Opinion ID: 6325956
Heading Depth: 3
Heading Rank: 1

Heading: Was there “property damage”?

Text: {¶ 11} We consider first whether there was “property damage.” The insurance contract defines “property damage” as “[p]hysical injury to or destruction of tangible property   , including all resulting loss of use of that property.” According to Motorists, the “tangible property” cannot be the insured’s own product but must instead be some other property. As Motorists interprets the policy language, Ironics’s tube scale did not cause “property damage,” because it did not cause damage to other property, that is, Ironics’s tube scale caused damage only after it was incorporated into Owens’s containers and at that point, Motorists argues, those containers were not “other property.” Motorists’s key argument on this point is that the integrated-system rule should be applied in this case. According to Motorists, that rule provides that the “incorporation of a defective ingredient into an integrated product or system does not constitute damage to 6 January Term, 2022 ‘other’ property for purposes of liability coverage under commercial general liability and umbrella policies.” {¶ 12} In support of its argument, Motorists points to Wisconsin Pharmacal Co., L.L.C. v. Nebraska Cultures of California, Inc., 367 Wis.2d 221, 2016 WI 14, 876 N.W.2d 72, in which the Supreme Court of Wisconsin applied the integratedsystem rule to facts analogous to those here. The insureds in Wisconsin Pharmacal agreed to supply a particular type of bacteria to be used in the production of probiotic-supplement tablets. When they provided the wrong type of bacteria, which led to the tablets’ being mislabeled, recalled, and then destroyed, the insureds sought coverage under a policy containing materially the same language as the policy at issue here. The Supreme Court of Wisconsin held that the policy did not apply, because the insureds’ provision of the wrong type of bacteria did not cause “property damage.” It reasoned that the tablets were an integrated system, and under the integrated-system rule, damage to the tablets caused by the insureds’ bacteria was damage to the tablets themselves, not damage to other property. {¶ 13} We reject Motorists’s argument that there was no “property damage” in this case. Under the plain language of the umbrella policy, Owens’s claims against Ironics are for “property damage.” As a legal theory, the integrated-system rule is applied by courts to determine whether the economic-loss doctrine, which is discussed later in this opinion, bars recovery on a tort claim. There is no reason to apply that rule to the present case. a. Owens’s claims against Ironics are for “property damage” {¶ 14} In determining whether the umbrella policy covers Owens’s claims, we look to the language of the agreement. “[W]here the terms in an existing contract are clear and unambiguous, this court cannot in effect create a new contract by finding an intent not expressed in the clear language employed by the parties.” Alexander, 53 Ohio St.2d at 246, 374 N.E.2d 146; see also Westfield Ins. Co. v. Custom Agri Sys., Inc., 133 Ohio St.3d 476, 2012-Ohio-4712, 979 N.E.2d 269, ¶ 11 7 SUPREME COURT OF OHIO (“The issue we must decide is whether the    policy in the present case provides coverage”). By contrast, when terms in an insurance contract are ambiguous—that is, when they are susceptible to more than one reasonable interpretation—they will ordinarily be interpreted against the insurer and in favor of the insured. See Galatis, 100 Ohio St.3d 216, 2003-Ohio-5849, 797 N.E.2d 1256, at ¶ 13-14. {¶ 15} The meaning of the term “property damage” in the umbrella policy is clear and unambiguous. “Property damage” is defined in the policy to include “[p]hysical injury to or destruction of tangible property   , including all resulting loss of use of that property.” Applying the provision here, Owens’s glass containers are “tangible property” and Ironics’s contaminated tube scale caused “[p]hysical injury to or destruction of” Owens’s containers. The claims for which Ironics seeks coverage are based clearly and simply on “property damage.” {¶ 16} Motorists’s argument that the “tangible property” injured or destroyed here is Ironics’s product and not property other than the insured’s own product does not have merit. Multicomponent objects such as glass containers are ubiquitous and not identifiable as any particular component. A microchip, battery, or other component of a smart phone is not the equivalent of a smart phone itself. Owens’s glass containers are likewise property other than Ironics’s tube scale. While the property includes Ironics’s tube scale, it is the integration of the tube scale into Owens’s product that caused the damage—more than 1,850 tons of unusable glass containers. {¶ 17} Moreover, we agree with Ironics and Owens that there is “property damage” here when we look at the coverage provisions in the context of the entire policy. See CPS Holdings, 115 Ohio St.3d 306, 2007-Ohio-4917, 875 N.E.2d 31, at ¶ 7 (“We examine the insurance contract as a whole”). The policy’s impairedproperty exclusion provides that the policy does not cover “ ‘[p]roperty damage’ to ‘impaired property’    arising out of    [a] defect, deficiency, inadequacy or dangerous condition in ‘your product.’ ” The contract defines “your product” as 8 January Term, 2022 “[a]ny goods or products, other than real property, manufactured, sold, handled or distributed or disposed of by    [y]ou.” (Emphasis added.) So in this case, Ironics’s tube scale falls under the definition of “your product.” “Impaired property” is defined within the policy as tangible property [here—Owens’s glass containers], other than “your product” or “your work” that cannot be used or is less useful because: 1. It incorporates “your product” [here—tube scale] or “your work” that is known or thought to be defective, [here—tube scale contaminated with RHM stones] deficient, inadequate or dangerous;