[A]ssume that an automobile is stolen from its owner.  
The value of the "loss of use" of the car is the 
rental value of a substitute vehicle; the value of the 
"loss" of the car is its replacement cost. . . .  The 
measure of damages for the loss of use of personal 
property may be determined with reference to the 
rental value of similar property which the plaintiff 
can hire for use during the period when he is deprived 
of the use of his own property.  
                                                 
12 For these same reasons, we further conclude that the 
incorporation of a defective ingredient does not constitute 
physical injury to the cartons, shippers, inserts, tooling and 
dies associated with the supplement tablets.   
Nos. 2013AP613 & 2013AP687 
 
30 
 
Collin v. Am. Empire Ins. Co., 21 Cal. App. 4th 787, 818 (Cal. 
Ct. App. 1994) (internal quotation marks and citation omitted).  
Moreover, while Pharmacal may not be able to use its property 
because it is permanently unusable, such damages do not 
constitute loss of use damages but, rather, "the value of the 
property itself.  Had [the insurer] wished to insure 'loss of 
property,' its policy would have so provided."  Id. at 818-19.  
Therefore, where damages are unrelated to the rental value of 
temporary replacement property, such damages do not constitute 
loss of use under California law.  See F & H Constr., 118 Cal. 
App. 4th at 377.   
¶67 As set forth, in full, above, the incorporation of a 
defective ingredient rendered the tablets worthless for their 
contracted purpose, and they were discarded due to their lack of 
value.  Therefore, Pharmacal's underlying claims are not for 
loss of use damages because they relate to the permanent 
uselessness of the tablets and not to the value of temporary 
replacement property.13  Accordingly, we conclude that the 
Evanston policy does not provide coverage because there is no 
property damage due to "loss of use of tangible property that 
has not been physically injured."   
¶68 As we have concluded that the incorporation of a 
defective ingredient into the tablets does not constitute 
                                                 
13 For these same reasons, we further conclude that the 
policy does not provide coverage for the permanent loss of use 
of the cartons, shippers, inserts, tooling and dies associated 
with the supplement tablets.   
Nos. 2013AP613 & 2013AP687 
 
31 
 
property damage under either definition in the Evanston policy, 
there is no initial grant of coverage.  However, in the interest 
of completeness, we proceed to consider whether there has been 
an "occurrence."  
c.  occurrence 
¶69 The Evanston policy defines "occurrence" as "an 
accident, 
including 
continuous 
or 
repeated 
exposure 
to 
substantially the same general harmful conditions."  California 
courts interpret "[t]he plain meaning of the word 'accident' 
[a]s an event occurring unexpectedly or by chance."  Ray v. 
Valley Forge Ins. Co., 77 Cal. App. 4th 1039, 1045-46 (Cal. Ct. 
App. 1999). 
¶70 Under California law, "[a]n accident . . . is never 
present when the insured performs a deliberate act. . . .[W]here 
the insured intended all of the acts that resulted in the 
victim's injury, the event may not be deemed an accident merely 
because the insured did not intend to cause injury."  Id. at 
1046 
(alterations 
in 
original) 
(internal 
quotation 
marks 
omitted) (quoting Merced Mut. Ins. Co. v. Mendez, 213 Cal. App. 
3d 41, 50 (Cal. App. Ct. 1989)).   
¶71 For example, in Ray, the California Court of Appeals 
held that there was no "occurrence" where a roofing consultant 
negligently gave faulty advice on the suitability of roofing 
materials for a building.  Id. at 1043.  The unsuitability of 
the roofing materials caused the building to be excessively hot, 
rendering it uninhabitable for certain portions of the year.  
Id. at 1044-45.  The consultant sought coverage under his 
Nos. 2013AP613 & 2013AP687 
 
32 
 
insurance policy for what the court characterized as breach of 
contract claims, alleging that the consultant "rendered bad 
advice" in recommending the roofing materials.  Id. at 1045. 
¶72 The court held that the faulty advice did not 
constitute an accident because the consultant deliberately gave 
the advice and intended the plaintiffs to utilize the roofing 
materials that he had suggested.  Id. at 1046.  Therefore, the 
faulty advice could not be considered an "occurrence" even 
though it was occasioned by the consultant's negligence.  Id.   
¶73 In the instant case, Jeneil's provision of a defective 
ingredient may have been occasioned by negligence; however, 
Jeneil 
deliberately 
supplied 
the 
ingredient 
to 
Nebraska 
Cultures, which, in turn, supplied the ingredient to Nutritional 
Manufacturing.  Moreover, Jeneil intended the ingredient to be 
incorporated into the tablets.  Given the deliberate nature of 
these actions, the provision of a defective ingredient cannot be 
said to constitute an "occurrence" under California law.  
Consequently, this also precludes an initial grant of coverage 
under the Evanston policy. 
F.  Exclusions 
¶74 Finally, although we have concluded that neither 
policy provides an initial grant of coverage to the respective 
insureds, in the interest of completeness, we address whether, 
if there were property damage caused by an "occurrence," 
exclusions apply and negate coverage.  
¶75 Exclusions in insurance policies are written to 
exclude described risks.  Because they may limit coverage that 
Nos. 2013AP613 & 2013AP687 
 
33 
 
is otherwise available, if they are ambiguous, exclusions are 
construed narrowly against the drafter of the policy.  Frost v. 
Whitbeck, 2002 WI 129, ¶19, 257 Wis. 2d 80, 654 N.W.2d 225.  If 
the policy language is not ambiguous, we apply the plain meaning 
of the words employed.  Id., ¶17.     
¶76 The court of appeals determined that damages stemming 
from the recall of the supplement tablets were excluded under 
both policies' recall, or "sistership," exclusions.  Wis. 
Pharmacal, 358 Wis. 2d 673, ¶32.  The court of appeals went on 
to conclude that damages unassociated with the recall expenses 
were 
not 
excluded 
under 
any 
of 
the 
policies' 
remaining 
exclusions.  Id., ¶¶34-35; see Armstrong World, 45 Cal. App. 4th 
at 113 (explaining that sistership exclusions negate coverage 
for costs associated with preventative action of the recall, but 
do not "operate to exclude coverage for actual damage caused by 
the very product" that is the cause for the recall). 
¶77 However, as set forth below, we conclude that, even if 
the policies were to provide an initial grant of coverage, the 
plain meaning of both polices' "impaired property" exclusions 
operate to negate coverage.  Therefore, we need not address the 
sistership exclusions.   
1.  Netherlands policy 
¶78 The Netherlands policy excludes coverage for: 
"Property 
damage" 
to 
"impaired 
property" 
or 
property that has not been physically injured, arising 
out of:  (1) A defect, deficiency, inadequacy or 
dangerous condition in "your product" or "your work"; 
or (2) A delay or failure by [the insured] or anyone 
Nos. 2013AP613 & 2013AP687 
 
34 
 
acting on [the insured's] behalf to perform a contract 
or agreement in accordance with its terms.   
This exclusion does not apply to the loss of use 
of other property arising out of sudden and accidental 
physical injury to "your product" or "your work" after 
it has been put to its intended use.  
¶79 This exclusion operates to negate coverage where 
property damage results from "the failure of the insured's 
products to meet the level of performance which the insured 
warranted or represented."  Am. Motorists Ins. Co. v. Trane Co., 
544 F. Supp. 669, 688 (W.D. Wis. 1982).  It also excludes 
coverage when the insured fails to perform a contract according 
to its terms.  Moreover, the only exception to this exclusion 
occurs when the damage to other property arises from "sudden and 
accidental physical injury" to the insured's product.  Id.   
¶80 Here, there was no sudden and accidental physical 
injury to the LA, other ingredients or supplement tablets.  
Nutritional Manufacturing deliberately manufactured the tablets 
with 
the 
ingredients 
supplied 
and 
Pharmacal 
deliberately 
destroyed them.  Therefore, there can be no loss of other 
property resulting from sudden and accidental physical injury to 
the insured's product.14  Furthermore, because the tablets 
constituted an integrated system, as we have explained above, 
there was no damage to other property on that basis as well.  
                                                 
14 Alternatively, 
the 
Netherlands 
policy 
excludes 
"[p]roperty damage" to the insured's product "arising out of it 
or any part of it."  Therefore, even if we were to conclude that 
there were sudden and accidental physical injury to a defective 
ingredient, the other ingredients, or the tablets, such damages 
would be excluded as arising out of Jeneil's product.     
Nos. 2013AP613 & 2013AP687 
 
35 
 
Accordingly, the exception to the exclusion is inapplicable.  
Therefore, we need determine only whether the exclusion itself 
applies.   
¶81 We conclude that it does.  Jeneil argues that the 
incorporation of a defective ingredient constitutes loss of use 
because the tablets and other ingredients were worthless as 
labeled and could not be sold.  However, we have already 
concluded that no loss of use of other property occurred.  
Stated otherwise, any loss of use was due to the incorporation 
of Jeneil's defective probiotic.  The Netherlands policy 
specifically excludes damages caused by such a loss.  
¶82 Furthermore, as repeatedly alleged by Pharmacal, the 
provision of a defective ingredient constitutes a breach of 
contract.  We agree.  The parties contracted for the sale of 
LRA, but LA was supplied.  This failure of Jeneil to perform a 
contract in accordance with its terms is likewise excluded from 
the 
Netherlands 
policy. 
 
Accordingly, 
we 
conclude 
that 
Netherlands' "impaired property" exclusion operates to negate an 
initial grant of coverage, if there were such a grant. 
2.  Evanston policy 
¶83 The Evanston policy similarly excludes coverage for: 
[A]ny Claim based upon or arising out of loss of use 
of tangible property which has not been physically 
injured or destroyed resulting from:  (i) a delay in 
or lack of performance by or on behalf of the Named 
Insured of any contract or agreement; or (ii) a 
defect, deficiency, inadequacy or dangerous condition 
in the products, goods or operations of the Named 
Insured; 
Nos. 2013AP613 & 2013AP687 
 
36 
 
provided, however, this exclusion does not apply to 
loss of use of other tangible property resulting from 
the sudden and accidental physical injury to or 
destruction of the Named Insured's Products . . . 
after such products . . . have been put to use by any 
person or organization other than an Insured[.]15 
¶84 Under 
California 
law, 
this 
exclusion 
precludes 
coverage for loss of use damages "arising out of [the insured's] 
negligent failure to perform its contractual obligations" or its 
defective product or work.  Reg'l Steel Corp. v. Liberty Surplus 
Ins. Corp., 226 Cal. App. 4th 1377, 1394 (Cal. Ct. App. 2014).  
Pharmacal alleges that Nebraska Cultures breached its contract 
by supplying a defective ingredient, which was subsequently 
incorporated into the supplement tablets.  Therefore, any 
resulting loss of use damages arise out of Nebraska Cultures' 
failure to properly perform its contractual obligations when it 
provided LA, a defective component of the supplement tablets.  
Such damages are specifically excluded by the Evanston policy.  
Accordingly, we conclude that, even if there were an initial 
                                                 
15 For similar reasons as those set forth with respect to 
the Netherlands policy, the exception to the exclusion is 
inapplicable.  The Evanston policy also excludes coverage for: 
[A]ny Claim based upon or arising out of Property 
Damage to the Named Insured's Products arising out of 
it or any part of it, or for the cost of inspecting, 
repairing or replacing any defective or allegedly 
defective product or part thereof or for loss of use 
of any defective or allegedly defective product[.] 
Therefore, even if we were to conclude that there were physical 
injury to a defective ingredient, the other ingredients, or the 
tablets, such damages would be excluded.  
Nos. 2013AP613 & 2013AP687 
 
37 
 
grant of coverage, Evanston's impaired property exclusion 
operates to negate such coverage.  
III.  CONCLUSION 
¶85 In light of the foregoing, we conclude that there is 
no "property damage" caused by an "occurrence" because the 
incorporation of a defective ingredient into the supplement 
tablets did not damage other property and did not result in loss 
of use of property.  We further conclude that, even if the 
incorporation of a defective ingredient were to constitute 
"property damage" caused by an "occurrence," certain exclusions 
in both policies apply to negate coverage.  Accordingly, we 
reverse the decision of the court of appeals. 
By the Court.—The decision of the court of appeals is 
reversed and remanded for further proceedings consistent with 
this opinion. 
¶86 ANNETTE KINGSLAND ZIEGLER and REBECCA G. BRADLEY, JJ., 
did not participate.  
 
 
No.  2013AP613 & 2013AP687.ssa 
 
1 
 
¶87 SHIRLEY S. ABRAHAMSON, J.   (dissenting).  "Like the 
ever-expanding, all-consuming alien life form portrayed in the 
1958 B-movie classic The Blob, the economic loss doctrine 
[continues] to be a swelling globule on the legal landscape of 
this state."1   
¶88 In the instant case, the majority opinion expands the 
already swollen flow of economic loss jurisprudence into 
heretofore unknown territory, grafting the "integrated system" 
rule from the economic loss doctrine onto the analysis of two 
commercial 
general 
liability 
(CGL) 
insurance 
policies' 
definitions of "property damage" and "occurrence."   
¶89 "Like the Blob, the more it eats, the more it grows."2   
¶90 The insurance policies at issue provide coverage for 
losses due to "property damage" arising from an "occurrence" to 
two suppliers of probiotic bacteria:3  Nebraska Cultures of 
California, Inc. and Jeneil Biotech, Inc.  Nebraska Cultures is 
insured by Evanston Insurance Company.  Jeneil is insured by 
Netherlands Insurance Company.  For simplicity I will refer to 
the insurance policies simply as "Nebraska Cultures' policy" and 
"Jeneil's 
policy," 
or, 
collectively, 
as 
"the 
insurance 
policies."   
                                                 
1 Grams v. Milk Prods., Inc., 2005 WI 112, ¶57, 283 
Wis. 2d 511, 699 N.W.2d 167 (Abrahamson, C.J., dissenting).  
2 1325 N. Van Buren, LLC v. T-3 Grp., Ltd., 2006 WI 94, ¶69, 
293 Wis. 2d 410, 716 N.W.2d 822 (Bradley, J., dissenting).   
3 Probiotics are bacteria and yeasts with beneficial effects 
on health, particularly digestion.   
No.  2013AP613 & 2013AP687.ssa 
 
2 
 
¶91 The insureds, Nebraska Cultures and Jeneil, contracted 
with a third party, Nutritional Manufacturing, to supply one 
type of probiotic bacteria, Lactobacillus rhamnosus A (LRA) for 
incorporation into probiotic tablets.  After the bacteria was 
incorporated into tablets by Nutritional Manufacturing, the 
tablets were packaged and sold to a retailer by Pharmacal.  The 
retailer to whom Pharmacal sold the packaged tablets discovered 
the 
tablets 
contained 
a 
different 
probiotic 
bacteria, 
Lactobacillus acidophilus (LA).  As a result, the mislabeled 
tablets were withdrawn from the market and destroyed (with their 
packaging).    
¶92 Pharmacal filed suit against Nebraska Cultures and 
Jeneil.  Evanston Insurance Company and Netherlands Insurance 
Company sought to stay and bifurcate the proceedings.  They 
asserted that no coverage existed under the insurance policies 
because the incorporation of the wrong probiotic ingredient into 
Pharmacal's probiotic tablets was not "property damage" caused 
by an "occurrence," and that even if it were, certain exclusions 
negated coverage.  The majority opinion adopts the position of 
the two insurance companies.   
¶93 I conclude that the court of appeals' interpretation 
of the insurance policies (an interpretation that does not 
import 
elements 
of 
the 
economic 
loss 
doctrine) 
is 
more 
persuasive than that of the majority opinion.  As a result, I 
would affirm the decision of the court of appeals.     
¶94 One of my chief concerns with the majority opinion is 
its incorporation of the "integrated system" analysis derived 
No.  2013AP613 & 2013AP687.ssa 
 
3 
 
from the tort economic loss doctrine into the interpretation of 
insurance policies in Wisconsin.4  The economic loss doctrine is 
a remedies principle that bars recovery in tort for economic 
losses stemming from, among other things, a product's failure to 
perform up to expectations.  See Am. Family Mut. Ins. Co. v. Am. 
Girl, Inc., 2004 WI 2, ¶¶34-35, 268 Wis. 2d 16, 673 N.W.2d 65 
(citing 
Wausau 
Tile, 
Inc. 
v. 
Cnty. 
Concrete 
Corp., 
226 
Wis. 2d 235, 245-46, 593 N.W.2d 445 (1999)).   
¶95 The majority opinion applies an "integrated system" 
analysis derived from the economic loss doctrine as explained in 
Wausau Tile, Inc. v. County Concrete Corp., 226 Wis. 2d 235, 
250-52, 593 N.W.2d 445 (1999), a tort liability case (not a case 
interpreting an insurance policy), to the interpretation of 
insurance policies.  Based on its "integrated system" analysis, 
                                                 
4 Although California law may have a role in the instant 
case, I question the majority opinion's application of the 
"grouping-of-contacts" choice of law analysis.  The only 
contacts 
that 
the 
majority 
opinion 
notes 
are 
that 
the 
Netherlands policy was issued to Jeneil in Wisconsin and the 
Evanston policy was issued to Nebraska Cultures in California.  
Majority op., ¶16.  The majority opinion does not analyze other 
contacts that may be relevant.   
The majority opinion's discussion of choice of law should 
not be read as a complete or exhaustive application of 
Wisconsin's choice of law rules; the majority opinion is 
cursory.  See Drinkwater v. Am. Family Mut. Ins. Co., 2006 WI 
56, ¶¶32-64, 290 Wis. 2d 642, 714 N.W.2d 568 (reviewing the 
"checkered past" of Wisconsin's choice of law jurisprudence and 
discussing the principles that drive choice of law analyses in 
Wisconsin).   
In any event, the majority opinion's interpretation of 
California law is suspect.   
No.  2013AP613 & 2013AP687.ssa 
 
4 
 
rather than on the words of the policies, the majority opinion 
concludes there is no coverage under the insurance policies 
"because the incorporation of a defective ingredient into 
the . . . tablets did not damage other property and did not 
result in loss of use of property."5   
¶96 I write separately to make two points.   
¶97 First, reading elements of the economic loss doctrine 
in tort law into the interpretation of insurance policies is 
unwise and contrary to this court's precedent.  As this court 
has previously stated:  "The [economic loss] doctrine does not 
determine 
insurance 
coverage, 
which 
turns 
on 
the 
policy 
language."  Am. Girl, 268 Wis. 2d 16, ¶6 (emphasis added).   
¶98 Second, 
I 
agree 
with 
the 
court 
of 
appeals' 
interpretation of the text of the insurance policies without 
incorporating elements of the economic loss doctrine.   
¶99 Under 
the 
text 
of 
the 
insurance 
policies, 
the 
incorporation of the wrong probiotic ingredient in Pharmacal's 
probiotic supplements was "property damage" caused by an 
"occurrence," and none of the insurance policies' exclusions 
negate coverage.   
¶100 Accordingly, I would affirm the court of appeals' 
detailed and well-reasoned decision and hold that the insurance 
policies provide coverage.   
I 
                                                 
5 Majority op., ¶3.   
No.  2013AP613 & 2013AP687.ssa 
 
5 
 
¶101 The language of a contract determines the rights and 
responsibilities of the parties to the contract.   
 
¶102 The goal of a court in interpreting an insurance 
policy, a contract, is "to determine and carry out the 
intentions of the parties as expressed by the language of the 
insurance policy."6   
¶103 "Insurance coverage depends upon the policy language, 
not the theory of liability."  1325 N. Van Buren, LLC v. T-3 
Grp., Ltd., 2006 WI 94, ¶59, 293 Wis. 2d 410, 716 N.W.2d 822; 
see also Am. Girl, 268 Wis. 2d 16, ¶¶6, 35.   
¶104 The majority opinion's analysis all but ignores this 
principle, beginning not by analyzing the language of the 
insurance policies——which define both "property damage" and 
"occurrence"——but by analyzing whether any such "property 
damage" was damage to "other property."7   
 
¶105 This focus on damage to "other property" by the 
majority opinion is derived not from the language of the 
insurance policies (which do not refer to "other property") but 
rather from tort cases applying the economic loss doctrine.  
These economic loss cases refer to damage to "other property."   
 
¶106 The economic loss cases state that the doctrine does 
not bar recovery in tort for "a product purchaser's claims of 
                                                 
6 Day v. Allstate Indem. Co., 2011 WI 24, ¶27, 332 
Wis. 2d 571, 798 N.W.2d 199 (citing Folkman v. Quamme, 2003 WI 
116, ¶12, 264 Wis. 2d 617, 665 N.W.2d 857).   
7 Majority op., ¶¶24-26.  Wisconsin case law interprets and 
applies these words in insurance policies.   
No.  2013AP613 & 2013AP687.ssa 
 
6 
 
personal injury or damage to property other than the product 
itself."8    
¶107 The "other than the product itself" concept is 
addressed in Wausau Tile.  In that case, the economic loss 
doctrine was used to bar tort claims stemming from the expansion 
and cracking of concrete paving blocks because the damage was 
caused by the incorporation of defective aggregate and concrete 
into the paving blocks, an "integrated system."9  The paving 
blocks were an "integrated system" because the components of the 
paving blocks were integrated into a finished product and could 
not be separated from the finished product.10   
 
¶108 The majority opinion in the instant insurance case 
states that the "integrated system" analysis in Wausau Tile, a 
tort liability case, "is necessary when evaluating coverage 
under a CGL policy because we must decide whether the product is 
to be treated as a unified whole or whether a defective 
component can be separated out such that the claimed damage 
                                                 
8 Wausau 
Tile, 
Inc. 
v. 
Cnty. 
Concrete 
Corp., 
226 
Wis. 2d 235, 247, 593 N.W.2d 445 (1999) (citations omitted) 
(emphasis added).  In other words, if a defective component of 
an integrated system causes damage to that system, that damage 
is not compensable in tort.  Wausau Tile, 226 Wis. 2d at 249 
("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.") (citations omitted). 
9 Wausau Tile, 226 Wis. 2d at 249-253.   
10 Wausau Tile, 226 Wis. 2d at 251.   
No.  2013AP613 & 2013AP687.ssa 
 
7 
 
constitutes 
damage 
to 
property 
other 
than 
the 
defective 
component itself."11   
¶109 Applying an "integrated system" analysis, the majority 
opinion concludes that the tablets were an "integrated system" 
because the wrong probiotic bacteria, like the defective 
aggregate in Wausau Tile, was integrated into a finished product 
and could not be separated out after integration.12  As a result, 
the majority opinion concludes that there was no "property 
damage" in the instant case.13   
 
¶110 The majority opinion, however, ignores a critical 
distinction between Wausau Tile and the instant case.   
¶111 Wausau Tile was a tort liability case applying the 
economic loss doctrine.  It was not an insurance coverage 
dispute.  Although an insurance policy in Wausau Tile covered 
"property damage" arising from an "occurrence," the Wausau Tile 
court was not addressing insurance issues; it did not decide 
whether the insurance policy in Wausau Tile provided coverage.14   
¶112 The 
majority 
opinion 
treats 
Wausau 
Tile 
as 
an 
insurance policy case and reads the economic loss doctrine into 
the interpretation of insurance policy language.  Wausau Tile 
                                                 
11 Majority op., ¶28.  
12 See majority op., ¶¶34-35.   
13 See majority op., ¶35.   
14 Wausau Tile, 226 Wis. 2d at 268 n.19 ("[I]t is not 
necessary for us to decide precisely which property damage is 
covered under the policy . . . .").   
No.  2013AP613 & 2013AP687.ssa 
 
8 
 
does not compel the majority opinion's unwise and unprecedented 
approach.    
 
¶113 Under the majority opinion's approach, the first step 
in evaluating a claim for "property damage" arising from an 
"occurrence" (at least when the "property damage" is caused by a 
defective product or component) is an "integrated system" 
analysis, not an interpretation of the language of the policies.   
 
¶114 By conducting an "integrated system" analysis first, 
without regard to the underlying policy language, the majority 
opinion undercuts precedent.  This court has held that the 
language of the policy, not the economic loss doctrine, 
determines insurance coverage.15   
 
¶115 For example, in American Family Mutual Insurance Co. 
v. American Girl, Inc., 2004 WI 2, ¶¶6, 35-36, 268 Wis. 2d 16, 
673 N.W.2d 65, this court held that even if "the economic loss 
doctrine may indeed [have] preclude[d] tort recovery," the 
economic loss doctrine "does not determine whether an insurance 
policy covers a claim, which depends instead upon the policy 
language."16   
¶116 The majority opinion acknowledges our holding in 
American Girl and states that "the economic loss doctrine does 
                                                 
15 Am. Family Mut. Ins. Co. v. Am. Girl, Inc., 2004 WI 2, 
¶¶6, 35, 268 Wis. 2d 16, 673 N.W.2d 65.    
16 This court reaffirmed American Girl's approach in 1325 N. 
Van Buren, LLC v. T-3 Grp., Ltd., 2006 WI 94, ¶59, 293 
Wis. 2d 410, 716 N.W.2d 822, noting that "although the economic 
loss doctrine may limit a party to contract rather than tort 
remedies, it does not determine insurance coverage." 
No.  2013AP613 & 2013AP687.ssa 
 
9 
 
not control a coverage dispute."17  Nonetheless, the majority 
opinion concludes that "the court of appeals did not perceive 
the importance of an integrated system analysis when deciding 
whether claimed damage arose from physical injury to tangible 
property other than to the LA."18   
¶117 But how can an "integrated system" analysis be 
important to resolving whether there was "property damage" 
caused by an "occurrence" under insurance policies when the 
insurance policies define these words and do not invoke the 
economic loss doctrine or integrated system rule?   
¶118 The majority opinion concludes that the importance of 
the "integrated system" analysis stems not from the language of 
the insurance policies, but from the risks intended to be 
insured by a CGL policy.19  Unlike a performance bond, which 
insures against the risk another party to a contract will fail 
to perform their obligations, the majority opinion states that a 
CGL policy is intended to insure against "'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.'"20   
                                                 
17 Majority op., ¶32. 
18 Majority op., ¶32. 
19 Majority op., ¶¶25-26 & n.8.   
20 Majority op., ¶26 (quoting Vogel v. Russo, 2000 WI 85, 
¶17, 236 Wis. 2d 504, 613 N.W.2d 177, abrogated in part on other 
grounds by Ins. Co. of N. Am. v. Cease Elec., Inc., 2004 WI 139, 
¶25 n.6, 276 Wis. 2d 361, 688 N.W.2d 462).   
No.  2013AP613 & 2013AP687.ssa 
 
10 
 
¶119 I agree, however, with Professor Ellen S. Pryor's 
rejection of this argument in her article entitled The Economic 
Loss Rule and Liability Insurance, 48 Ariz. L. Rev. 905 (2006).  
As Professor Pryor points out, insurers have done a "poor job of 
implementing the economic loss rule through general insuring 
language," and the general language of CGL policies "poorly 
expresses" the differences between CGL policies and performance 
bonds.21   
 
¶120 In short, the majority opinion ignores the language of 
the insurance policies, our accepted rules of interpreting 
insurance policies, and Wisconsin precedent.   
II 
                                                 
21 See Ellen S. Pryor, The Economic Loss Rule and Liability 
Insurance, 48 Ariz. L. Rev. 905, 906, 920 (2006).   
The application of the economic loss doctrine to insurance 
policies is a developing issue.  See, e.g., Ralph C. Anzivino, 
The Economic Loss Doctrine: Distinguishing Economic Loss from 
Non-Economic Loss, 91 Marq. L. Rev. 1081, 1116 (2008) (arguing 
for adopting the integrated system rule in insurance policy 
interpretation).  
See also Restatement (Third) of Torts: Liability for 
Economic Harm § 6 cmt. c (Tentative Draft No. 2, 2014) (stating 
that "[n]o tort liability is recognized when a product fails to 
perform or causes damage to itself in a manner that produces 
pure economic loss," but implying that individuals may insure 
against such losses).   
For issues involving liability insurance, see the American 
Law Institute's current project on a Restatement of Liability 
Insurance.  As far as I can determine, the distributed 
discussion drafts on this project do not address the economic 
loss doctrine, but other drafts might.   
No.  2013AP613 & 2013AP687.ssa 
 
11 
 
 
¶121 I turn now to the text of the insurance policies——
"property 
damage," 
"occurrence," 
and 
exclusions——without 
importing elements of the economic loss doctrine.   
 
¶122 The majority opinion acknowledges that in interpreting 
an insurance policy, "[t]he reasonable expectations of coverage 
of an insured should be furthered by the interpretation given."  
Frost ex rel. Anderson v. Whitbeck, 2002 WI 129, ¶20, 257 
Wis. 2d 80, 654 N.W.2d 225.  The majority opinion never applies 
this rule.  Wouldn't an objectively reasonable insured conclude 
it had insurance coverage in the instant case? 
 
¶123 I agree with the court of appeals' interpretation of 
the insurance policies, and, like the court of appeals, I would 
hold that coverage exists.     
¶124 Both insurance policies extend coverage for "property 
damage" caused by an "occurrence."22  "Property damage" and 
"occurrence" are commonly used terms in commercial general 
liability policies, and the insurance policies contain similar 
definitions for both terms.  As I noted above, neither 
definition refers to "other property" or incorporates the 
economic loss doctrine. 
 
¶125 I agree with the court of appeals' decision that "[a] 
product is physically injured by the incorporation of a 
                                                 
22 Majority op., ¶¶23, 57.   
No.  2013AP613 & 2013AP687.ssa 
 
12 
 
defective, faulty, or inadequate part that renders the other 
components or the whole unusable."23   
 
¶126 In the instant case, by incorporating the wrong 
probiotic ingredient, the tablets were physically altered in a 
material way——the correct ingredients were intermingled with the 
wrong probiotic——and that alteration rendered the tablets, other 
ingredients and all, unusable.24   
¶127 This court has not addressed whether the incorporation 
of a defective, faulty, or inadequate part that renders the 
whole unusable constitutes "property damage."  Decisions from 
other jurisdictions are instructive.25  The court of appeals 
correctly turns to cases from other jurisdictions to support its 
conclusion. 
¶128 For example, the court of appeals cited National Union 
Fire Insurance Co. of Pittsburgh v. Terra Industries, Inc., 346 
F.3d 1160 (8th Cir. 2003), and Shade Foods, Inc. v. Innovative 
Products Sales & Marketing, Inc., 78 Cal. App. 4th 847, 865 (Ct. 
App. 2000).   
                                                 
23 Wis. Pharmacal Co. LLC v. Neb. Cultures of Cal., Inc., 
2014 WI App 111, ¶20, 358 Wis. 2d 673, 856 N.W.2d 505 (emphasis 
omitted).   
24 "Physical injury to tangible property" refers to "'some 
sort of physical damage' to property, such as 'an alteration in 
appearance, shape, color, or in other material dimension.'"  
Gen. Cas. Co. of Wis. v. Rainbow Insulators, Inc., No. 
2010AP347, unpublished slip op., ¶14 (Wis. Ct. App. Mar. 31, 
2011) (quoting Wis. Label Corp. v. Northbrook Prop. & Cas. Ins. 
Co., 2000 WI 26, ¶31, 233 Wis. 2d 314, 607 N.W.2d 314; Travelers 
Ins. Co. v. Eljer Mfg., Inc., 757 N.E.2d 481, 502 (Ill. 2001)).   
25 See Wis. Pharmacal, 358 Wis. 2d 673, ¶20.   
No.  2013AP613 & 2013AP687.ssa 
 
13 
 
¶129 In National Union Fire, the federal Eighth Circuit 
Court of Appeals addressed whether, under Iowa law, the 
incorporation of adulterated carbon dioxide into carbonated 
beverages was "property damage" caused by an "occurrence."  The 
federal court, relying on cases involving other adulterated 
products, concluded that "the incorporation of contaminated 
carbon 
dioxide 
into 
consumer 
beverages 
constitutes 
an 
'occurrence' resulting in 'property damage' . . . ."26    
¶130 Similarly, in Shade Foods, the California Court of 
Appeal concluded that the incorporation of almonds containing 
wood splinters into nut clusters for cereal was "physical injury 
to tangible property . . . ."27  The Shade Foods court determined 
that "the presence of wood splinters in the diced roasted 
almonds caused property damage to the nut clusters and cereal 
products in which the almonds were incorporated."28   
¶131 I am persuaded by the court of appeals' analysis of 
these and other cases that a product is physically injured "by 
the incorporation of a defective, faulty, or inadequate part 
that renders the other components or the whole unusable."29   
                                                 
26 Nat'l Union Fire Ins. Co. v. Terra Indus., Inc., 346 
F.3d 1160, 1165 (8th Cir. 2003) (collecting cases).   
27 Shade Foods, Inc. v. Innovative Prods. Sales & Mktg., 
Inc., 78 Cal. App. 4th 847, 865 (Ct. App. 2000).   
28 Shade Foods, 78 Cal. App. 4th at 866.   
29 Wis. Pharmacal, 358 Wis. 2d 673, ¶20 (emphasis omitted); 
see also Aetna Cas. & Sur. Co. v. M&S Indus., Inc., 827 P.2d 
321, 326 (Wash. Ct. App. 1992); Zurich Am. Ins. Co. v. Cutrale 
Citrus Juices USA, Inc., No. 5:00-CV-149-OC-10GRJ, 2002 WL 
1433728, at *3 (M.D. Fla. Feb. 11, 2002).   
No.  2013AP613 & 2013AP687.ssa 
 
14 
 
¶132 I turn next to whether the physical injury in the 
instant case was caused by an "occurrence."  I agree with the 
court of appeals and conclude that there was an "occurrence."   
¶133 Both policies define an "occurrence" as "an accident, 
including continuous or repeated exposure to substantially the 
same general harmful conditions."30   
 
¶134 An "accident" is not defined in the policies, but this 
court has defined an "accident" within an insurance policy as 
"an event or condition occurring by chance or arising from 
unknown or remote causes."31   
 
¶135 In Western Casualty & Surety Co. v. Budrus, 112 
Wis. 2d 348, 352-53, 332 N.W.2d 837 (Ct. App. 1983), the court 
of appeals held that there was an "occurrence" within the 
meaning of a CGL policy when a party negligently sold 
incorrectly tagged seed to another.  The court of appeals 
concluded that "the negligent act of selling the mistagged seed, 
which caused the damage" was an "occurrence" within the meaning 
of the policy.   
¶136 I agree with the court of appeals in the instant case 
that, like providing the wrong seed in Budrus, providing the 
wrong probiotic bacteria was an "occurrence."32  
                                                 
30 Majority op., ¶¶51, 69.   
31 Am. Girl, 268 Wis. 2d 16, ¶37 (quoting Webster's Third 
New International Dictionary of the English Language 11 (2002)).   
32 Wis. Pharmacal, 358 Wis. 2d 673, ¶26.   
No.  2013AP613 & 2013AP687.ssa 
 
15 
 
¶137 The majority opinion concludes that under California 
law "Jeneil's provision of a defective ingredient may have been 
occasioned by negligence; however, Jeneil deliberately supplied 
the ingredient to Nebraska Cultures, which, in turn, supplied 
the ingredient to Nutritional Manufacturing.  Moreover, Jeneil 
intended the ingredient to be incorporated into the tablets.  
Given the deliberate nature of these actions, the provision of a 
defective 
ingredient 
cannot 
be 
said 
to 
constitute 
an 
'occurrence' under California law."33   
¶138 The majority opinion is obviously erroneous in this 
respect.  An insured's intentional conduct that results in 
unintended consequences can be an "accident" under an insurance 
policy.  As Professor Pryor explains, "[i]f the insured intended 
the act that caused the injury, is this enough to take the claim 
outside the definition of accident?  The answer is universally, 
and properly, no.  To read the definition of accident so 
narrowly would exclude all but inadvertent acts, and would 
exclude much of the realm of negligent acts causing personal 
injury."34   
 
¶139 Finally, the majority concludes that the policies' 
exclusions for "impaired property" negate coverage.35   
 
¶140 Jeneil's policy excludes coverage for "'[p]roperty 
damage' to 'impaired property' or property that has not been 
                                                 
33 Majority op., ¶73.   
34 Pryor, supra note 21, at 915-16.   
35 Majority op., ¶77.   
No.  2013AP613 & 2013AP687.ssa 
 
16 
 
physically injured, arising out of," among other things, 
deficiencies in "your product" or "your work" or the failure to 
perform a contract.36   
 
¶141 "Impaired property" is defined in Jeneil's policy 
(with emphasis added) as follows:  
8. "Impaired property" means tangible property, other 
than "your product" or "your work" that cannot be used 
or less useful because:  
a. It incorporates "your product" or "your work" 
that is known or thought to be defective, 
deficient, inadequate or dangerous; or  
b. You have failed to fulfill the terms of a 
contract or agreement;  
if such property can be restored to use by:  
a. The repair, replacement, adjustment or removal 
of "your product" or "your work"; or  
b. Your fulfilling the terms of the contract or 
agreement. 
¶142 The majority opinion's conclusion that this exclusion 
negates coverage rests on its erroneous conclusion (based on its 
application of the integrated system rule derived from the tort 
economic loss doctrine) that there was no physical injury to 
tangible property in the instant case.37     
¶143 I agree, however, with the court of appeals that this 
exclusion is inapplicable.  "A product is physically injured by 
                                                 
36 Majority op., ¶78.   
37 Majority op., ¶80.   
No.  2013AP613 & 2013AP687.ssa 
 
17 
 
the incorporation of a defective, faulty, or inadequate part 
that renders the other components or the whole unusable."38   
* * * * 
¶144 I disagree with the majority opinion's unwise and 
unprecedented application of the "integrated system" analysis 
derived 
from 
the 
tort 
economic 
loss 
doctrine 
to 
an 
interpretation of insurance policies.  The (often incoherent) 
"Blob" of the economic loss doctrine should not be read into 
insurance policy interpretation.  Instead, the court should 
follow its prior decisions holding that "[t]he [economic loss] 
doctrine does not determine insurance coverage, which turns on 
the policy language."  Am. Girl, 268 Wis. 2d 16, ¶6.   
¶145 Because I conclude, as did the court of appeals, after 
analyzing the policy language without importing principles from 
the economic loss doctrine, that there was "property damage" 
caused by an "occurrence" in the instant case and that none of 
the policies' exclusions negates coverage, I would affirm the 
decision of the court of appeals.   
¶146 Finally, I add an additional note about the majority 
opinion.   
¶147 The majority opinion states that "ANNETTE KINGSLAND 
ZIEGLER, J. and REBECCA G. BRADLEY, J., did not participate."  
Justice Annette Kingsland Ziegler advised the parties and the 
justices 
of 
this 
court 
that 
she 
withdrew 
from 
further 
                                                 
38 Wis. Pharmacal, 358 Wis. 2d 673, ¶20.     
No.  2013AP613 & 2013AP687.ssa 
 
18 
 
participation.39  Recusal of a justice is a significant issue for 
the parties and this court.  Why does the majority opinion not 
state that Justice Ziegler withdrew from further participation?  
¶148 For the reasons set forth, I dissent and write 
separately. 
¶149 I am authorized to state that Justice ANN WALSH 
BRADLEY joins this opinion. 
 
 
                                                 
39 See September 21, 2015 Letter from Justice Annette K. 
Ziegler 
to 
the 
parties 
and 
the 
justices 
filed 
in 
the 
correspondence file of the instant case maintained by the Clerk 
of the Supreme Court:  "I am writing to advise you of my 
decision to withdraw from further participation in this case."     
No.  2013AP613 & 2013AP687.ssa 
 
 
 
1