Wis. Pharmacal Co. v. Neb. Cultures of Cal., Inc., Nos. 2013AP613

CourtCourt of Appeals of Wisconsin
Writing for the CourtNEUBAUER, P.J.
Citation856 N.W.2d 505,358 Wis.2d 673
PartiesWISCONSIN PHARMACAL COMPANY, LLC, Plaintiff, v. NEBRASKA CULTURES OF CALIFORNIA, INC. and Evanston Insurance Company, Defendants, Jeneil Biotech, Inc., Defendant–Appellant, The Netherlands Insurance Company, Defendant–Respondent. Wisconsin Pharmacal Company, LLC, Plaintiff, v. Nebraska Cultures of California, Inc., Defendant–Appellant, Jeneil Biotech, Inc. and The Netherlands Insurance Company, Defendants, Evanston Insurance Company, Defendant–Respondent.
Decision Date29 October 2014
Docket Number2013AP687.,Nos. 2013AP613

358 Wis.2d 673
856 N.W.2d 505

WISCONSIN PHARMACAL COMPANY, LLC, Plaintiff
v.
NEBRASKA CULTURES OF CALIFORNIA, INC. and Evanston Insurance Company, Defendants
Jeneil Biotech, Inc., Defendant–Appellant
The Netherlands Insurance Company, Defendant–Respondent.

Wisconsin Pharmacal Company, LLC, Plaintiff
v.
Nebraska Cultures of California, Inc., Defendant–Appellant
Jeneil Biotech, Inc. and The Netherlands Insurance Company, Defendants
Evanston Insurance Company, Defendant–Respondent.

Nos. 2013AP613
2013AP687.

Court of Appeals of Wisconsin.

Submitted on Briefs Sept. 13, 2013.
Opinion Filed Oct. 29, 2014.


856 N.W.2d 508

On behalf of the defendant-appellant Nebraska Cultures of California, Inc., the cause was submitted on the briefs of Patryk Silver of Borgelt, Powell, Peterson & Frauen, S.C., Madison.

On behalf of the defendant-appellant Jeneil Biotech, Inc., the cause was submitted on the briefs of James A. Baxter and Rachel N. Schepp of von Briesen & Roper, S.C., Milwaukee.

On behalf of the defendant-respondent Evanston Insurance Company, the cause was submitted on the brief of Mark F. Wolfe and Natalie M. Limber of Traub Lieberman Straus & Shrewsberry LLP, Chicago, Illinois.

On behalf of the defendant-respondent The Netherlands Insurance Company, the cause was submitted on the brief of Thomas R. Schrimpf and Elizabeth A. Odian of Hinshaw & Culbertson LLP, Milwaukee.

Before BROWN, C.J., NEUBAUER, P.J., and REILLY, J.

Opinion

NEUBAUER, P.J.

358 Wis.2d 679

¶ 1 This is an insurance coverage dispute in which the insureds supplied an incorrect ingredient for incorporation into a dietary supplement. The question presented is whether the insured suppliers' negligent provision of an ingredient that renders the other ingredients and the final product unusable when incorporated constitutes an occurrence resulting in property damage under the insureds' commercial general liability (CGL) policies. We conclude that it does. We reverse and remand for proceedings not inconsistent with this opinion.

FACTS

¶ 2 The underlying facts, as described in the complaint, are largely undisputed. Wisconsin Pharmacal Company, LLC (Pharmacal) was to supply a feminine health probiotic supplement to be sold under the label of a major retailer. The product called for Lactobacillus rhamnosus A (hereinafter rhamnosus) as an ingredient. Pharmacal contacted Nutritional Manufacturing Services, LLC (NMS) to locate a supplier of rhamnosus and to manufacture the supplement tablets. NMS contacted Nebraska Cultures of California, Inc.

358 Wis.2d 680

(Nebraska Cultures) to locate the rhamnosus, and Nebraska Cultures in turn arranged with Jeneil Biotech, Inc. (Jeneil) to supply the rhamnosus.

¶ 3 Pharmacal ordered a “substantial quantity” of rhamnosus tablets from NMS. NMS purchased the rhamnosus from Nebraska Cultures to manufacture these tablets, and the certificate of analysis representing that the probiotic was rhamnosus “appeared to have originated” from Jeneil. NMS used the probiotic to manufacture the chewable tablets for Pharmacal, which sold the tablets to the retailer as part of the daily probiotic feminine supplement. The retailer later informed Pharmacal that the supplement tablets did not contain rhamnosus, but rather contained Lactobacillus acidophilus (hereinafter acidophilus), and Pharmacal confirmed this through independent testing. The retailer recalled Pharmacal's daily probiotic feminine supplement.

856 N.W.2d 509

¶ 4 NMS assigned its claims to Pharmacal, and Pharmacal filed suit against Nebraska Cultures, and its insurer, Evanston Insurance Company (Evanston), and Jeneil, and its insurer, Netherlands Insurance Company (Netherlands). Pharmacal alleged various tort and contract causes of action. In response to motions to dismiss from Jeneil, Netherlands, and Nebraska Cultures, the circuit court dismissed (1) all Pharmacal's causes of action against Nebraska Cultures, (2) all of Pharmacal's causes of action against Jeneil, (3) all of NMS's causes of action against Jeneil, and (4) NMS's tort and statutory causes of action against Nebraska Cultures. After the circuit court's order dismissing these causes of action, the remaining claims were (1) NMS's contract claims against Nebraska Cultures, including claims for breach of contract, breach of duty of good faith and fair dealing, breach of implied warranty

358 Wis.2d 681

of merchantability, breach of implied warranty of fitness for a particular purpose, breach of implied warranty under the Uniform Commercial Code1 and (2) Nebraska Cultures' and Jeneil's cross-claims for contribution or indemnification.

¶ 5 Netherlands and Evanston moved to bifurcate and stay proceedings pending a coverage decision, and the court granted the motion. Netherlands and Evanston then moved for summary judgment on coverage. The circuit court deferred deciding the summary judgment and allowed the parties sixty days in which to conduct discovery. Ultimately, the circuit court granted summary judgment in favor of the insurers. The insurers argued that there was no coverage under their policies because there was no occurrence and there was no property damage. Furthermore, they argued, even if there were a covered occurrence, coverage was excluded by the business risk exclusions.

¶ 6 The circuit court ruled that there was no coverage, concluding that there was no damage to property other than the integrated product into which the mistaken ingredient had been incorporated and that this did not constitute property damage other than to the product itself, and there was not an occurrence. The circuit court went on to say that even if there were an initial grant of coverage, the impaired property and recall exclusions would preclude coverage. Finally, “under the facts of this particular case ... there's no duty to defend.” Jeneil and Nebraska Cultures appealed, and their appeals were consolidated.

358 Wis.2d 682

DISCUSSION

Summary Judgment Standard

¶ 7 We review a grant of summary judgment de novo, applying the same methodology as the circuit court. American Family Mut. Ins. Co. v. American Girl, Inc., 2004 WI 2, ¶ 22, 268 Wis.2d 16, 673 N.W.2d 65. Summary judgment “shall be rendered if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Wis. Stat. § 802.08(2) (2011–12).2 The materials submitted for summary judgment are viewed in the light most favorable to the nonmoving party. Summers v. Touchpoint Health Plan, Inc., 2008 WI 45, ¶ 15, 309 Wis.2d 78, 749 N.W.2d 182. Like our review of a motion for summary judgment, the interpretation

856 N.W.2d 510

of an insurance policy is also a question of law we review de novo. American Girl, 268 Wis.2d 16, ¶ 23, 673 N.W.2d 65.

General Insurance Law

¶ 8 Insurance contracts typically impose a duty to defend against claims and a duty to indemnify against losses. Olson v. Farrar, 2012 WI 3, ¶ 27, 338 Wis.2d 215, 809 N.W.2d 1. Under Wisconsin law, if the allegations in the complaint, liberally construed, give rise to coverage, then the insurer is required to provide a defense until coverage is determined. Id., ¶ 30 (citing

358 Wis.2d 683

2 Arnold Anderson, Wisconsin Insurance Law § 7.41 (6th ed.2011)). This initial determination of the duty to defend is based on the four-corners rule: “[w]hen a complaint alleges facts that, if proven, would constitute a covered claim, the insurer must appoint defense counsel for its insured without looking beyond the complaint's four corners.” Estate of Sustache v. American Family Mut. Ins. Co., 2008 WI 87, ¶ 27, 311 Wis.2d 548, 751 N.W.2d 845 (alteration in original). The insurer may decide to provide a defense while the coverage question is pending. In that case, the circuit court may consider extrinsic evidence beyond the four corners of the complaint when making its coverage decision. Olson, 338 Wis.2d 215, ¶¶ 35, 38, 809 N.W.2d 1.

¶ 9 Here, the circuit court allowed additional discovery before deciding the coverage questions, and none of the parties argues that deciding indemnity coverage at this juncture on summary judgment was error.3

¶ 10 Our procedure in analyzing this coverage question potentially involves three steps. American Girl, 268 Wis.2d 16, ¶ 24, 673 N.W.2d 65. First, we examine the facts

358 Wis.2d 684

and the policies to determine if there is an initial grant of coverage. Id. If there is an initial coverage grant, we move to the policies' exclusions to see if they preclude coverage. Id. Finally, if any exclusion applies, we look to see whether...

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3 practice notes
  • Wis. Pharmacal Co. v. Neb. Cultures of Cal., Inc., Nos. 2013AP613
    • United States
    • United States State Supreme Court of Wisconsin
    • March 1, 2016
    ...of summary judgment, concluding that the policies provided coverage. Wis. Pharmacal Co. v. Neb. Cultures of Cal., Inc., 2014 WI App 111, 358 Wis.2d 673, 856 N.W.2d 505. The court of appeals concluded that the integrated system rule was not relevant to the coverage dispute and that the incor......
  • 118th St. Kenosha, LLC v. Wis. Dep't of Transp., No. 2012AP2784.
    • United States
    • United States State Supreme Court of Wisconsin
    • December 10, 2014
    ...is the measure of compensation that was used in the instant case. I conclude a reasonable reading of Wis. Stat. § 32.09(6g) permits this 856 N.W.2d 505method of valuation when the taking is of a TLE.¶ 79 The majority opinion's assumption that the statute applies, alongside its assertion tha......
  • Haley v. Kolbe & Kolbe Millwork Co., 14-cv-99-bbc
    • United States
    • United States District Courts. 7th Circuit. Western District of Wisconsin
    • November 2, 2015
    ...why it believes this. In the case it cites, Wisconsin Pharmacal Co., LLC v. Nebraska Cultures of California, Inc., 2014 WI App 111, ¶38, 358 Wis. 2d 673, 856 N.W.2d 505, the court rejected the view that the integrated systems doctrine applies to every commercial general liability policy. Th......
3 cases
  • Wis. Pharmacal Co. v. Neb. Cultures of Cal., Inc., Nos. 2013AP613
    • United States
    • United States State Supreme Court of Wisconsin
    • March 1, 2016
    ...of summary judgment, concluding that the policies provided coverage. Wis. Pharmacal Co. v. Neb. Cultures of Cal., Inc., 2014 WI App 111, 358 Wis.2d 673, 856 N.W.2d 505. The court of appeals concluded that the integrated system rule was not relevant to the coverage dispute and that the incor......
  • 118th St. Kenosha, LLC v. Wis. Dep't of Transp., No. 2012AP2784.
    • United States
    • United States State Supreme Court of Wisconsin
    • December 10, 2014
    ...is the measure of compensation that was used in the instant case. I conclude a reasonable reading of Wis. Stat. § 32.09(6g) permits this 856 N.W.2d 505method of valuation when the taking is of a TLE.¶ 79 The majority opinion's assumption that the statute applies, alongside its assertion tha......
  • Haley v. Kolbe & Kolbe Millwork Co., 14-cv-99-bbc
    • United States
    • United States District Courts. 7th Circuit. Western District of Wisconsin
    • November 2, 2015
    ...why it believes this. In the case it cites, Wisconsin Pharmacal Co., LLC v. Nebraska Cultures of California, Inc., 2014 WI App 111, ¶38, 358 Wis. 2d 673, 856 N.W.2d 505, the court rejected the view that the integrated systems doctrine applies to every commercial general liability policy. Th......

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