Title: Wisconsin Label Corporation v. Northbrook Property & Casualty Insurance Company
Citation: N/A
Docket Number: 1998AP000194
State: Wisconsin
Issuer: Wisconsin Supreme Court
Date: March 21, 2000

2000 WI 26 
 
SUPREME COURT OF WISCONSIN 
 
 
Case No.: 
98-0194 
 
 
Complete Title 
of Case: 
 
Wisconsin Label Corporation,  
 
Plaintiff-Appellant-Petitioner, 
 
v. 
Northbrook Property & Casualty Insurance  
Company,  
 
Defendant-Respondent.  
 
 
ON REVIEW OF A DECISION OF THE COURT OF APPEALS 
Reported at: 
221 Wis. 2d 800, 586 N.W.2d 29 
 
 
(Ct. App. 1998 – Published) 
 
 
Opinion Filed: 
March 21, 2000 
Submitted on Briefs: 
      
Oral Argument: 
January 5, 2000 
 
 
Source of APPEAL 
 
COURT: 
Circuit 
 
COUNTY: 
Kewaunee 
 
JUDGE: 
Dennis J. Mleziva 
 
 
JUSTICES: 
 
Concurred: 
      
 
Dissented: 
      
 
Not Participating:       
 
 
ATTORNEYS: 
For the plaintiff-appellant-petitioner, there 
were briefs by George Burnett and Liebmann, Conway, Olejniczak & 
Jerry, S.C., Green Bay, and oral argument by George Burnett. 
 
 
For the defendant-respondent there was a brief by 
Susan R. Tyndall and Hinshaw & Culbertson, Milwaukee, and oral 
argument by Susan R. Tyndall. 
 
NOTICE 
This opinion is subject to further editing 
and modification.  The final version will 
appear in the bound volume of the official 
reports. 
 
 
No. 98-0194 
 
STATE OF WISCONSIN               :  
IN SUPREME COURT 
 
 
Wisconsin Label Corporation,  
 
          Plaintiff-Appellant-Petitioner, 
 
     v. 
 
Northbrook Property & Casualty Insurance  
Company,  
 
          Defendant-Respondent. 
 
 
REVIEW of a decision of the Court of Appeals.  Affirmed.   
 
¶1 
JON 
P. 
WILCOX, 
J.   Wisconsin 
Label 
Corporation 
(Wisconsin Label) petitions this court for review of a published 
decision of the court of appeals, Wisconsin Label Corp. v. 
Northbrook Property & Casualty Insurance Co., 221 Wis. 2d 800, 
586 N.W.2d 29 (Ct. App. 1998).  The court of appeals affirmed a 
decision of the Circuit Court for Kewaunee County, Dennis J. 
Mleziva, Judge, granting summary judgment in favor of Northbrook 
Property & Casualty Insurance Company (Northbrook).   
¶2 
The case arose because a company owned by Wisconsin 
Label allegedly failed to properly label products.  For the 
purposes of this summary judgment motion, the parties stipulate 
that products were mislabeled and that the mislabeling caused 
the products to be sold at less than half of their intended 
retail price.  After the distributor of the products was forced 
FILED 
 
MAR 21, 2000 
 
Cornelia G. Clark 
Acting Clerk of Supreme Court 
Madison, WI 
 
 
 
 
 
No. 
98-0194 
 
 
2 
to pay the retailer for the resulting losses, the distributor 
sought reimbursement and offset invoices for the completed work 
against the amount due for reimbursement.   
¶3 
Wisconsin Label notified its insurer, Northbrook, of 
its intention to seek indemnification for its losses under its 
commercial general liability insurance policy.  Northbrook 
informed Wisconsin Label that the policy did not provide 
coverage because no “property damage” had occurred as that term 
is defined in the policy.   
¶4 
After Northbrook denied coverage, Wisconsin Label 
sued, alleging that Northbrook was in breach of the policy.  
Northbrook filed a motion for summary and declaratory judgment. 
 The circuit court granted Northbrook’s motion, holding that 
Northbrook had no duty to defend or indemnify Wisconsin Label 
for losses arising out of the mislabeling.  The court of appeals 
affirmed, and Wisconsin Label petitions for review.   
¶5 
Because we conclude that no “property damage” occurred 
as that term is defined in Wisconsin Label’s insurance policy, 
we affirm the decision of the court of appeals. 
BACKGROUND 
¶6 
For purposes of the summary judgment motion, the 
parties stipulated to the following facts.  Wisconsin Label 
acquired the assets and operations of Ameripac Corporation 
(Ameripac), an Illinois corporation.  Subsequent to Wisconsin 
Label’s acquisition of Ameripac, Northbrook issued an insurance 
policy (“the Policy”) to Ameripac in Illinois.  The Policy 
provided coverage from October 1, 1992 until October 1, 1993. 
No. 
98-0194 
 
 
3 
¶7 
In October 1992 Ameripac contracted with Personal 
Products Company (PPC) to assemble two separate PPC products 
into a single promotional package for retail sale.  Under the 
promotion, PPC wanted to allow consumers who bought a box of 
“Stay Free Maxi-Pads” to receive a box of “Care Free Panty-
Shields” at no extra charge.  Accordingly, Ameripac was supposed 
to 
(1) package 
the 
two 
separate 
products 
into 
a 
single 
promotional package, and (2) cover all of the existing UPC bar 
codes and replace them with new UPC labels reflecting the price 
of the “Stay Free Maxi-Pads.” 
¶8 
Ameripac wrapped and labeled over 350,000 promotional 
packages, and PPC distributed the packages to various Wal-Mart 
stores for retail sale.  After sales began, Wal-Mart claimed 
that Ameripac had failed to completely cover the old UPC labels 
on a number of the packages.  As a result, Wal-Mart claimed that 
its registers had scanned many packages at the lower “Care Free 
Panty-Shields” price of $1.16, rather than the “Stay Free Maxi-
Pads” price of $2.47.  Wal-Mart asked PPC to reimburse it for 
lost profits that resulted from this undercharging and for the 
costs of relabeling the remaining packages.  PPC paid Wal-Mart 
approximately $200,000 in compensation for these losses.   
¶9 
After PPC paid Wal-Mart for its losses, PPC in turn 
asked Ameripac for reimbursement.  In addition to the $200,000 
it had paid to Wal-Mart, PPC asked for $25,000 in reimbursement 
for costs that PPC incurred in reinspecting the unsold packages. 
 PPC offset Ameripac’s invoices, which totaled approximately 
$125,000, against PPC’s claim for reimbursement.  Although PPC 
No. 
98-0194 
 
 
4 
has withheld payment on Ameripac’s invoices, it has not yet sued 
to recover the balance.   
¶10 Wisconsin Label1 seeks insurance coverage for its 
losses due to the mislabeling under the Policy.  Wisconsin Label 
argues that the following insuring clauses of the Policy provide 
coverage: 
 
SECTION 1


COVERAGES 
 
COVERAGE A.  BODILY INJURY AND PROPERTY DAMAGE 
LIABILITY 
 
1. 
Insuring Agreement 
 
a. 
We will pay those sums that the Insured 
becomes legally obligated to pay as damages 
because of bodily injury or property damage 
to which this insurance applies. . . . 
 
b. 
This insurance applies to any bodily injury 
and property damage only if: 
 
1. 
The bodily injury or property damage is 
caused by an occurrence that takes 
place in the coverage territory; and 
 
2. 
The bodily injury or property damage 
occurs during the policy period. 
The Policy defines “property damage” as: 
 
a. 
Physical injury to tangible property, including 
all 
resulting 
loss 
of 
use 
of 
that 
property. . . . ; or 
 
                     
1  We assume for purposes of our analysis that Wisconsin 
Label and Ameripac may be treated as a single entity.  Although 
Northbrook’s answer to Wisconsin Label’s complaint specifically 
denies that the Policy applies to Wisconsin Label Corporation, 
Northbrook did not raise this issue in its motion for summary 
and declaratory judgment or in its arguments before this court. 
No. 
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5 
b. 
Loss of use of tangible property that is not 
physically injured. . . .  
Wisconsin Label asked Northbrook to indemnify it for the losses 
that resulted from the mislabeling, arguing that the losses were 
sums it had become legally obligated to pay “as damages because 
of . . . property damage,” 
according 
to the 
definition of 
“property damage” in the Policy.  
¶11 Northbrook 
rejected 
Wisconsin 
Label’s 
claim 
for 
indemnification because it concluded that Wisconsin Label’s 
losses are not the result of “property damage” as that term is 
defined in the Policy.  Northbrook argued that no “property 
damage” occurred under either part of the Policy definition 
because (1) the mislabeling did not constitute “physical injury 
to tangible property,” and (2) there was no “loss of use of 
tangible property that is not physically injured.”   
¶12 Furthermore, even 
if 
property damage 
did 
occur, 
Northbrook 
argued 
that 
the 
“impaired 
property 
exclusion” 
precluded any coverage.  The impaired property exclusion denies 
coverage for: 
 
m. 
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 you or anyone acting 
on your behalf to perform a contract or 
agreement in accordance with its terms. 
“Impaired property” is defined as: 
 
No. 
98-0194 
 
 
6 
[T]angible property, other than your product or your 
work that cannot be used or is 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. 
Any Insured has 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. 
The impaired property exclusion is subject to one exception; it 
does not exclude coverage for "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." 
Because it concluded that the Policy provided no coverage, and 
that in any case the impaired property exclusion would preclude 
coverage, Northbrook declined to indemnify Ameripac for its 
losses. 
¶13 Wisconsin 
Label 
sued 
Northbrook, 
claiming 
that 
Northbrook had breached the Policy by failing to investigate the 
claim and by failing to pay for the claim.  Wisconsin Label 
sought compensatory damages for this alleged breach of the 
Policy.  Northbrook filed a motion for summary and declaratory 
judgment, seeking judgment in favor of Northbrook as a matter of 
law and a declaration that Northbrook has no obligation to 
indemnify Wisconsin Label for the loss at issue. 
No. 
98-0194 
 
 
7 
¶14 The circuit court granted Northbrook’s motion for 
summary judgment.  The court first analyzed whether the Policy 
provided coverage for the loss.  The court determined that the 
Policy did not extend coverage because no “property damage” had 
occurred under either part of the definition.  Under the first 
part of the definition, the court concluded that no “physical 
injury to tangible property” had occurred.  Under the second 
part 
of 
the 
definition, 
the 
court 
determined 
that 
the 
mislabeling did not give rise to any “loss of use,” but only to 
economic loss, and that the type of economic loss created by the 
mislabeling was not covered by the Policy.  The court also 
rejected Wisconsin Label’s argument that the diminished value of 
the 
products 
constituted 
property 
damage, 
because 
the 
mislabeling did not diminish the physical usefulness of the 
products.  Thus, the court concluded that no coverage existed 
under the coverage provisions of the Policy.   
¶15 In addition, the circuit court concluded that even if 
Wisconsin Label’s losses were due to “property damage,” the 
impaired property exclusion precluded any coverage.  The court 
explained that the packages were "impaired property" under the 
Policy definition because they could be restored to use by 
repair or replacement of the labels.  Wisconsin Label argued 
that the packages that were sold at the wrong price were not 
"impaired property" because they could no longer be repaired or 
replaced.  The court rejected this argument, because the 
definition of "impaired property" requires only that the 
products “can be restored to use,” not that they actually be 
No. 
98-0194 
 
 
8 
restored to use.  Since the products could have been restored to 
full use by replacement of the labels before they were sold, 
they were impaired property.  Finally, the court also rejected 
the argument that the exception to the impaired property 
exclusion applied, because the injury to the packages was not 
sudden or accidental and did not take place after the product 
was put to its intended use. 
¶16 Wisconsin Label appealed.  In its review, the court of 
appeals first considered Wisconsin Label’s arguments that its 
losses were due to “property damage” because they resulted from 
“physical injury to tangible property.”  Wisconsin Label argued 
that physical injury occurred because the mislabeling diminished 
the value of Wal-Mart and PPC’s property and because the 
packages “‘required physical measures to repair.’”  Wisconsin 
Label, 221 Wis. 2d at 808.   
¶17 The court of appeals concluded that the mislabeling 
did not cause any physical injury to the products or the 
packaging.  Id. at 809.  The court explained that the economic 
losses that resulted from the mislabeling are not property 
damage within the “physical injury” part of the property damage 
definition in the Policy.  Id.  The court also rejected 
Wisconsin Label’s argument that physical injury had occurred 
under the test set forth in Eljer Manufacturing, Inc. v. Liberty 
Mutual Insurance Co., 972 F.2d 805 (7th Cir. 1992).  The court 
of appeals distinguished Eljer because that case involved 
defective plumbing systems that had been installed in houses, 
whereas “the labels were not defective in and of themselves, so 
No. 
98-0194 
 
 
9 
there was no incorporation of a ‘defective work or component.’” 
 Wisconsin Label, 221 Wis. 2d at 810.  Moreover, there was no 
possibility that physical injury would occur in the future 
because the only injury that the mislabeling could ever cause 
was lost profits.  Id.   
¶18 The court of appeals also rejected Wisconsin Label’s 
argument that physical injury to property occurred because the 
mislabeling diminished the value of Wal-Mart and PPC’s property. 
 Id. at 811.  The court reasoned that Wisconsin Label must be 
relying on language in the first part of the definition that 
defines property damage as physical injury to property including 
the loss of use of that property.  Id.  The court explained that 
under Ehlers v. Johnson, 164 Wis. 2d 560, 564, 476 N.W.2d 291 
(Ct. App. 1991), this language “defines property damage to 
include loss of use as a result of physical damage.”  Wisconsin 
Label, 221 Wis. 2d at 811.  In Wisconsin Label’s case, because 
there was no physical damage, there could be no loss of use as a 
result of physical damage.  Id. at 811-12. 
¶19 Having concluded that no “property damage” occurred 
under the first part of the definition, the court of appeals 
next turned to Wisconsin Label’s argument that property damage 
occurred under the second part of the definition, “[l]oss of use 
of tangible property that is not physically injured.”  The court 
stated that under Sola Basic Industries, Inc. v. United States 
Fidelity & Guaranty Co., 90 Wis. 2d 641, 644, 280 N.W.2d 211 
(1979), this part of the definition applies if property is 
diminished in value or made useless.  The court found that the 
No. 
98-0194 
 
 
10
products were still useable and therefore were not rendered 
useless by the mislabeling.  Wisconsin Label, 221 Wis. 2d at 
814.  The court also found that the products were not diminished 
in value because the mislabeling did not change the character of 
the products but merely caused lost profits.  Id. at 815.   
¶20 Thus, the court of appeals determined that the Policy 
did not provide coverage because no property damage had occurred 
under either part of the definition of property damage.  Having 
determined that no coverage existed, the court did not need to 
address the issue of whether the impaired property exclusion 
precluded coverage.  Id. at 816.   
¶21 Wisconsin Label petitioned this court for review of 
the court of appeals’ decision.  Like the circuit court and the 
court of appeals, we conclude that Wisconsin Label’s losses were 
not the result of “property damage” as that term is defined in 
the Policy.  We therefore affirm. 
STANDARD OF REVIEW 
¶22 Insurers often move for summary judgment to raise the 
issue of whether an insurance policy covers a particular injury, 
damage, or liability.  Jones v. Sears Roebuck & Co., 80 Wis. 2d 
321, 325, 259 N.W.2d 70 (1977).  When reviewing a circuit 
court’s decision to grant summary judgment, we apply the same 
methodology as the circuit court.  Smith v. Katz, 226 Wis. 2d 
798, 805, 595 N.W.2d 345 (1999).  The applicable methodology is 
set forth in Wis. Stat. § 802.08(2): 
 
The 
judgment 
sought 
shall 
be 
rendered 
if 
the 
pleadings, depositions, answers to interrogatories, 
No. 
98-0194 
 
 
11
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. . . .  
The parties have stipulated to the facts in this case, and they 
present no issues of material fact.  Instead, whether the 
summary judgment motion was properly granted depends upon 
interpretation of an insurance contract.  Interpretation of an 
insurance contract presents a question of law that this court 
reviews de novo.  Smith v. Katz, 226 Wis. 2d at 805. 
ANALYSIS2 
¶23 Insurance policies are contracts and are governed by 
the same rules that govern interpretation of contracts in 
general.  Id. at 806; Kremers-Urban Co. v. American Employers 
Ins. Co., 119 Wis. 2d 722, 735, 351 N.W.2d 156 (1984).  The 
primary goal in interpreting a contract is to determine and give 
effect to the parties’ intention.  Gorton v. Hostak, Henzl & 
Bichler, S.C., 217 Wis. 2d 493, 506, 577 N.W.2d 617 (1998); 
Kremers-Urban, 119 Wis. 2d at 735.  When the language of a 
contract is unambiguous, we apply its literal meaning.  Gorton, 
217 Wis. 2d at 506.  However, if contractual language may 
                     
2 Northbrook contends that Illinois law governs this case.  
Def.-Resp’t’s 
Br. 
at 
12-13 
n.1. 
 
However, 
Northbrook 
acknowledges that Wisconsin and Illinois law are not in conflict 
about the issue presented.  Id.; Wisconsin Label, 221 Wis. 2d at 
807 n.2.  The first step in resolving a choice of law issue is 
determining whether the laws of the two states differ.  Sharp v. 
Case Corp., 227 Wis. 2d 1, 10-11, 595 N.W.2d 380 (1999).  If 
they are the same, the law of the forum state applies.  Id. at 
11.  Because there is no genuine difference between the two laws 
in this case, we apply Wisconsin law.  
No. 
98-0194 
 
 
12
reasonably be construed to have more than one meaning, the 
contract is ambiguous.  Id.   
¶24 Whether a contract is ambiguous is a question of law. 
 Id.  Any ambiguity that does exist will be interpreted against 
the drafter, especially when the contract is a standard form 
supplied by the drafting party.  Id.  On the other hand, if the 
language of the policy is not ambiguous, “we will not engage in 
construction, but will merely apply the policy terms.”  Kremers-
Urban, 119 Wis. 2d at 736.   
¶25 When the contract at issue is an insurance policy, we 
are guided by the principle that the words of the policy should 
be given the meaning that a reasonable person in the position of 
the insured would have given them.  Id. at 735.  However, we 
must not rewrite an insurance policy so as to provide coverage 
for a risk that the insurer did not contemplate and for which it 
has not been paid.  Smith, 226 Wis. 2d at 807. 
¶26 The coverage dispute in this case arises in a somewhat 
atypical manner.  Coverage disputes usually arise when an 
insured is sued by a third party and focus on whether the 
insurer has a “duty to defend” the insured in the lawsuit.  See, 
e.g., id. at 806-07; Wausau Tile, Inc. v. County Concrete Corp., 
226 Wis. 2d 235, 266, 593 Wis. 2d 445 (1999).  Here, the parties 
stipulate that PPC has not yet sued Wisconsin Label for 
reimbursement, and Wisconsin Label does not specifically argue 
that Northbrook has breached a duty to defend.  Of course, there 
remains a risk that PPC will decide to sue Wisconsin Label at 
some future date.  Because Northbrook's motion asks for a 
No. 
98-0194 
 
 
13
summary and declaratory judgment against Wisconsin Label's claim 
for indemnification, we must resolve any doubt as to whether the 
Policy provides coverage in favor of Wisconsin Label.  See 
Wausau Tile, 226 Wis. 2d at 266.  
¶27 With these principles in mind, we now turn to the 
question of whether the Policy provides coverage for Wisconsin 
Label’s losses.  The Policy is a standard commercial general 
liability or “CGL” policy.3  A CGL policy protects the insured 
against liability for damages the insured’s negligence causes to 
third parties.  General Casualty Co. v. Hills, 209 Wis. 2d 167, 
172-73 n.9, 561 N.W.2d 718 (1997).  More specifically: 
 
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.  The insured, as a 
source of goods or services, may be liable as a matter 
of contract law to make good on products or work which 
is defective or otherwise unsuitable because it is 
lacking in some capacity.  This may even extend to an 
obligation 
to 
completely 
replace 
or rebuild the 
deficient product or work.  This liability, however, 
                     
3 Standard CGL policies were first developed and promulgated 
by insurance industry trade organizations in 1940 and were 
periodically revised during the succeeding decades.  Laurie 
Vasichek, Note, Liability Coverage for “Damages Because of 
Property Damage” Under the Comprehensive General Liability 
Policy, 68 Minn. L. Rev. 795, 798-99 & n.14 (1984).  Today, most 
CGL insurance in the United States is written on standardized 
forms promulgated by the Insurance Services Office, Inc. (ISO). 
 Hartford Fire Insurance Co. v. California, 509 U.S. 764, 772 
(1993).  The Policy is a standard CGL policy that provides 
coverage when an “occurrence” causes “damages” during the policy 
period.  See Stempel, Law of Insurance Contract Disputes 
§ 14.01, § 14.02. 
No. 
98-0194 
 
 
14
is not what the coverages in question are designed to 
protect against.  The coverage is for tort liability 
for physical damages to others and not for contractual 
liability of the insured for economic loss because the 
product or completed work is not that for which the 
damaged person bargained. 
Bulen v. West Best Mutual Insurance Co., 125 Wis. 2d 259, 264-
65, 371 N.W.2d 392 (Ct. App. 1985) (quoting Weedo v. Stone-E-
Brick, Inc., 405 A.2d 788, 791 (N.J. 1979).   
¶28 Under the Policy, Northbrook promises to “pay those 
sums that the Insured becomes legally obligated to pay as 
damages because of bodily injury or property damage to which 
this insurance applies.”  None of the damages in this case 
resulted from bodily injury.  Therefore, whether coverage exists 
depends solely upon whether Wisconsin Label has become legally 
obligated to pay “damages because of . . . property damage.”  
The Policy defines “property damage” to mean (1) “[p]hysical 
injury to tangible property, including all resulting loss of use 
of that property,” or (2) “[l]oss of use of tangible property 
that is not physically injured.”   
¶29 Combining the language of the insuring agreement with 
the language defining “property damage,” the Policy provides 
coverage for sums that Wisconsin Label has become legally 
obligated to pay as damages because of . . . (1) physical injury 
to tangible property, including all resulting loss of use of 
that property, or (2) loss of use of tangible property that is 
not physically injured. 
¶30 We begin by considering whether, under the first part 
of this definition, Wisconsin Label has become obligated to pay 
No. 
98-0194 
 
 
15
damages because of “physical injury to tangible property, 
including all resulting loss of use of that property.”   
¶31 We agree with the court of appeals’ determination that 
this definition is unambiguous and that no physical injury to 
tangible property occurred in this case.  Wisconsin Label, 221 
Wis. 2d at 808-09.  Language in an insurance contract is 
interpreted according to its common and ordinary meaning.  
Kremers-Urban, 119 Wis. 2d at 735.  Although the term “injury,” 
standing alone, may refer broadly to both physical and non-
physical types of damage, when it is qualified by the word 
“physical,” its meaning is limited to physical damage.  Thus, as 
the court of appeals pointed out, the phrase “physical injury” 
ordinarily refers to some sort of physical damage.  Wisconsin 
Label, 221 Wis. 2d at 809.   
¶32 No physical damage occurred in this case.  The 
products 
were 
improperly 
labeled, 
but 
both 
the 
products 
themselves and the packaging remained physically undamaged at 
all times.  The lack of physical damage is demonstrated by the 
fact that the products were sold to customers with the improper 
labeling.  Labeling could conceivably result in physical injury 
to tangible property, if, for instance, a caustic adhesive 
burned through the packaging and actually injured the product.  
However, no such physical damage occurred here.  
¶33 Wisconsin Label contends that any reasonable insurer 
would conclude that the products were physically injured because 
they required “physical repair.”  However, the only “repair” 
that was required was to inspect and relabel the packages to 
No. 
98-0194 
 
 
16
ensure that they would always scan at the correct price.  This 
inspection and relabeling was necessary to remedy Wisconsin 
Label's defective workmanship, not to repair any physical injury 
to the products.  Thus, the economic losses that resulted were 
not due to "physical injury" to PPC's product but due to 
Wisconsin Label's failure to complete the work it promised to do 
under the contract.  CGL policies do not provide coverage for 
the insured's liability for repairing or replacing the insured's 
defective 
work; 
they 
provide 
coverage 
for 
the 
insured's 
liability for physical injury to, or loss of use of, another's 
property.   See Bulen, 125 Wis. 2d at 264-65.  No reasonable 
insured would conclude that PPC's undamaged, saleable products 
suffered 
“physical 
injury” 
simply 
because 
Wisconsin 
Label 
improperly placed the labels on the packages. 
¶34 Wisconsin 
Label 
also 
argues 
that 
under 
Eljer 
Manufacturing, physical injury occurred because its defective 
work was incorporated into another’s product and had to be 
replaced in order to prevent a future loss from materializing.  
See Eljer, 972 F.2d at 810, 814.  Eljer involved leaky plumbing 
systems that were installed in hundreds of thousands of United 
States residences.  Id. at 807.  Thousands of tort claims were 
filed and approximately five percent of the systems were deemed 
likely to eventually result in lawsuits.  Id.  The insurer 
involved in the particular suits at issue in Eljer contended 
that coverage for such claims was not triggered until a system 
actually leaked, causing damage to the rest of the residence.  
Id. at 808.  The Seventh Circuit determined that, to the 
No. 
98-0194 
 
 
17
contrary, “physical injury” had occurred whenever a defective 
system was installed into a residence, because the probability 
that the system would fail was high enough “to induce a rational 
owner to replace it before it fails.”  Id. at 812.  The court 
concluded, “incorporation of a defective product into another 
product inflicts physical injury in the relevant sense on the 
latter at the moment of incorporation.”  Id. at 814.   
¶35 Wisconsin Label argues that, like in Eljer, physical 
injury occurred when Wisconsin Label incorporated defective 
work, i.e., misplaced labels, into PPC’s products.   
¶36 We find Eljer to be factually distinguishable from the 
case at hand.  Unlike the plumbing systems, the labels were not 
“defective components.”  More importantly, even if putting the 
labels in the wrong place constituted “defective work,” this 
defect could never be expected to cause “physical injury.”  The 
mislabeling left the products themselves physically unharmed.  
If left on the packages, the only injury that the labels could 
ever cause would be lost profit, when the product sold for less 
than its intended price.  Thus, the labels in no sense posed the 
sort of latent danger that was at issue in Eljer.  See id. at 
807 (explaining that a leaky plumbing system “is like a time 
bomb placed in an airplane luggage compartment:  harmless until 
it explodes”).   
¶37 Wisconsin Label next contends that we should find 
coverage because the mislabeling caused a “diminution in value” 
of the PPC products.  It is unclear whether Wisconsin Label 
contends that this "diminution in value" is covered under the 
No. 
98-0194 
 
 
18
"physical injury" portion or the "loss of use" portion of the 
"property damage" definition.  The court in Eljer interpreted 
the “physical injury” part of the definition to include 
diminution in value that resulted from physical incorporation of 
one product into another.  See Travelers Insurance Co. v. Eljer 
Manufacturing, Inc., 718 N.E.2d 1032, 1040-41 (Ill. Ct. App. 
1999)(rejecting Eljer’s reasoning), appeal allowed by 723 N.E.2d 
1170 (Ill. 1999).  In Sola Basic, under an earlier definition of 
“property damage,” this court held that a CGL policy covered 
losses that measured the 
diminution 
in the 
value 
of a 
manufacturing plant that resulted from the removal of a 
malfunctioning transformer.  Sola Basic, 90 Wis. 2d at 654.  
¶38 Because we have already determined that the PPC 
products were not physically injured, the "physical injury" 
prong of the definition of "property damage" cannot extend 
coverage under a "diminution in value" theory.  PPC's products 
were not physically injured, so they were not "diminished in 
value" due to physical injury. 
¶39 However, Wisconsin Label contends that even in the 
absence 
of 
physical 
injury, 
PPC's 
products 
suffered 
a 
"diminution in value" when they were sold at the incorrect, 
lower price.  We must examine whether the Policy provides 
coverage for this "diminution in value" in the absence of 
physical injury. 
¶40 The idea that diminution in value constitutes property 
damage, even in the absence of physical injury or loss of use, 
made sense under the definition of “property damage” that was at 
No. 
98-0194 
 
 
19
issue in Sola Basic.  The court in Sola Basic interpreted the 
1966 standard CGL policy, which provided a “misleadingly simple” 
definition of property damage: “injury to or destruction of 
tangible property.”  Sola Basic, 90 Wis. 2d at 647.   
¶41 Sola Basic applied this definition in the context of 
an 
insured's 
liability 
for 
rendering 
its 
customer's 
manufacturing plant partially unusable.  Sola Basic Industries 
sold its customer a defective transformer and then negligently 
damaged the transformer while attempting to repair it.  Id. at 
644.  Consequently, the transformer had to be removed from the 
manufacturing plant and completely rebuilt.  Id.  While the 
transformer was out for repairs, the manufacturer could not use 
its electric furnaces and was forced to incur additional costs 
to continue its operations by other methods.  Id.  Sola Basic 
paid for the removal and repair of the transformer at its own 
expense, but the manufacturer made an additional claim for 
damages resulting from the loss of use of its electric furnaces. 
 Id.  Sola Basic tendered this claim to its insurer under its 
CGL policy.  Id. at 644-45.   
¶42 In analyzing whether the CGL policy provided coverage, 
this court first took note of comments by insurance industry 
trade organizations, which explained that the definition of 
property damage in the 1966 standard form purposely omitted any 
requirement of “physical injury” to tangible property.  Id. at 
647-48 (citations omitted).  Instead, the 1966 definition was 
designed to cover non-physical injury to tangible property that 
did not sustain physical damage but was nonetheless rendered 
No. 
98-0194 
 
 
20
useless by the insured’s negligence.  Id. at 647.  For example, 
if a large piece of equipment broke down in the street, limiting 
access to stores, the damages sustained by the stores due to the 
resulting loss of use of the stores would be covered by the 
policy.  Id.  
¶43 The Sola Basic court then considered precedent from 
several other jurisdictions interpreting similar definitions of 
“property damage” in CGL policies.  See id. at 648-653.  In 
Hauenstein v. St. Paul-Mercury Indemnity Co., 65 N.W.2d 122 
(Minn. 1954), the Minnesota Supreme Court interpreted a CGL 
policy to cover the diminished market value of a building that 
resulted from the application of defective plaster, because 
“‘the presence of the defective plaster on the walls and 
ceilings reduced the value of the building and constituted 
property damage.’”  Sola Basic, 90 Wis. 2d at 648 (quoting 
Hauenstein, 65 N.W.2d at 358).  Similarly, and in express 
reliance on Hauenstein, the California Supreme Court held that 
property damage to homes in the form of the diminished market 
value that resulted from the installation of defective aluminum 
doors was covered by the standard CGL policy.  Geddes & Smith, 
Inc. v. St. Paul-Mercury Indemnity Co., 334 P.2d 881, 885 (Cal. 
1959).  Also, in Pittway Corp. v. American Motorists Insurance 
Co., 370 N.E.2d 1271 (Ill. Ct. App. 1977), an Illinois court 
held that the inclusion of defective valves in hairspray cans, 
which forced the hairspray distributor to scrap the entire 
product, constituted property damage.  Sola Basic, 90 Wis. 2d at 
652-53 (citing Pittway, 370 N.E.2d at 1274).   
No. 
98-0194 
 
 
21
¶44 Having examined these and other precedents, this court 
derived four basic principles pertaining to CGL policies: 
 
1)  The 
exclusions 
[in 
CGL 
policies] 
eliminate 
coverage for injury to or destruction of the product 
furnished or work completed by the insured;  
 
2)  if the defect in the product furnished or work 
completed of the named insured causes damage to other 
tangible property, there is coverage for such damage 
to other property;  
 
3)  the term “property damage” to tangible property 
does not necessarily require physical damage;  
 
4)  tangible property may be damaged in that it is 
diminished in value or made useless, irrespective of 
actual physical injury to the tangible property.  
Sola Basic, 90 Wis. 2d at 653-54.  Guided by these principles, 
the court concluded that costs of removing and replacing the 
transformer and costs of continuing operations due to the loss 
of the electric furnace were covered under the CGL policy.  Id. 
at 654.  The court explained that “[t]hese costs do not 
represent lost profits, but are a measure of the diminution to 
the 
value 
of 
the 
plant 
caused 
by 
the 
malfunctioning 
transformer.”  Id. 
¶45 Sola Basic’s holding must be read in context.  The 
case “was decided a decade before this court first adopted the 
economic loss doctrine in Sunnyslope Grading, Inc. v. Miller, 
Bradford & Risberg, Inc., 148 Wis. 2d 910, 921, 437 N.W.2d 213 
(1989).”  Wausau Tile, 226 Wis. 2d at 268 n.19.  The economic 
loss doctrine “precludes a purchaser of a product from employing 
negligence or strict liability theories to recover from the 
No. 
98-0194 
 
 
22
product’s manufacturer loss which is solely economic.”  Id. at 
245-46.  The doctrine preserves the fundamental distinction 
between tort law and contract law and protects the parties’ 
freedom to allocate economic risk by contract.  Id. at 247.  In 
Wausau Tile, having determined that a purchaser’s claims for 
negligence and strict liability were precluded by the economic 
loss doctrine, this court held that an insurer had no duty to 
defend against those claims under a CGL policy like the one in 
this case.  Id. at 267-69. 
¶46 Moreover, 
Sola 
Basic 
was 
interpreting 
the 
1966 
definition of “property damage,” which omitted any requirement 
that an injury be “physical” in order to trigger coverage.  As 
Hauenstein held, the broad 1966 definition therefore could 
encompass “diminution in value” of tangible property, even 
without any physical injury.  Hauenstein, 65 N.W.2d at 126.   
¶47 The 1966 policy form was standard in the insurance 
industry until a new form was promulgated in 1973.  Vasicheck, 
68 Minn. L. Rev. at 798-99.  The post-1973 forms define 
"property damage" much more specifically than the 1966 form.  
The first part of the 1973 definition explicitly requires 
“physical” injury; the second part requires “loss of use” of 
tangible property that is not physically injured.  Unlike the 
1966 definition, neither part of the later definition is broad 
enough to encompass mere “diminution of value” of a product in 
the absence of physical injury or loss of use.  Recognizing this 
crucial difference, the Minnesota Supreme Court concluded that 
Hauenstein’s reasoning did not apply to the newer definition of 
No. 
98-0194 
 
 
23
“property damage,” and that diminution in value caused by 
incorporation 
of 
a 
defective 
component 
therefore 
is 
not 
“property damage” under post-1973 CGL policies.  Federated 
Mutual Insurance Co. v. Concrete Units, Inc., 363 N.W.2d 751, 
756 (Minn. 1985).  Under the same reasoning, the Illinois Court 
of Appeals explicitly rejected Eljer’s holding and concluded 
that 
the 
post-1973 
definition 
of 
“property 
damage” 
does 
encompass diminution in value that is unrelated to physical 
damage.  Travelers Insurance, 718 N.E.2d at 1040-41 (holding 
that Eljer ignored the plain meaning of the phrase “physical 
injury” when it interpreted the policy to provide coverage for 
the 
intangible 
diminution 
in 
value 
that 
resulted 
from 
installation of leaky pipes).  See also Wyoming Sawmills, Inc. 
v. Transportation Insurance Co., 578 P.2d 1253, 1256 (Or. 
1978)(holding that the inclusion of the word “physical” in the 
definition of property damage “negates any possibility that the 
policy was intended to include ‘consequential or intangible 
damage,’ such as depreciation in value”); Vasichek, 68 Minn. L. 
Rev. at 821 (“Although lost use of tangible property continues 
to be covered under the 1973 ‘property damage’ definition, 
diminution in value of tangible property does not.”)   
¶48 We agree with these courts that diminution in value 
caused by incorporation of a defective product does not 
constitute “property damage” under post-1973 policies unless it 
is the result of "physical injury" or "loss of use."  Any 
suggestion in Sola Basic that CGL policies provide coverage for 
diminution in value that is not caused by physical injury or 
No. 
98-0194 
 
 
24
loss of use is inconsistent with the definition of “property 
damage” in post-1973 policies.  We therefore conclude that the 
Policy provides no coverage for diminution in value in the 
absence of physical injury or loss of use.   
¶49 Having determined that the Policy does not provide 
coverage for "diminution in value" in the absence of physical 
injury or loss of use, and that the damages in this case did not 
result from physical injury, we now examine whether the damages 
resulted from "loss of use."  
¶50 The "loss of use" prong of the Policy's definition of 
"property damage" provides coverage for damages that Wisconsin 
Label has become obligated to pay because of “loss of use of 
tangible property that is not physically injured.”  Under Sola 
Basic, “property damage” occurs when the property of a third 
party is “rendered useless” due to the insured’s actions.  Sola 
Basic, 90 Wis. 2d at 654.  Wisconsin Label asserts that a loss 
of use occurred because Wal-Mart was forced to remove the PPC 
products from its shelves and delay sale while the products were 
relabeled.   
¶51 However, Wisconsin Label has not actually become 
liable to pay any damages relating to the delay in sale of the 
PPC products.  PPC paid Wal-Mart $200,000 in compensation for 
lost profits on packages that were sold at the wrong price and 
costs of relabeling unsold packages.  PPC seeks reimbursement 
for this $200,000 and for an additional $25,000 in costs of 
reinspecting the packages.  Thus, PPC’s $25,000 in inspection 
costs, as well as some portion of the $200,000 paid to Wal-Mart, 
No. 
98-0194 
 
 
25
relate to inspecting and relabeling the packages, while the rest 
of the damages relate to lost profits that resulted from 
undercharging.  Neither portion of the damages relates to the 
loss of use of the products during the time that they were being 
relabeled.  This is to be contrasted with Sola Basic, where the 
damages related to the manufacturer's loss of use of its 
electric furnace while the defective transformer was being 
repaired.  
¶52 Wisconsin 
Label 
also 
cites 
American 
Motorists 
Insurance Co. v. Trane Co., 718 F.2d 842 (7th Cir. 1983) in 
support of its contention that a loss of use occurred in this 
case.  Trane held that an allegation that defective heat 
exchangers caused a manufacturer’s plant to operate at less than 
“full capacity—i.e., some of each plant’s usefulness was lost,” 
constituted an allegation of property damage.  Id. at 844.  
Thus, in Trane, as in Sola Basic, the damages resulted from loss 
of use of another’s property, the manufacturing plant, caused by 
the insured’s defective product.  Id.  In this case, in 
contrast, the damages did not result from loss of use of the PPC 
products caused by the mislabeling.  The damages resulted from 
undercharging and from relabeling of the unsold products.   
¶53 Wisconsin Label also contends that under the reasoning 
of Western Casualty & Surety Co. v. Budrus, 112 Wis. 2d 348, 332 
N.W.2d 837 (Ct. App. 1983), the damages in this case are because 
of loss of use.  Budrus concerned mislabeled seed; because the 
seed was mislabeled, a farmer planted his field with the wrong 
crops.  Id. at 350.  The court of appeals affirmed the trial 
No. 
98-0194 
 
 
26
court’s holding that the loss of use of a forty-acre field 
constituted property damage under the farmer’s CGL policy.  Id. 
at 352.  Wisconsin Label contends that “[i]f mistagged seed 
resulting in lost profits from crop and production losses was 
property damage in Budrus, lost profits and other losses arising 
from mislabeled consumer hygiene products constitute property 
damage here.”  Br. of Pl.-Appellant at 32.   
¶54 Like Sola Basic and Trane, Budrus is distinguishable 
because it involved the loss of use of other property caused by 
the insured’s negligence.  After the farmer discovered that the 
seed he had planted was of the wrong type, it was too late to 
replant that season; thus, he lost use of his field for the 
entire season.  Id. at 350.  The situation is analogous to the 
example described by the insurance industry trade organization 
in Sola Basic, in which a broken piece of machinery blocks a 
street and prevents customers from using a store.  See Sola 
Basic, 90 Wis. 2d at 647-48.  In the case at hand, in contrast, 
although Wal-Mart experienced some brief loss of use of its 
products 
while 
they 
were 
relabeled, 
it 
does 
not 
seek 
compensation for the loss of use of the products for that period 
of time.  Instead, it seeks reimbursement for the profits it 
lost when products were sold at the wrong price and for the 
costs of relabeling.  We conclude that Wisconsin Label has not 
become obligated to pay damages because of “loss of use of 
tangible property that is not physically injured.” 
¶55 Wisconsin Label next argues that the Policy must 
provide coverage for its losses because “purely economic losses 
No. 
98-0194 
 
 
27
are covered under a CGL policy unless excluded in the policy’s 
business risk exclusions because the policy affords coverage for 
damages arising from property damage.”  Br. of Pl.-Appellant at 
34.  
¶56 We agree that, as a general proposition, CGL policies 
may sometimes cover economic losses.  For instance, in Sola 
Basic, 
the 
CGL 
policy 
covered 
the 
economic 
losses 
the 
manufacturer sustained in order to continue operations.  Sola 
Basic, 90 Wis. 2d at 654.  Indeed, Northbrook itself “does not 
take the position that economic losses are never covered” by CGL 
policies.  Def.-Resp’t’s Br. at 31.   
¶57 However, economic losses will be covered under a CGL 
policy only when the policy language creates coverage for such 
losses.  In the Policy, coverage applies only when damages are 
because of “physical injury to tangible property” or “loss of 
use of tangible property.”  The economic losses in this case did 
not result from either of these types of damage.  Therefore, 
there is no coverage. 
¶58 Instead of resulting from property damage, the damages 
in this case resulted from Wisconsin Label’s failure to 
adequately perform its contract to label PPC’s products.  See 
Wausau Tile, 226 Wis. 2d at 266-68 (holding that a CGL policy 
did not provide coverage for damages that constituted economic 
loss and were not recoverable in tort).  A CGL policy is not a 
performance bond; it provides coverage “for tort damages but not 
for economic loss resulting from contractual liability.”  Jacob 
v. Russo Builders, 224 Wis. 2d 436, 448, 592 N.W.2d 271 (Ct. 
No. 
98-0194 
 
 
28
App. 1999).  Wisconsin Label's damages resulted from its 
contractual liability for its own defective workmanship, not 
from "physical injury" or "loss of use" that Wisconsin Label 
caused to PPC's property.  The economic losses therefore were 
risks that Northbrook “did not contemplate and for which it has 
not been paid” under the explicit language of the Policy.  
Smith, 226 Wis. 2d at 807, (quoting Qualman v. Bruckmoser, 163 
Wis. 2d 361, 365, 471 N.W.2d 282 (Ct. App. 1991)).   
¶59 In conclusion, we determine that the CGL policy that 
Northbrook issued to Ameripac provides no coverage for the 
losses that Ameripac and Wisconsin Label sustained due to the 
mislabeling.  Because the Policy does not extend coverage for 
Wisconsin Label's losses, we need not examine whether the 
"impaired property exclusion" would preclude coverage.  We 
affirm the decision of the court of appeals. 
By the Court.—Affirmed. 
 
No. 
98-0194 
 
 
1