Title: 1325 North Van Buren, LLC v. T-3 Group, Ltd.
Citation: 2006 WI 94
Docket Number: 2004AP000352
State: Wisconsin
Issuer: Wisconsin Supreme Court
Date: July 11, 2006

2006 WI 94 
 
SUPREME COURT OF WISCONSIN 
 
 
 
 
 
CASE NO.: 
2004AP352 
 
 
COMPLETE TITLE: 
 
 
1325 North Van Buren, LLC, 
          Plaintiff-Appellant, 
     v. 
T-3 Group, Ltd., 
          Defendant-Respondent-Petitioner, 
 
Westport Insurance Corporation, 
          Defendant-Respondent-Cross Petitioner, 
 
Indiana Insurance Company, 
          Defendant-Respondent, 
 
Racine Building Supply, LLC, and Federal 
Insurance Company, 
          Defendants. 
 
 
 
 
REVIEW OF A DECISION OF THE COURT OF APPEALS 
2005 WI App 121 
Reported at: 284 Wis. 2d 387, 701 N.W.2d 13 
(Ct. App. 2005-Published) 
 
 
OPINION FILED: 
July 11, 2006   
SUBMITTED ON BRIEFS: 
        
ORAL ARGUMENT: 
February 22, 2006   
 
 
SOURCE OF APPEAL: 
 
 
COURT: 
Circuit   
 
COUNTY: 
Milwaukee   
 
JUDGE: 
Mel Flanagan 
 
 
 
JUSTICES: 
 
 
CONCURRED: 
        
 
DISSENTED: 
BRADLEY, J., dissents (opinion filed). 
ABRAHAMSON, C.J., and BUTLER, JR., J., join the 
dissent.   
 
NOT PARTICIPATING:         
 
 
 
ATTORNEYS: 
 
For the defendant-respondent-petitioner there were briefs 
by David J. Hanus and Hinshaw & Culbertson, LLP, Milwaukee; 
Lawrence J. Drabot and Crivello, Carlson & Mentkowski, S.C., 
Milwaukee, and oral argument by David J. Hanus. 
 
 
 
2
For the defendant-respondent-cross petitioner there were 
briefs by Vincent P. Tomkiewicz, George J. Manos, and Bollinger, 
Ruberry & Garvey, Chicago, IL, and oral argument by Vincent P. 
Tomkiewicz. 
 
For the plaintiff-appellant there was a brief by Kimberly 
A. Hurtado, Nicole M. DeMatteis, and Hurtado, S.C., Wauwatosa; 
Patrick O'Connor and Faegre & Benson, Minneapolis, MN, and oral 
argument by Patrick O'Connor. 
 
An amicus curiae brief was filed by W. Wayne Siesennop, 
Scott J. Thomsen, Corrado Cirillo and Siesennop & Sullivan, 
Milwaukee, on behalf of the American Council of Engineering 
Companies of Wisconsin and the Wisconsin Society of Architects, 
Inc. 
 
 
 
 
2006 WI 94
NOTICE 
This opinion is subject to further 
editing and modification.  The final 
version will appear in the bound 
volume of the official reports.   
No.  2004AP352  
(L.C. No. 
2001CV11016) 
STATE OF WISCONSIN  
 
 
   : 
IN SUPREME COURT 
 
 
1325 North Van Buren, LLC, 
 
          Plaintiff-Appellant, 
 
     v. 
 
T-3 Group, Ltd., 
 
          Defendant-Respondent-Petitioner, 
 
Westport Insurance Corporation, 
 
          Defendant-Respondent-Cross 
Petitioner, 
 
Indiana Insurance Company, 
 
          Defendant-Respondent, 
 
Racine Building Supply, LLC, and Federal 
Insurance Company, 
 
          Defendants. 
 
 
 
FILED 
 
JUL 11, 2006 
 
Cornelia G. Clark 
Clerk of Supreme Court 
 
 
 
 
 
REVIEW of a decision of the Court of Appeals.  Reversed in 
part, affirmed in part, and remanded.   
 
No. 
2004AP352   
 
2 
 
¶1 
JON P. WILCOX, J.   T-3 Group, Ltd. (T-3) seeks review 
of a court of appeals decision reversing the entry of summary 
judgment dismissing all negligence claims brought by 1325 North 
Van Buren, LLC (1325) entered by the Milwaukee County Circuit 
Court, Mel Flanagan, Judge.  See 1325 N. Van Buren, LLC v. T-3 
Group, Ltd., 2005 WI App 121, 284 Wis. 2d 387, 701 N.W.2d 13.  
Westport Insurance Corporation (Westport) seeks review of the 
court of appeals' reversal of a declaratory judgment in 
Westport's favor dismissing all of 1325's claims against it and 
declaring that Westport has no obligation to defend or indemnify 
T-3 against 1325's claims.  Id.  
¶2 
1325 
contracted 
with 
T-3 
for 
the 
purpose 
of 
substantially renovating an existing industrial warehouse into a 
42-unit condominium building with attached parking garages.  
After numerous accidents and setbacks, 1325 fired T-3 and filed 
a lawsuit alleging claims in both tort and contract against T-3.  
1325 also sued T-3's commercial general liability (CGL) insurer, 
Indiana Insurance Company (Indiana), and T-3's professional 
liability insurer, Westport.  The circuit court dismissed 1325's 
tort claims against T-3, concluding that the economic loss 
doctrine barred such claims.  Left with only contract claims, 
the circuit court also concluded that neither Indiana's CGL 
policy nor Westport's professional liability policy provided 
coverage for 1325's contract claims against T-3.   
¶3 
The court of appeals reversed in all respects, 
concluding:  (1) the economic loss doctrine did not apply 
because the contract between T-3 and 1325 was purely for 
No. 
2004AP352   
 
3 
 
services; 
(2) 
unresolved 
factual 
questions 
precluded 
a 
determination of whether Indiana's CGL policy provided coverage; 
and (3) 
Westport's 
professional liability 
policy provided 
coverage.   
¶4 
T-3 petitioned for review and contends the economic 
loss doctrine precludes 1325's negligence claims.  Westport 
joined T-3's petition for review as a direct-action defendant 
and filed a separate cross-petition contending that the economic 
loss doctrine precludes 1325's negligence claims and that its 
policy does not provide T-3 with coverage against breach of 
contract claims.1 
¶5 
We conclude that the economic loss doctrine applies to 
the mixed contract between T-3 and 1325 as the predominant 
purpose of the contract was to construct a 42-unit condominium 
complex with adjacent parking garages.  Furthermore, Westport 
has a duty to defend and potentially indemnify T-3 for its 
breach of contract claim under our interpretation of its 
professional liability insurance contract.  As such, the 
decision of the court of appeals is reversed with respect to T-
3's appeal, affirmed with respect to Westport's cross-appeal, 
and remanded to the circuit court for further proceedings 
consistent with this opinion.   
 
                                                 
1 Although the court of appeals reversed the circuit court's 
grant of summary judgment to Indiana, it did not petition this 
court for review; therefore, our discussion refers to Indiana's 
involvement only as necessary. 
No. 
2004AP352   
 
4 
 
I 
A. The Contract Between 1325 and T-3 
¶6 
On March 26, 2001,2 1325 and T-3 entered into a 
comprehensive 102-page contract consisting of the following:  
(1) 
a 
customized 
American 
Institute 
of 
Architects 
(AIA) 
"Standard Form of Agreement Between Owner and Construction 
Manager where the Construction Manager is also the Constructor;" 
(2) Amendment No. 1; (3) Contract Addendum; (4) Exhibits; (5) 
General 
Conditions 
of 
the 
Contract 
for 
Construction——AIA 
Document A201; (6) Supplement to the General Conditions of the 
Contract for Construction; and (7) various drawings and finish 
specifications.     
¶7 
T-3 was hired to renovate an industrial warehouse 
building owned by 1325 into a 42-unit condominium complex, and 
construct attached parking garages.  In addition to providing 
the necessary materials for renovation and construction, T-3 was 
to provide construction management services, meaning it had to 
hire, coordinate, and supervise the numerous subcontractors, and 
generally manage the project to ensure the renovation was 
completed on time and within budget.  The contract called for 
1325 to pay the cost of the work plus T-3's construction 
management fee up to a guaranteed maximum price of $6,099,891.  
Of this price, $176,000 constituted the fee for construction 
                                                 
2 The parties apparently agreed upon the base contract on 
March 26, but did not agree upon the amendments to the base 
contract until approximately April 12, 2001.     
No. 
2004AP352   
 
5 
 
management.  Absent change orders, costs in excess of the 
guaranteed maximum price would be borne exclusively by T-3.   
¶8 
There are a number of contractual provisions worth 
noting.  First, there is a broad warranty clause that reads in 
part as follows:   
The Contractor warrants to the Owner, the condominium 
association 
to 
be 
formed, 
the 
unit 
owners 
and 
Architect that materials and equipment furnished under 
the Contract will be of good quality and new unless 
otherwise 
required or 
permitted 
by the 
Contract 
Documents, that the Work3 will be free from defects not 
inherent in the quality required or permitted, and 
that the Work will conform with the requirements of 
the Contract Documents.   
The contract also contains the following noteworthy provisions: 
(1) T-3 agreed to "promptly remedy damage and loss 
(other than damage or loss insured under property 
insurance required by the Contract Documents) to 
property [on the project site] caused in whole or 
in part by the Contractor, a Subcontractor, a 
Sub-subcontractor  . . . ."    
(2) T-3 agreed to indemnify 1325 against any claims 
for bodily injury or tangible property damage, 
other than to property that was part of the 
project, 
where 
the 
loss 
resulted 
from 
the 
negligent 
acts 
or 
omissions 
of 
T-3 
or 
a 
subcontractor. 
 
In 
addition, 
the 
contract 
required that T-3 purchase contractual liability 
insurance to cover indemnification claims under § 
3.18.1 of the General Conditions. 
                                                 
3 The term "Work" means "the construction and services 
required by the Contract Documents, whether completed or 
partially completed, and includes all other labor, materials, 
equipment and services provided or to be provided by the 
Contractor to fulfill the Contractor's obligations.  The Work 
may constitute the whole or a part of the Project."   
No. 
2004AP352   
 
6 
 
(3) Explicitly 
excluded 
from 
project 
costs 
were 
"[c]osts due to the negligence or willful acts or 
omissions 
of 
the 
Construction 
Manager, 
any 
subcontractor, 
anyone 
directly 
or 
indirectly 
employed by any of them, or for whose acts any of 
them may be liable, including but not limited to 
the correction of defective or non-conforming 
Work, . . . or making good any damage to 
property."   
(4) The contract listed reasons for which 1325 could 
withhold payment.  
(5) The 
contract 
included 
a 
liquidated 
damages 
provision requiring T-3 to pay $1,000 per day for 
each condominium unit not delivered on time. 
(6) The contract required T-3 to have a CGL policy 
with limits of $2,000,000.  
(7) The contract required T-3 to have an umbrella 
policy with limits of $4,000,000.  
(8) The contract provided circumstances under which 
it could be terminated before the project was 
completed. 
¶9 
Construction began in March of 2001.  The contract 
required the first condominium units to be completed by October 
15, 2001, and the last condominium units to be completed by 
January 15, 2002.  Near the end of October 2001, however, the 
project was approximately 28 percent complete and none of the 
condominiums 
were 
substantially 
completed. 
 
Subcontractors 
caused accidental damage throughout the existing structure, and 
the project was seriously delayed.  Dissatisfied with T-3's 
progress, 1325 notified T-3 that it was in default under the 
contract by letter dated October 31, 2001, and T-3 left the 
project site that same day.  1325 then entered into a contract 
No. 
2004AP352   
 
7 
 
with C.G. Schmidt, Inc. on January 8, 2002, to complete the 
project.   
¶10 Because 
of 
T-3's 
failure 
to 
meet 
the 
contract 
milestones and specifications, 1325 alleges it incurred millions 
of dollars in damages.  According to 1325's Amended Itemization 
of Damages, 1325 sought the following damages:4  (1) overpayment 
to T-3 based on the percentage completion of work; (2) 
construction damages and defects; (3) completion costs in excess 
of original guaranteed maximum price contract amount; (4) 
additional project costs; (5) unrecoverable costs of work 
claimed by T-3; (6) injury to 1325's business reputation and 
lost opportunity damages; and (7) liquidated damages.  Although 
the amount of actual damages is in dispute, the circuit court 
held the contractual liquidated damages provision, under which 
T-3's liability is $11,060,000, enforceable and that 1325 had 
elected to pursue liquidated rather than actual damages as its 
remedy for breach of contract. 
B. T-3's Professional Liability Policy with Westport   
¶11 Westport provided professional liability insurance 
coverage to T-3 under a policy effective from October 15, 1999, 
to October 15, 2002.  The policy provided limits of liability of 
$5,000,000 per claim and in the aggregate.  The insuring 
agreement states that Westport "shall pay on behalf of any 
insured all 'loss' in excess of the deductible which any insured 
                                                 
4 It is undisputed that 1325 does not claim damages for 
personal injury or property damage to property beyond the 
subject matter of the contract.   
No. 
2004AP352   
 
8 
 
becomes legally obligated to pay as a result of 'claims' first 
made against any insured during the 'policy period' . . . by 
reason of any 'wrongful act[.]'"  Relevant definitions in the 
policy include the following: 
(1) Claim——"a demand made upon you for loss[.]"  
(2) Loss——"the monetary and compensatory portion of 
any judgment, award, or settlement[.]" 
(3) Wrongful Act——"any actual or alleged negligent 
act, error or omission in the performance of 
'professional 
services' 
for 
others 
by 
an 
insured[.]" 
(4) Professional Services——"those services that an 
insured is legally qualified to perform for 
others in the insured's practice as . . . 
construction manager, or as specifically defined 
by endorsement to this policy." 
¶12 Westport raised an argument in the court of appeals 
concerning the applicability of two exclusions in the policy.  
The court of appeals held that the exclusions did not apply.  
Westport has not argued before this court that 1325's claims are 
barred by the policy exclusions.  Accordingly, we do not address 
whether any of the policy exclusions apply. 
C.  Procedural History 
¶13 On April 18, 2002, 1325 filed its second amended 
complaint against T-3, asserting claims of, inter alia, breach 
No. 
2004AP352   
 
9 
 
of contract, negligence, and negligent misrepresentation.5  In 
addition, 1325 brought direct actions against Westport and 
Indiana.  Shortly after 1325 filed suit, T-3 ceased doing 
business and its lender seized its remaining assets; as a 
result, the only opportunity 1325 has to recover is if it can 
bring its claim under T-3's CGL or professional liability 
policies. 
¶14 Indiana moved for declaratory and summary judgment on 
the pleadings, asking for a declaration that Indiana had no duty 
to defend and indemnify T-3 against 1325's claims because they 
were not covered or were excluded by the policy.  The circuit 
court concluded that two causes of action, a negligence claim 
and a coverage claim, were sufficiently pled so as to trigger 
Indiana's duty to defend and that neither the economic loss 
doctrine nor any exclusions barred coverage under the policy.  
¶15 Indiana later filed for another summary judgment, 
alleging that pretrial discovery had revealed that the pertinent 
exclusions in the policy barred coverage for all damages and 
also that the economic loss doctrine permitted recovery only 
under a contract theory.  For its part, T-3 also filed a motion 
for partial summary judgment seeking dismissal of 1325's tort 
                                                 
5 By stipulation and order of February 28, 2003, the circuit 
court dismissed 1325's claims for intentional misrepresentation, 
theft by contractor, slander of title, and failure to defend and 
indemnify 
against 
construction 
liens, 
with 
prejudice, 
in 
exchange for T-3 dismissing its $3.7 million construction lien, 
quantum meruit, unjust enrichment and breach of contract 
counterclaims.   
No. 
2004AP352   
 
10 
 
claims under the economic loss doctrine.  Westport joined in 
this motion.   
¶16 In a ruling from the bench on July 8, 2003, the 
circuit court granted T-3's motion.  The court was persuaded by 
the reasoning of Bay Breeze Condominium Association, Inc. v. 
Norco Windows, Inc., 2002 WI App 205, 257 Wis. 2d 511, 651 
N.W.2d 738, in that any property damage was not to "other 
property" under the integrated systems rule.  Furthermore, the 
circuit court was persuaded that regardless of whether the 
contract was for products or services, it was between two 
sophisticated parties.  See Wausau Paper Mills Co. v. Chas. T. 
Main, Inc., 789 F. Supp. 968 (W.D. Wis. 1992).  As such, the 
economic loss doctrine applied and only breach-of-contract 
claims remained against T-3.  A subsequent order was entered on 
November 18, 2003.  The circuit court also granted Indiana's 
motion for summary judgment and Indiana was dismissed from the 
action.    
¶17 With the negligence claims dismissed, Westport filed a 
motion for declaratory relief and bifurcation, arguing that it 
had no duty to defend T-3 and that its professional liability 
policy did not provide coverage for 1325's contract claims 
against T-3.  On December 3, 2003, the circuit court granted 
Westport's motion and ruled that Westport had no obligation to 
continue to defend or indemnify T-3 against the breach of 
contract action because 1325's claims were for purely economic 
No. 
2004AP352   
 
11 
 
loss.6  A subsequent order dismissing Westport from the lawsuit 
was entered on December 17, 2003.     
¶18 1325 appealed only the final judgments dismissing 
Indiana and Westport from the action, and thus the underlying 
orders granting summary and declaratory judgment to those two 
parties.  The order granting T-3's motion for partial summary 
judgment was not final, and 1325 did not appeal from that order.  
However, T-3 sought and received permission to intervene for the 
limited purpose of briefing the application of the economic loss 
doctrine.  The court of appeals subsequently reversed the 
circuit court in all respects.   
¶19 First, relying upon Insurance Co. of North America v. 
Cease Electric, Inc., 2004 WI 139, 276 Wis. 2d 361, 688 
N.W.2d 462, the court of appeals held the economic loss doctrine 
did not apply because the contract was for services.  1325 N. 
Van Buren, 284 Wis. 2d 387, ¶14.  In the words of the court of 
appeals: 
Here, we are concerned with a contract for the 
provision 
of 
"construction 
administration 
and 
management 
services." 
 
Such 
services 
are 
not 
contemplated by the U.C.C. and its protections and 
remedies.  Although T-3 argues that only about 
$176,000 of the approximately $6 million contract 
price was allocated as the fee for construction 
management services, and, therefore, this cannot be 
considered a contract for services, we are not 
persuaded that that is dispositive.  That is, it 
appears that while well over $5 million of the 
contract price may have been allocated for the cost of 
                                                 
6 However, Westport has continued to defend T-3 in light of 
the subsequent appeals. 
No. 
2004AP352   
 
12 
 
construction, that construction was being performed by 
subcontractors.  To an extent, T-3 was merely the 
conduit through which the money flowed.  T-3 was hired 
to manage the construction of the building; as part of 
that duty, it hired, and therefore also had to pay, 
subcontractors to perform work on the building.  As 
such, it would be reasonable to conclude that the 
money was being utilized by T-3 to pay subcontractors 
in the course of its management of the construction, 
and was not paid to T-3 for any product it was 
personally constructing.  Indeed, we have not been 
pointed to anything in the record indicating that T-3 
performed any of the construction, and it conceded at 
oral argument that it had no design authority.  As 
such, it does not seem reasonable to conclude that 
because only approximately $176,000 of the $6 million 
contract was specifically allocated to pay T-3 for its 
construction 
management 
services, 
that 
this 
was 
actually a contract for a product and not a contract 
for services. 
Id., ¶19. 
¶20 The court of appeals also held that Westport's 
professional liability policy provided coverage for 1325's 
breach-of-contract claims against T-3.  Id., ¶2.  In the court 
of appeals' words, "the broad grant of coverage in the 
professional liability policy cannot be interpreted to limit 
coverage in the way Westport advocates."  Id., ¶40.   
1325 has alleged a number of "negligent acts, errors, 
or 
omissions 
in 
the 
performance 
of 
[T-3's] 
'professional services'" in its complaint.  These 
allegations not only assert a breach of contract and a 
failure to exercise the requisite standard of care, 
but also trigger the professional liability policy's 
coverage for T-3's "wrongful acts."  If T-3 did not 
expect to be held liable for any damages that may 
result from failing to provide adequate professional 
services, 
should such 
allegations 
be 
raised and 
proven, 
what, 
then, 
would 
be 
the 
purpose 
of 
professional liability insurance?   
No. 
2004AP352   
 
13 
 
Id., ¶42 (emphasis in original).  The court of appeals also 
concluded that neither of the exclusions raised by Westport is 
applicable. 
¶21 T-3 and Westport petitioned for review, challenging 
the court of appeals' holding that the economic loss doctrine 
does not apply.  Additionally, Westport contests the court of 
appeals' holding that its policy provides coverage against 
1325's breach-of-contract claims.  We granted review, and now 
reverse on the petition for review and affirm on the cross-
petition for review. 
II 
¶22 "We review a circuit court's grant of summary judgment 
independently, applying the same methodology as the circuit 
court."  Smaxwell v. Bayard, 2004 WI 101, ¶12, 274 Wis. 2d 278, 
682 N.W.2d 923 (citing Town of Delafield v. Winkelman, 2004 WI 
17, ¶15, 269 Wis. 2d 109, 675 N.W.2d 470).  Pursuant to 
Wis. Stat. § 802.08(2) (2003-04), 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."  "We view the summary judgment 
materials in the light most favorable to the nonmoving party." 
Smaxwell, 
274 
Wis. 2d 278, 
¶12 
(citing 
Torgerson 
v. 
Journal/Sentinel, Inc., 210 Wis. 2d 524, 537, 563 N.W.2d 472 
(1997)).  "Summary judgment should not be granted, 'unless the 
facts presented conclusively show that the plaintiff's action 
No. 
2004AP352   
 
14 
 
has no merit and cannot be maintained.'"  Id. (quoting Goelz v. 
City of Milwaukee, 10 Wis. 2d 491, 495, 103 N.W.2d 551 (1960)).  
"Where the material facts are not disputed, the court is 
presented solely with a question of law, subject to de novo 
review."  Id. (citing Winkelman, 269 Wis. 2d 109, ¶16).   
¶23 Additionally, we review the circuit court's decision 
to grant declaratory judgment to Westport.  The granting or 
denying of relief is a matter within the discretion of the 
circuit court.  Progressive No. Ins. Co. v. Romanshek, 2005 WI 
67, ¶8, 281 Wis. 2d 300, 697 N.W.2d 417.  "'This court reviews 
such 
decisions 
to 
determine 
whether 
the 
circuit 
court 
erroneously exercised its discretion. If the circuit court 
proceeds on an erroneous interpretation of the law, the exercise 
of discretion is erroneous.'"  Id. (quoting Theis v. Midwest 
Sec. Ins. Co., 2000 WI 15, ¶8, 232 Wis. 2d 749, 606 N.W.2d 162).  
Furthermore, whether an insurance policy affords coverage and 
whether an insurer has a duty to defend are questions of 
insurance contract interpretation subject to de novo review.  
Everson v. Lorenz, 2005 WI 51, ¶11, 280 Wis. 2d 1, 695 
N.W.2d 298. 
III 
¶24 We begin with a brief overview of the economic loss 
doctrine.  "'The economic loss doctrine is a judicially created 
doctrine under which a purchaser of a product cannot recover 
from a manufacturer on a tort theory for damages that are solely 
economic.'"  Linden v. Cascade Stone Co., 2005 WI 113, ¶6, 283 
Wis. 2d 606, 
699 
N.W.2d 189 
(quoting 
Bay 
Breeze, 
257 
No. 
2004AP352   
 
15 
 
Wis. 2d 511, ¶9).  "Economic loss is generally defined as 
damages resulting from inadequate value because the product is 
'inferior and does not work for the general purposes for which 
it was manufactured and sold.'"  Daanen & Janssen, Inc. v. 
Cedarapids, Inc., 216 Wis. 2d 395, 400-01, 573 N.W.2d 842 (1998) 
(quoting Northridge Co. v. W.R. Grace & Co., 162 Wis. 2d 918, 
925-26, 471 N.W.2d 179 (1991)).  "Economic loss may be either 
direct or consequential.  Direct economic loss is loss in value 
of the product itself.  All other economic loss caused by the 
product defect, such as lost profits, is consequential economic 
loss."  Wausau Tile, Inc. v. County Concrete Corp., 226 
Wis. 2d 235, 246, 593 N.W.2d 445 (1999) (internal quotations and 
citations omitted).  "Economic damages do not include losses due 
to personal injury or damage to other property."7  Linden, 283 
Wis. 2d 606, ¶6. 
¶25 Three principles generally underlie the application of 
the economic loss doctrine to tort actions between commercial 
parties:  "(1) to maintain the fundamental distinction between 
tort law and contract law; (2) to protect commercial parties' 
freedom to allocate economic risk by contract; and (3) to 
encourage the party best situated to assess the risk [of] 
economic loss, the commercial purchaser, to assume, allocate, or 
insure against that risk."  Daanen & Janssen, 216 Wis. 2d at 
403.   
                                                 
7 In this case, 1325 asserts property damage only to the 
building itself or its components.   
No. 
2004AP352   
 
16 
 
¶26 In this case, the property damage suffered by 1325 
amounts to nothing more than construction defects and damage to 
work and materials ultimately within the subject matter of the 
contract.  In other words, only the building or components 
incorporated into the building were damaged and the express 
warranty bargained by the parties applies.   
¶27 Furthermore, 
1325 
and 
T-3 
are 
two 
commercially 
sophisticated parties that drafted a detailed 102-page written 
contract specifically allocating the risk of the loss and the 
available remedies under the terms of the contract.  These risk 
allocations and remedy provisions include, among others, the 
following:  a broad form express warranty; an insurance and 
bonding requirement; a broad form indemnification agreement; 
authority by 1325's architect to reject nonconforming work; a 
provision relating to withholding compensation in the event of 
the termination of T-3; and a provision for exclusion from T-3's 
reimbursement costs of the work.  It is difficult to conceive 
what else the parties could have done with respect to the risk 
allocation and remedies in the event of a breach of contract.   
¶28 The written, bargained-for nature of the contract; the 
sophistication of the parties; the commercial nature of the 
transaction; the representation of the parties by counsel; and 
the fact that the parties had the opportunity to bargain for a 
warranty, the available remedies, and the allocation of risk all 
weigh heavily for the application of the economic loss doctrine.  
Considering the above facts, this case seems "tailor made for 
No. 
2004AP352   
 
17 
 
the application of traditional contract law."8 Van Lare v. Vogt, 
Inc., 2004 WI 110, ¶21, 274 Wis. 2d 631, 683 N.W.2d 46.  
¶29 With these preliminary considerations in mind, we now 
examine the contract under the Linden analysis.9  First, we 
consider the nature of the contract.  That is, we must determine 
whether the contract was one for products, services, or a mixed 
contract encompassing both products and services.  "Interpreting 
the nature of a contract presents a question of law subject to 
independent appellate review."  Cease Elec., 276 Wis. 2d 361, 
¶14.  If the contract is purely a service contract, the economic 
loss doctrine does not apply.  Id., ¶52 (creating a bright-line 
rule that the economic loss doctrine does not apply "to claims 
for the negligent provision of services").  However, if the 
                                                 
8 This discussion of the underlying transaction and the all-
inclusiveness of the contract merely underscores why, under the 
three main policy rationales of the economic loss doctrine, our 
application of the economic loss doctrine in this case is 
consistent with the policies driving the doctrine.  It should 
not be interpreted as a separate basis for our holding that the 
economic loss doctrine applies to the contract between T-3 and 
1325.  Our holding is based on an application of Linden v. 
Cascade Stone Co., 2005 WI 113, 283 Wis. 2d 606, 699 N.W.2d 189.   
9 Contrary to the dissent's lament and trite reference to 
The Blob, this decision does not implicate a wild expansion of 
the economic loss doctrine.  We are simply applying the test 
laid out in Linden.  If anything, the Linden decision went 
further than we do today.  In Linden, we applied the economic 
loss doctrine to the homeowners' negligence claims against the 
subcontractors hired by the general contractor even though there 
was no privity of contract.  In this case, however, there was a 
direct contractual relationship between T-3 and 1325, wherein 
the parties detailed specific risk allocations and remedy 
provisions.  In any event, although the dissent may continue to 
believe Linden was misguided, it is the law in Wisconsin.   
No. 
2004AP352   
 
18 
 
contract is a mixed contract for products and services, whether 
the economic loss doctrine applies depends upon whether the 
contract is predominantly for a product or for services.  
Linden,  283 Wis. 2d 606, ¶8.  
¶30 T-3 contends that the court of appeals erred in 
characterizing the contract as one purely for services.10  It 
argues that the court reached its erroneous conclusion by 
narrowly focusing on the work personally performed by T-3, 
rather than the full scope of T-3's contract and the finished 
product T-3 was contractually obligated to deliver.  T-3 
contends the contract is mixed in nature, and further, under the 
predominant 
purpose 
test, 
T-3 
asserts 
the 
contract 
is 
predominantly one for a product and therefore subject to the 
economic loss doctrine.   
¶31 1325 argues the contract is purely a service contract, 
as T-3 was hired for its construction management services and 
therefore the contract is controlled by the holding of Cease 
Electric.  Linden cannot apply, 1325 asserts, because unlike the 
builder in Linden, T-3 never delivered a product since its 
negligent construction management prevented a product from 
existing at the time 1325 terminated T-3. 
¶32 Contrary to 1325's arguments and the decision of the 
court of appeals, we have little difficulty in concluding that 
                                                 
10 We note that Westport also briefed the applicability of 
the economic loss doctrine.  Essentially, Westport's brief 
echoes the arguments of T-3, and for simplicity we refer solely 
to T-3 in this portion of the discussion.  
No. 
2004AP352   
 
19 
 
the contract is, at a minimum, not a pure services contract, 
especially given that the contract clearly discusses both 
services and products to be furnished.  In our view, the 
contract is closely analogous to the mixed contract in Linden 
rather than the pure service contract in Cease Electric. 
¶33 In Cease Electric, 276 Wis. 2d 361, ¶3, electricians 
were hired to wire a ventilation system for a chicken barn.  The 
customer supplied the ventilation system and all essential 
materials.  Id., ¶7.  The contract was oral and grew out of an 
informal, 
long-standing 
business 
relationship. 
 
Id., 
¶3.  
Furthermore, the electricians were paid by the hour.  Id., ¶19.  
Noting that all the electricians were required to do "was to 
follow the one-page wiring schematic to ensure that the 
controller was properly wired[,]" we had little difficulty 
concluding the contract was purely for services.  Id., ¶¶18-21.   
¶34 By contrast, in Linden, the Lindens entered into a 
written contract with Groveland, a general contractor, to build 
a new home.  Groveland, in turn, hired two subcontractors, 
Cascade and Fern, to apply exterior stucco to the house and to 
shingle the house's roof.  Linden, 283 Wis. 2d 606, ¶2.  The 
house suffered from water infiltration, and the Lindens sued 
Groveland and the subcontractors for breach of contract, breach 
of warranty, and negligence.  Id., ¶3.  After Groveland settled, 
Cascade and Fern moved for summary judgment, contending that the 
economic loss doctrine barred the Lindens' tort claims.  Id., 
¶4.  The circuit court granted summary judgment, and we 
affirmed.   
No. 
2004AP352   
 
20 
 
¶35 We then concluded that the general contract, not the 
subcontracts, controlled the analysis of whether a contract is 
primarily for goods or services.  Id., ¶17.  Notably, we readily 
established the contract encompassed both products and services 
and moved to the question of whether products or services were 
the predominant feature of the contract.  See id., ¶8.  Applying 
the predominant purpose test, we concluded that under the 
totality of the circumstances the predominant purpose of the 
contract was for a new house rather than one for services.  Id., 
¶25.   
¶36 As was the case in Linden, we believe it apparent that 
the T-3/1325 contract is mixed in nature for a number of 
reasons.  First, the parties used an AIA Standard Form Agreement 
for 
the 
project——AIA 
Document 
A121/CMc 
Standard 
Form 
of 
Agreement Between Owner and Construction Manager Where the 
Construction Manager is Also the Constructor. 
¶37 According to the AIA, under the CMc arrangement, "the 
functions of contractor and construction manager are merged and 
assigned to one entity that may or may not give a guaranteed 
maximum price, but who typically assumes control over the 
construction work by direct contracts with the subcontractors."  
See 
http://www.aia.org/docs_chart. 
 
Additionally, 
the 
AIA 
describes the contract as follows: 
A121/CMc is intended for use on projects where a 
construction manager, 
in 
addition 
to 
serving as 
advisor to the owner, assumes financial responsibility 
for construction of the project.  The construction 
manager provides the owner with a guaranteed maximum 
price proposal, which the owner may accept, reject, or 
No. 
2004AP352   
 
21 
 
negotiate.  Upon the owner's acceptance of the 
proposal 
by 
execution 
of 
an 
amendment, 
the 
construction manager becomes contractually bound to 
provide labor and materials for the project. 
http://www.aia.org/docs_family_constructionmanagerconstrutor. 
This language supports T-3's claim that it was hired to act in a 
dual role and was not hired strictly for its construction 
management services. 
¶38 Furthermore, "The Project" is defined in the General 
Conditions of the contract as "the total construction of which 
the Work performed under the Contract Documents may be the whole 
or a part and which may include construction by the Owner or by 
separate contractors."  (Emphasis added.)  The term "Work," in 
turn, means "the construction and services required by the 
Contract 
Documents . . . and 
includes 
all 
other 
labor, 
materials, equipment and services provided or to be provided by 
the 
Contractor 
to 
fulfill 
the 
Contractor's 
obligations." 
(Emphasis added.)  This language demonstrates T-3's contractual 
obligation to deliver all of the materials and services for a 
completed 42-unit condominium complex and not just construction 
management services. 
¶39 This case is also unlike Cease Electric, in that 1325 
did not supply T-3 with all the essential components necessary 
to construct the condominium complex.  Rather, as was true for 
the 
general 
contractor 
in 
Linden, 
T-3 
was 
contractually 
obligated to furnish all of the component parts of the building 
and to perform all of the actual construction work, whether 
using its own personnel, subcontractors or a combination 
No. 
2004AP352   
 
22 
 
thereof.  The entirety of the construction work, including all 
labor and materials necessary to deliver the completed building, 
was within the scope of T-3's contract.   
¶40 Additionally, T-3 was at risk financially for the 
completed product, which demonstrates that the contract was, at 
a minimum, not a pure services contract.  The fact that T-3 
assumed the risk of completing the project on budget belies the 
court of appeals' characterization of T-3 as "merely the conduit 
through 
which 
the 
money 
flowed[]" 
between 
1325 
and 
the 
subcontractors.  1325 N. Van Buren, 284 Wis. 2d 387, ¶19. 
¶41 Furthermore, it does not matter for purposes of our 
analysis that T-3 never delivered a "final" product to 1325 
because 1325 terminated T-3 before any product could be 
delivered.  We note that adopting 1325's reasoning would give 
parties to a 
contract 
a 
high incentive 
to 
terminate a 
problematic relationship prior to completion in order to take 
advantage of tort remedies as opposed to relying on their own 
bargained-for remedies.   
¶42 Having concluded that the T-3/1325 contract is mixed, 
we next turn to determining whether the mixed contract is 
predominantly for a product or services.  Whether a contract is 
primarily for goods or services and whether the economic loss 
doctrine precludes a claim are questions of law subject to de 
novo review.  Linden, 283 Wis. 2d 606, ¶5.  In deciding the 
predominant purpose of a contract, this court uses "the totality 
of the circumstances test, which includes both quantitatively 
objective and subjective factors."  Id., ¶18.  Among the factors 
No. 
2004AP352   
 
23 
 
this court considers are:  "the language of the contract, the 
nature of the business of the supplier, the intrinsic worth of 
the materials, the circumstances of the parties, and the primary 
objective they hoped to achieve by entering into the contract."  
Id., ¶21.11    
¶43 In Linden, we concluded a contract to construct a new 
house was predominantly for a product.  Id., ¶25.  We first 
noted that almost $100,000 of the roughly $360,000 total cost of 
the home was for lumber, but otherwise the contract did not 
provide all of the costs broken down into services and 
materials.  Id., ¶23.  Next, we stated that although the 
contract was couched in terms of service words and product 
words, "the primary reason the Lindens entered into the contract 
was to have a house custom built for them."  Id., ¶25.  
Furthermore, 
the 
project 
was 
billed 
as 
a 
"'fixed 
price 
contract,' not changing based on the hours worked, but only on 
changes in the specifications. . . . This shows that the parties 
bargained for costs based on the specifications of the house, 
not the amount of work put into completion of the project."  Id.  
With these considerations in mind, we concluded that under the 
                                                 
11 In 
Linden, 
we 
collected 
these 
factors 
from 
other 
jurisdictions as examples of what other courts had looked at in 
determining the predominant purpose of a contract.  However, we 
focused our attention primarily on two factors——the primary 
objective the parties hoped to achieve and the fixed contract 
price——in concluding that the contract was primarily for the 
construction of a house.  Linden, 283 Wis. 2d 606, ¶25.  
No. 
2004AP352   
 
24 
 
totality of the circumstances, the predominant purpose of the 
contract was for a new house.  Id. 
¶44 1325 contends the contract was predominantly for 
services because T-3 was hired for its construction management 
expertise, which it claims is a professional service.  The 
product, 1325 reasons, was supplied by the subcontractors, which 
built the condominium complex.  Therefore, the predominant 
purpose of the contract was to procure T-3's construction 
management services.  If the purpose were simply to procure the 
condominium complex, 1325 argues it would have simply hired a 
general contractor rather than a construction manager.  1325 
also discounts the significance of the product-oriented language 
by 
observing 
that 
every 
construction 
service 
contract 
necessarily contains a description of the thing to be built.  
Therefore, 1325 reasons, the court should not attribute any 
significance to such language.   
¶45 We disagree with 1325.  Applying the Linden analysis 
to the contract at hand, we conclude the predominant purpose of 
the T-3/1325 contract was to provide a completed condominium 
complex rather than to provide construction management services.  
There are a number of facts that lead us to this conclusion.   
¶46 First, under the plain language of the contract, "The 
Project" was the "[r]enovation of a warehouse into a 42-unit 
condominium and construction of adjacent parking garages."  In 
other words, T-3 was contractually obligated to deliver to 1325 
a series of condominiums and parking garages by first completing 
a major deconstruction of an existing ice cream warehouse down 
No. 
2004AP352   
 
25 
 
to its structural skeleton before beginning the substantial 
reconstruction of the upscale condominiums with the attached 
parking garage.  
¶47 The 
pricing 
of 
the 
contract 
also 
supports 
our 
conclusion 
that 
the 
parties 
bargained 
for 
the 
completed 
condominium project, not the amount of work and services 
necessary to complete the project.  The contract fee for T-3's 
construction management services was only $176,000, or 2.8 
percent of the $6,099,891 total contract price.  Furthermore, 
the contract was for a guaranteed maximum price.  1325 contends 
that the guaranteed maximum price in this contract is not 
analogous to the fixed price contract in Linden.  1325 argues 
that the contract guaranteed T-3 a profit because it specified a 
fixed management fee of $176,000; however, this argument 
disregards the possibility that the project cost overruns could 
exceed the construction management fee, thereby resulting in a 
loss to the construction manager.  Therefore, we conclude that 
the contract pricing is comparable to the fixed price contract 
in Linden, and as we concluded in Linden, a fixed price contract 
signifies that the parties bargained based on the specifications 
of the condominium complex not the amount of work required to 
complete the project.  In other words, T-3 was not simply 
responsible for providing its construction management services; 
rather, it was responsible for supplying the condominium 
complex.   
¶48 Next, 1325's process of bidding for the project 
suggests 1325 viewed the contract as one for a finished product 
No. 
2004AP352   
 
26 
 
not construction management services.  The depositions of Thomas 
DeMuth and Brett Grasse, members of Lighthouse Development 
Company, LLC, which is the managing member of 1325, demonstrate 
that 1325 decided to whom to award the project based on overall 
project price.  We can find nothing in the record that suggests 
the expense of construction management services was a factor.  
This seems especially true given: (1) DeMuth considered David 
Schmidt of C.G. Schmidt——a competitor of T-3——a friend, with 
whose expertise he was familiar; (2) 1325 was prepared to 
proceed 
with 
the 
project 
under 
C.G. 
Schmidt; 
and 
(3) 
nevertheless, 1325 awarded the Contract to T-3——of whom 1325 had 
no personal knowledge——because it proposed to complete the 
project for $6.1 million as opposed to C.G. Schmidt's $6.8 
million price.  This objective evidence weighs in favor of our 
conclusion that 1325 was primarily purchasing the completed 
project, not construction management services despite 1325's 
contentions to the contrary. 
¶49 Furthermore, 
our 
conclusion 
that 
the 
predominant 
purpose of the contract was to provide a product is consistent 
with 1325's understanding of the contract.  At DeMuth's 
deposition, T-3's attorney asked the following question:  "Is it 
your understanding then that pursuant to the warranty provision, 
T-3 was to deliver a fully completed building, a 42-unit 
condominium complex with parking garage, in accordance with the 
contract that was free of defects and with good quality, new 
materials?"  To this question, DeMuth answered "Yes."  In other 
words, 1325 viewed its contract with T-3 as a contract for a 
No. 
2004AP352   
 
27 
 
completed product: the condominium complex with construction 
management services incidental to the ultimate purpose of the 
contract. 
¶50 In sum, applying the Linden analysis, we conclude the 
predominant purpose of the T-3/1325 contract was to provide a 
condominium 
complex 
rather 
than 
to 
provide 
construction 
management services; therefore, the contract is subject to the 
economic loss doctrine as 1325 has suffered solely economic 
losses.12  We therefore reverse the court of appeals with respect 
to T-3's appeal.   
IV 
¶51 Next, 
we 
address 
whether 
Westport's 
professional 
liability insurance policy13 provides coverage for 1325's breach 
of contract claim. "The interpretation of words or clauses in an 
insurance policy and the existence of coverage under that policy 
are questions of law which we review de novo."  Doyle v. 
                                                 
12 The dissent accuses us of selectively focusing on 
portions of the record that support our decision.  Notably 
however, in its "analysis" the dissent has not provided any 
contrary portions of the record for support of its determination 
that the predominant purpose of the contract is for services.  
The dissent mainly refers back to the decision of the court of 
appeals, which did not have the Linden decision at its disposal. 
13 The professional liability policy Westport issued to T-3 
is the sort of policy issued to many professionals, including 
attorneys, accountants, engineers, and real estate brokers.  8 
Lee R. Russ & Thomas F. Segalla, Couch on Insurance, § 1.34 (3d 
ed. 2004).  "Generally, a policy of liability insurance issued 
to professional persons or entities protects them against 
liability for malpractice, error, or mistake that occurs in the 
course of their professional duties."  46 C.J.S. Insurance § 955 
(1993). 
No. 
2004AP352   
 
28 
 
Engelke, 
219 
Wis. 2d 277, 
283-84, 
580 
N.W.2d 245 
(1998) 
(citations omitted).  "Insurance polices are construed as they 
would be understood by a reasonable person in the position of 
the insured.  However, we do not interpret insurance policies to 
provide coverage for risks that the insurer did not contemplate 
or underwrite and for which it has not received a premium."  Am. 
Fam. Mut. Ins. Co. v. Am. Girl, Inc., 2004 WI 2, ¶23, 268 
Wis. 2d 16, 673 N.W.2d 65 (citations omitted).   
¶52 In determining whether coverage exists, we first 
"examine the facts of the insured's claim to determine whether 
the policy's insuring agreement makes an initial grant of 
coverage."  Am. Girl, 268 Wis. 2d 16, ¶24; see also Bankert v. 
Threshermen's 
Mut. 
Ins. 
Co., 
110 
Wis. 2d 469, 
480, 
329 
N.W.2d 150 (1983) (a court first focuses on the incident 
allegedly giving rise to coverage——not the theory of liability——
to determine whether the incident comes within the coverage 
afforded by the policy).  Then, "[i]f the claim triggers the 
initial grant of coverage in the insuring agreement, we next 
examine the various exclusions to see whether any of them 
preclude coverage of the present claim."  Am. Girl, 268 
Wis. 2d 16, ¶24.14 
¶53 We begin with the language of Westport's insurance 
contract.  The insuring agreement states that Westport "shall 
                                                 
14 Westport did not petition for review of the court of 
appeals' determination that the exclusions in its policy do not 
apply; therefore, we address the first question only: whether 
1325's claim comes within the policy's initial grant of 
coverage. 
No. 
2004AP352   
 
29 
 
pay on behalf of any insured all 'loss' in excess of the 
deductible which any insured becomes legally obligated to pay as 
a result of 'claims' first made against any insured during the 
'policy period' . . . by reason of 
any 
'wrongful act[.]'"  
"Wrongful act," in turn, is defined as "any actual or alleged 
negligent 
act, 
error 
or 
omission 
in 
the 
performance 
of 
'professional services' for others by an insured[.]"  Thus, 
whether Westport must indemnify T-3 turns on whether T-3 is 
"legally obligated to pay" as a result of 1325's contract claim 
against T-3 "by reason of any negligent act, error or omission." 
¶54 Westport's primary contention is that 1325's breach of 
contract claim does not fall within the policy's initial grant 
of coverage.  As negligent modifies "act," "error," and 
"omission," Westport argues that coverage exists only for losses 
caused by negligence.  Coverage is further limited because even 
if there is a negligent act, coverage exists only if the insured 
could be liable on a negligence claim.  This is true, Westport 
reasons, because the policy insures against claims that the 
insured "becomes legally obligated to pay," which connotes tort 
liability, 
not 
contractual 
liability. 
 
Accordingly, 
in 
Westport's view, because the economic loss doctrine bars 1325 
from seeking relief under a negligence cause of action, T-3's 
policy affords no coverage.15 
                                                 
15 Westport also argues that 1325 should have sought a 
performance bond.  This argument is a red herring, however, as 
it does not matter what 1325 could have or should have done with 
respect to protecting itself.  What matters is what coverage 
Westport's insurance policy affords to T-3. 
No. 
2004AP352   
 
30 
 
¶55 1325 contends that Westport's interpretation of the 
policy is far too narrow given that a professional liability 
insurance policy is meant to protect against malpractice, and 
malpractice claims may sound in either contract or tort.  
McMahon v. Brown, 125 Wis. 2d 351, 353, 371 N.W.2d 414 (Ct. App. 
1985).  In other words, 1325 argues, how a malpractice claim is 
pled——in tort or contract——does not matter for purposes of 
determining whether a policy affords coverage.  What matters is 
whether the complaint alleges T-3 failed to provide competent 
professional services, such that the allegations bring the claim 
within the scope of coverage dictated by the policy language. 
¶56 As to the language of the policy itself, 1325 argues 
that in the phrase "negligent act, error or omission," negligent 
modifies "act" but not "error" or "omission."  1325 claims that 
Westport's interpretation renders the terms error and omission 
as mere superfluous duplication of the concept of negligent, 
contrary to the "established rule that a contract is to be 
construed so as to give a reasonable meaning to each provision 
of the contract, and that courts must avoid a construction which 
renders portions of a contract meaningless, inexplicable or mere 
surplusage."  Goebel v. First Fed. Sav. and Loan Ass'n of 
Racine, 83 Wis. 2d 668, 680, 266 N.W.2d 352 (1978) (citations 
omitted).  Furthermore, 1325 argues that it is well settled in 
Wisconsin that we must interpret the words in a contract as "a 
reasonable person in the position of the insured would have 
understood the words to mean[,]" State Farm Mutual Automobile 
Insurance Co. v. Langridge, 2004 WI 113, ¶15, 275 Wis. 2d 35, 
No. 
2004AP352   
 
31 
 
683 N.W.2d 75, and in this case a reasonable insured would not 
understand the term negligent act as being limited to an 
actionable wrong pled in tort. 
¶57 We agree with 1325 and conclude that Westport's 
professional liability policy provides coverage for 1325's 
breach of contract claim against T-3.  1325's claim clearly fits 
within the insuring agreement as it is based on a "negligent 
act, error or omission" of T-3 in its failure to adhere to 
professional standards, sounding in negligence, but arising in 
the context of a contract between 1325 and T-3.  The policy is 
in no way limited to negligence claims.  A breach of contract 
claim, as pled in 1325's amended complaint, can also arise from 
negligent acts, errors or omissions.     
¶58 We 
have 
repeatedly 
rejected 
the 
argument 
that 
insurance coverage is dependent upon the theory of liability.  
See Am. Girl, 268 Wis. 2d 16, ¶¶35-36; Bankert, 110 Wis. 2d at 
480.  In American Girl, American Girl contracted with a general 
contractor to have a warehouse built.  Am. Girl, 268 Wis. 2d 16, 
¶3.  Because a soil-engineering subcontractor gave faulty site-
preparation advice to the general contractor, the warehouse 
suffered such extreme settling that it had to be torn down.  Id.  
Although American Girl's contract with the general contractor 
included a warranty, American Girl sued the general contractor, 
claiming that the subcontractor's negligence caused the general 
contractor to breach the contract.  Id., ¶17.  American Family 
provided the general contractor's CGL insurance, which required 
the insurer to "pay those sums that the insured becomes legally 
No. 
2004AP352   
 
32 
 
obligated to pay as damages because of 'bodily injury' or 
'property damage' to which this insurance applies."  Id., ¶31.  
The bodily injury or property damage further had to be caused by 
an "occurrence."  In American Girl, the threshold issue was 
whether 
the 
insuring 
agreement 
conferred 
coverage, 
which 
depended on whether there had been "property damage" resulting 
from an "occurrence."  Id., ¶32. 
¶59 We first held that although the economic loss doctrine 
may limit a party to contract rather than tort remedies, it does 
not determine insurance coverage.  Id., ¶35.  Insurance coverage 
depends upon the policy language, not the theory of liability.  
Id.  The issue of whether the economic loss doctrine precluded 
the tort recovery was not before us, but we concluded the 
following:   
To 
the 
extent 
that 
American 
Family 
is 
arguing 
categorically that a loss giving rise to a breach of 
contract 
or warranty 
claim can 
never 
constitute 
"property damage" within the meaning of the CGL's 
coverage grant, we disagree.  The language of the CGL 
policy and the purpose of the CGL insuring agreement 
will provide coverage for claims sounding in part in 
breach-of-contract/breach-of-warranty 
under 
some 
circumstances.  This is such a circumstance.   
Id., ¶36 (emphasis in original) (internal quotations and 
citation omitted).  
¶60 Thus, this case refutes Westport's contention that 
"legally obligated to pay" connotes only tort liability as we 
concluded the CGL policy would "provide coverage for claims 
sounding in part in breach-of-contract/breach-of-warranty under 
some circumstances."  Id.   
No. 
2004AP352   
 
33 
 
¶61 Additionally, we 
determined 
that 
the 
CGL 
policy 
afforded coverage for a breach of contract claim based on an 
"occurrence," where occurrence was defined as "an accident, 
including continuous or repeated exposure to substantially the 
same general harmful conditions."  Id., ¶37.  American Family 
argued that because American Girl's claim was for a breach of 
contract/breach of warranty it could not be an occurrence 
because "the CGL is not intended to cover contract claims 
arising out of the insured's defective work or product."  Id., 
¶39.  While agreeing in principle with this proposition, we 
stated that "this is by operation of the CGL's business risk 
exclusions, not because a loss actionable only in contract can 
never be the result of an 'occurrence' within the meaning of the 
CGL's initial grant of coverage."  Id.  Furthermore, we noted 
the following: 
[T]here is nothing in the basic coverage language of 
the current CGL policy to support any definitive 
tort/contract line of demarcation for purposes of 
determining whether a loss is covered by the CGL's 
initial grant of coverage.  "Occurrence" is not 
defined by reference to the legal category of the 
claim.  The term "tort" does not appear in the CGL 
policy.   
Id., ¶41.   
¶62 We find this reasoning of American Girl persuasive to 
this case.  As an "occurrence" in the CGL policy of American 
Girl was not defined by a tort claim, so too "wrongful act" in 
Westport's professional liability policy is not defined by a 
tort claim.  Under Westport's policy, at most a "wrongful act" 
No. 
2004AP352   
 
34 
 
is a "negligent act" but this is entirely different from a claim 
of negligence.16  It is entirely possible that one could do a 
negligent act, which would form the basis for a breach of 
contract claim.  It would be an easy matter to have the 
insurance policy state that it does not cover facts that arise 
out of what is a breach of contract, if that was indeed 
Westport's intention. 
¶63 However, the insuring agreement is clearly not so 
narrowly defined.  Indeed, the terms "loss" and "claim" are 
quite broad.  Loss is defined as "the monetary and compensatory 
portion of any judgment, award or settlement[.]"  Claim is 
defined as "a demand made upon you for loss[.]"  As the court of 
appeals put it, "the broad grant of coverage in the professional 
liability policy cannot be interpreted to limit coverage in the 
way Westport advocates."  1325 N. Van Buren, 284 Wis. 2d 387, 
¶40.   
¶64 Westport's interpretation is also not in harmony with 
some of the exclusions in its policy.  In interpreting and 
                                                 
16 As stated by the Supreme Judicial Court of Massachusetts:  
Other courts have not limited liability under 'errors 
and omissions' policies to circumstances involving 
negligence, but have recognized certain nonnegligent 
errors 
as 
being 
within 
the 
coverage 
afforded. . . . Cases involving the words such as 
'negligent act, error or omission' . . . have not 
consistently determined that an error must be a 
negligent one if coverage is to be available.   
USM Corp. v. First State Ins. Co., 652 N.E.2d 613, 614 (Mass. 
1995) (collecting cases). 
No. 
2004AP352   
 
35 
 
construing an insurance policy, we must consider the policy as a 
whole to give reasonable meaning to the entire policy.  Berg v. 
Schultz, 190 Wis. 2d 170, 175, 526 N.W.2d 781 (Ct. App. 1994).  
As 1325 notes, if Westport's insuring clause excludes all claims 
asserted as breaches of contract, it is not necessary for the 
policy to include Exclusion K, which states that the policy does 
not apply to any claim "arising out of, attributable to, or 
directly or indirectly resulting from express warranties or 
guarantees."  Similarly, Exclusion L limits coverage for 
contract indemnity.  Essentially, these exclusions would be 
superfluous if the policy could never afford coverage for breach 
of contract claims.    
¶65 On its face, 1325's amended complaint sufficiently 
alleges "wrongful acts" of T-3 sufficient to trigger Westport's 
coverage.  1325 has pled not only that T-3 acted negligently, 
but that its damages were caused by T-3's "negligent errors and 
omissions[.]"  To date, Westport has not attempted to controvert 
1325's assertions that T-3's construction management services 
did not meet industry standards.  Rather, Westport has rested 
its claim that its policy does not afford coverage on the 
argument that the economic loss doctrine precludes 1325 from 
recovering in tort and that its policy does not cover breach-of-
contract liability.  Deciding this issue without the benefit of 
American Girl, the circuit court accepted Westport's argument.  
As the discussion of American Girl demonstrates, however, 
coverage is not dependent upon the theory of liability pled by a 
party.  
No. 
2004AP352   
 
36 
 
¶66 In sum, because 1325 has alleged and presented facts 
that T-3's "negligent acts, errors and omissions" caused T-3 to 
breach 
the 
contract, 
thereby 
triggering 
the 
coverage 
in 
Westport's professional liability policy, we affirm the court of 
appeals' decision that Westport's policy provides coverage to T-
3.17 
V 
¶67 We conclude that the economic loss doctrine applies to 
the mixed contract between T-3 and 1325 as the predominant 
purpose of the contract was to construct a 42-unit condominium 
complex with adjacent parking garages.  Furthermore, Westport 
has a duty to defend and potentially indemnify T-3 for its 
breach of contract claim under our interpretation of its 
professional liability insurance contract.  As such, the 
decision of the court of appeals is reversed with respect to T-
3's appeal, affirmed with respect to Westport's cross-appeal, 
and remanded to the circuit court for further proceedings 
consistent with this opinion. 
By the Court.—The decision of the court of appeals is 
reversed in part, affirmed in part, and remanded. 
 
                                                 
17 Because 
we 
conclude 
that Westport has 
a duty to 
potentially indemnify T-3, Westport also has a duty to defend T-
3.  See Fireman's Fund Ins. Co. v. Bradley Corp., 2003 WI 33, 
¶20, 261 Wis. 2d 4, 660 N.W.2d 666. ("The duty to defend is 
necessarily broader than the duty to indemnify because the duty 
to defend is triggered by arguable, as opposed to actual, 
coverage."). 
No.  2004AP352.awb 
 
1 
 
 
¶68 ANN WALSH BRADLEY, J.   (dissenting).  "Like the ever-
expanding, all-consuming alien life form portrayed in the 1958 
B-movie classic The Blob, the economic loss doctrine seems to be 
a swelling globule on the legal landscape of this state."  Grams 
v. Milk Prods., Inc., 2005 WI 112, ¶57, 283 Wis. 2d 511, 699 
N.W.2d 167 (Abrahamson, C. J., dissenting). 
¶69 These words ring as true now as they did a year ago.  
The majority of this court once again expands the already-
swollen 
body 
of 
economic 
loss 
doctrine 
jurisprudence 
in 
Wisconsin.  That jurisprudence continues to devour unsuspecting 
tort claims that it finds in its path.  Like the Blob, the more 
it eats, the more it grows. 
¶70 I am hardly alone in my concern for the unbridled 
expansion 
of 
the 
economic 
loss 
doctrine 
in 
this 
state.  
Recently, legal commentary has critiqued Wisconsin's approach to 
the development of the economic loss doctrine. 
¶71 For example, in an award-winning article highlighting 
the instability in the law that this court's economic loss 
doctrine cases have engendered, the authors observe:  "Over the 
last decade . . . the doctrine's application has been radically 
expanded, narrowing and in some cases effectively eliminating a 
variety of common-law tort causes of action."  R. Thomas Cane & 
No.  2004AP352.awb 
 
2 
 
Sheila Sullivan, More Litigation to Come:  Exceptions to the 
Economic Loss Doctrine, 78 Wis. Lawyer 10, 10 (Nov. 2005).1 
¶72 At oral argument, counsel for 1325 advised that 
Wisconsin leads the nation in the number of cases involving the 
economic 
loss 
doctrine, 
far 
outpacing 
almost 
all 
other 
jurisdictions: 
[T]here's been an awful lot of them.  A tremendous 
number of them.  In fact, I did a []search just before 
I came here, putting in the term "economic loss 
doctrine" in all the states and the state with the 
most case law by far is this state.  By far.  I mean, 
you outrank New York, you outrank California, Texas.  
I mean, Florida comes close . . . . 
See also John J. Laubmeier, Demystifying Wisconsin's Economic 
Loss 
Doctrine, 
2005 
Wis. 
L. 
Rev. 
225, 
225 
("The 
doctrine . . . was at issue in the Wisconsin Court of Appeals or 
the Wisconsin Supreme Court forty-seven times between 2000 and 
2004."). 
¶73 Only Florida rivals Wisconsin in its use of the 
economic loss doctrine.2  The Supreme Court of Florida, however, 
                                                 
1 For discussion and criticism of the expansion of the 
economic 
loss 
doctrine 
in 
jurisdictions 
in 
addition 
to 
Wisconsin, see Daniel Rapaport, et al., Tort Killer:  The 
Applicability 
of 
the 
Economic 
Loss 
Doctrine 
to 
Service 
Contracts, 20 Me. B. J. 100 (Summer 2005); R. Joseph Barton, 
Drowning in a Sea of Contract:  Application of the Economic Loss 
Rule to Fraud and Negligent Misrepresentation Claims, 41 Wm. & 
Mary L. Rev. 1789 (May 2000); Paul J. Schwiep, The Economic Loss 
Rule Outbreak:  The Monster that Ate Commercial Torts, 69 Fla. 
B. J. 34 (Nov. 1995). 
2 My electronic search yielded results similar to those of 
1325's counsel.  In my search, only Florida topped Wisconsin in 
number of cases citing "economic loss doctrine" or "economic 
loss rule."  
No.  2004AP352.awb 
 
3 
 
recently reversed course, retreating from an expansive approach 
to the doctrine.  Acknowledging error, it now endorses a return 
to the principles underlying the doctrine's origins.3 
¶74 Nonetheless, a majority of this court demonstrates——
yet again——its willingness to continue to expand the economic 
loss doctrine far beyond its principled origins.4  The majority 
of this court is increasingly out of step with any sensible 
approach to the doctrine that can be justified based on its 
                                                 
3 More specifically, the Supreme Court of Florida explained 
as follows in Moransais v. Heathman, 744 So. 2d 973, 983 (Fla. 
1999): 
Today, we again emphasize that by recognizing that the 
economic loss rule may have some genuine, but limited, 
value in our damages law, we never intended to bar 
well-established common law causes of action, such as 
those for neglect in providing professional services.  
Rather, the rule was primarily intended to limit 
actions in the product liability context, and its 
application should generally be limited to those 
contexts or situations where the policy considerations 
are substantially identical to those underlying the 
product liability-type analysis. 
Accord Indemnity Ins. Co. v. American Aviation, Inc., 891 So. 2d 
532, 542 (Fla. 2004) ("We now agree that the economic loss rule 
should be expressly limited."). 
4 See also, e.g., Linden v. Cascade Stone Co., 2005 WI 113, 
¶37, 283 Wis. 2d 606, 699 N.W.2d 189 (Bradley, J., dissenting) 
("[T]he majority has once again expanded the economic loss 
doctrine 
well 
beyond 
its 
principled 
origins 
of 
products 
liability."); Grams v. Milk Prods., Inc., 2005 WI 112, ¶58, 283 
Wis. 2d 511, 699 N.W.2d 167 (Abrahamson, C. J., dissenting) 
("Courtesy of this majority opinion and other opinions of this 
court, this legal doctrine with modest, or even 'obscure' 
beginnings, is fast growing.") (footnotes omitted). 
No.  2004AP352.awb 
 
4 
 
origins in commercial products liability.5  Accordingly, I 
respectfully dissent. 
I 
¶75 Today the majority applies the economic loss doctrine 
based on a contract for "construction management services" to 
"substantially renovat[e] an existing industrial warehouse into 
a 42-unit condominium building with attached parking garages."  
Majority op., ¶¶2, 5, 7.  (Emphasis added.)  Its decision 
purports to be grounded in the "predominant purpose" test that 
this court adopted in Linden v. Cascade Stone Co., 2005 WI 113, 
283 Wis. 2d 606, 699 N.W.2d 189, a case in which I dissented. 
¶76 I continue to believe that the court's decision in 
Linden was misguided.  In Linden, the same majority of the court 
applied this "predominant purpose" test to a contract for the 
construction of a new home.  Linden, 283 Wis. 2d 606, ¶¶8-11.  A 
fundamental problem with Linden was that the majority used one 
                                                 
5 See Sunnyslope Grading, Inc. v. Miller, Bradford & 
Risberg, Inc., 148 Wis. 2d 910, 921, 437 N.W.2d 213 (1989) 
(holding that "a commercial purchaser of a product cannot 
recover solely economic losses from the manufacturer under 
negligence 
or 
strict 
liability 
theories, 
particularly . . . where the warranty given by the manufacturer 
specifically precludes the recovery of such damages"); see also 
R. Thomas Cane & Sheila Sullivan, The Future of the Economic 
Loss Doctrine in Wisconsin, 78 Wis. Lawyer 13, 14 (May 2005) 
("The economic loss doctrine is, in its purest form, a 
judicially created doctrine that bars commercial purchasers of 
goods from recovering solely economic losses from manufacturers 
under tort theory."). 
No.  2004AP352.awb 
 
5 
 
party's contract to bar the tort claims of another with whom 
there was no contract.  Id., ¶36 (Bradley, J., dissenting).6 
¶77 Now the majority makes apparent that Linden has 
another fundamental problem.  The test from Linden can be 
difficult to apply and is a malleable means for the majority to 
achieve its desired economic loss doctrine ends. 
¶78 Even granting the majority the predominant purpose 
test, I would still not reach the result the majority reaches 
today.  I would decline to apply the economic loss doctrine 
because I would conclude that the contract was predominantly for 
services. 
II 
¶79 The majority's continued expansion of the economic 
loss doctrine is signaled by its initial focus on a number of 
"preliminary considerations."  Majority op., ¶29.  Many of these 
considerations have nothing to do with whether a contract is one 
for a product, one for services, a mixed contract that was 
predominantly for a product, or a mixed contract that was 
predominantly for services.  The considerations include the 
"sophistication of the parties," the "commercial nature of the 
transaction," 
and 
the 
"representation 
of 
the 
parties 
by 
counsel."  Id., ¶¶28-29.  The majority appears to conclude that, 
                                                 
6 Cf. Trinity Lutheran Church v. Dorschner Excavating, Inc., 
2006 WI App 22, ¶¶19-20, ___ Wis. 2d ___, 710 N.W.2d 680 
(holding that the economic loss doctrine does not apply when 
there was "no contractual relationship of any kind between two 
parties" and distinguishing Linden as a case involving "vertical 
privity"). 
No.  2004AP352.awb 
 
6 
 
given the presence of these considerations here, this case is 
"tailor made" for the economic loss doctrine.  Id., ¶28.  
¶80 That the majority is expanding the doctrine is then 
made clear by its selective application of the Linden factors to 
the facts of this case.  Under Linden, the predominant purpose 
test is a fact-intensive one, requiring a "totality of the 
circumstances" inquiry into "both quantitatively objective and 
subjective factors."  Linden, 283 Wis. 2d 606, ¶18.  In applying 
the test, the court is to consider these factors: 
(1) the language of the contract; 
(2) the nature of the business of the supplier; 
(3) the intrinsic worth of the materials; 
(4) the circumstances of the parties; and 
(5) the primary objective they hoped to achieve by 
entering into the contract. 
Id., ¶21.  Let us examine the majority's application of these 
factors. 
¶81 In 
applying 
the 
first 
factor, 
the 
majority 
acknowledges that "under the plain language of the contract, 
'The Project' was the '[r]enovation of a warehouse into a 42-
unit condominium and construction of adjacent parking garages."  
Majority op., ¶46.  It concludes that the predominant purpose of 
the contract was either to "construct" or to "provide" a 
"condominium complex."  Id., ¶¶5, 50.  The majority is 
apparently confident that this type of renovation of an existing 
structure constitutes a product, not a service.  Under the 
majority's logic I wonder when, if ever, a contract for the 
No.  2004AP352.awb 
 
7 
 
renovation of an existing structure will be something other than 
a contract that is predominantly for a product.  
¶82 The majority then analyzes the "pricing of the 
contract," the "process of bidding" for the contract, and 
"1325's understanding of the contract," selectively focusing on 
portions of the record that arguably support its analysis.  Id., 
¶¶47-49.  These may be relevant considerations in a predominant 
purposes analysis under Linden.  However, the majority opinion 
leaves unclear, at best, whether it has applied the "nature of 
the business of the supplier" factor or the "the intrinsic worth 
of the materials" factor. 
¶83 What is the nature of T-3's business?  The majority 
does not tell us. 
¶84 What is the intrinsic worth of the materials used in 
the renovation project?  The majority does not say. 
¶85 Similarly, the majority gives short shrift to the 
"circumstances of the parties" factor, the amorphous catch-all 
factor under Linden. 
¶86 Indeed, despite the fact-intensive nature of the 
Linden test, and despite the voluminous record in this case, the 
majority needs only four modest paragraphs to complete its 
totality of the circumstances inquiry under Linden.  See 
majority op., ¶¶46-49.  This is hardly surprising because if the 
majority faithfully applied all the Linden factors, then it 
would be unable to find for T-3.  Instead, the majority 
selectively applies the highly malleable Linden factors to 
achieve its intended result. 
No.  2004AP352.awb 
 
8 
 
¶87 As revealed by a footnote in the majority opinion, the 
majority may be re-interpreting the Linden test.  Lest the 
reader think I exaggerate, I will allow the majority's opinion 
to speak for itself: 
In Linden, we collected these factors from other 
jurisdictions as examples of what other courts had 
looked at in determining the predominant purpose of a 
contract.  However, we focused our attention primarily 
on two factors——the primary objective the parties 
hoped to achieve and the fixed contract price——in 
concluding that the contract was primarily for the 
construction of a house.  Linden, 283 Wis. 2d 606, 
¶25. 
Majority op., ¶42 n.11. 
¶88 Is the majority now suggesting that Linden is really a 
two-factor test?  Litigants in Wisconsin will be left to guess 
until the next time the majority has the opportunity to re-
interpret Linden. 
¶89 It should not be overlooked that this case comes to us 
on summary judgment.  Before applying the economic loss 
doctrine, the majority should be reviewing the facts presented 
in the light most favorable to 1325.  See majority op., ¶22.  
What does the majority do instead?  It selects facts from the 
record that are favorable to T-3, seeming to construe reasonable 
inferences in the wrong direction.  In this way, the majority 
concludes as a matter of law that the predominant purpose of 
1325's contract with T-3 was to provide a product.7   
                                                 
7 This is not the first time that the same majority of this 
court has jettisoned the requirements of summary judgment 
methodology as a means to achieve its economic loss doctrine 
ends.  See Grams, 283 Wis. 2d 511, ¶¶92-97 (Abrahamson, C. J., 
dissenting). 
No.  2004AP352.awb 
 
9 
 
¶90 For example, the majority is highly persuaded by T-3's 
argument that only $176,000 of the nearly $6.1 million contract 
price was for "construction management services."  Majority op., 
¶47.  The rest, T-3 argues, was for "physical improvements to 
the building."  In accepting this argument, the majority ignores 
the most reasonable inference:  that the cost of these 
"improvements" 
must 
have 
included 
the 
extensive 
services 
necessary to make them. 
¶91 The list of "improvements" to which the majority is 
referring includes the following: 
General Conditions  
 
 
$290,000.00 
Sitework  
 
 
 
 
$250,000.00 
Finishes  
 
 
 
   $1,300,000.00 
Specialties 
 
 
 
 
 $93,454.00 
Contingency 
 
 
  
 
$200,000.00 
¶92 Is the only reasonable inference on the record before 
us that the $1.3 million for "Finishes" was a cost primarily for 
a product?  This is the type of question the majority dare not 
answer. 
¶93 Unlike the majority, the unanimous court of appeals 
provided a fair and more balanced description of the contract in 
this case:  "Essentially, T-3 was to provide professional 
construction management services and hire subcontractors to 
renovate the building and complete the project."  1325 North Van 
Buren, LLC v. T-3 Group, Ltd., 2005 WI App 121, ¶3, 284 
Wis. 2d 387, 701 N.W.2d 13. 
No.  2004AP352.awb 
 
10 
 
¶94 Based on its description of the contract, the court of 
appeals 
declined 
to 
apply 
the 
predominant 
purpose 
test, 
rejecting 
T-3's 
argument 
that 
the 
contract 
could 
be 
characterized even as mixed.  Id., ¶20 n.6.  It concluded that 
the contract was one for services and not for a product.  Id., 
¶14.8  The majority's conclusion stands in stark contrast. 
¶95 In 
the 
end, 
the 
majority's 
initial 
focus 
on 
considerations that apply to all commercial parties and its 
faint-hearted application of the Linden factors demonstrate two 
things:  the difficulty in applying the Linden test and the 
majority's willingness to use the test's malleability in order 
to further expand the economic loss doctrine beyond the 
doctrine's principled origins.  Reaching well beyond what Linden 
dictates, it now applies the economic loss doctrine to a 
contract that is predominantly for a service. 
III 
¶96 One year ago, in Linden, I lamented: 
Perhaps a day will come when this court will rein 
in this recent evolution of the economic loss doctrine 
and 
'return 
to 
the 
doctrine's 
principled 
roots.' . . .  Unfortunately . . . that day is not 
today. 
Linden, 283 Wis. 2d 606, ¶65 (Bradley, J., dissenting) (footnote 
omitted).  Sadly for Wisconsin, that day is not today either. 
                                                 
8 The court of appeals issued its decision before this court 
issued Linden.  It declined, however, to reconsider its decision 
in light of Linden.   
No.  2004AP352.awb 
 
11 
 
 
¶97 I am authorized to state that Chief Justice SHIRLEY S. 
ABRAHAMSON and Justice LOUIS B. BUTLER, JR. join this dissent. 
 
 
No.  2004AP352.awb 
 
 
 
1