Wisconsin Label Corp. v. Northbrook Property & Cas. Ins. Co.

• Decision Date: 09 September 1998
• Docket Number: No. 98-0194,98-0194
• Citation: 221 Wis.2d 800,586 N.W.2d 29
• Parties: WISCONSIN LABEL CORPORATION, Plaintiff-Appellant, d v. NORTHBROOK PROPERTY & CASUALTY INSURANCE COMPANY, Defendant-Respondent.
• Court: Wisconsin Court of Appeals

Page 29

586 N.W.2d 29

221 Wis.2d 800

WISCONSIN LABEL CORPORATION, Plaintiff-Appellant,^d v. NORTHBROOK PROPERTY & CASUALTY INSURANCE COMPANY Defendant-Respondent.

No. 98-0194.

Court of Appeals of Wisconsin.

Submitted on Briefs June 29, 1998.

Opinion Released Sept. 9, 1998.

Opinion Filed Sept. 9, 1998.

On behalf of the plaintiff-appellant, the cause was submitted on the briefs of George Burnett of Liebmann, Conway, Olejniczak & Jerry, S.C. of Green Bay.

On behalf of the defendant-respondent, the cause was submitted on the brief of Susan R. Tyndall of Hinshaw & Culbertson of Milwaukee.

Before CANE, C.J., MYSE, P.J., and HOOVER, J.

CANE, Chief Judge.

Wisconsin Label Corporation appeals a summary judgment dismissing its lawsuit seeking liability coverage from its insurer, Northbrook Property and Casualty Insurance Company. Wisconsin Label claims that its mislabeling of a promotional package for its customer, Personal Products Company, resulted in "property damage" within the meaning of Northbrook's comprehensive general liability policy and that the policy's "impaired property exclusion" does not apply.

Wisconsin Label argues that: (1) the mislabeling caused property damage under the policy because "physical property damage" or "loss of use of tangible property that was not physically injured" occurred; and (2) the "impaired property" exclusion is inapplicable because: (a) the product defect could not be repaired after it reached the consumer, and (b) the product's mislabeling was a "sudden and accidental injury." We reject these arguments and affirm the trial court's judgment.

I. BACKGROUND

The parties stipulated to the following facts. Before October 1992, Wisconsin Label acquired the assets of Ameripac, an Illinois corporation. After the acquisition, Northbrook issued a comprehensive general liability (CGL) policy to Ameripac. In October 1992, Ameripac contracted with the Personal Products Company (PPC) to assemble a Stay Free/Care Free maxi-pad/panty-shield promotional package. The promotional package consisted of one box of Stay Free and one box of Care Free wrapped together in a single package for future sale at Wal-Mart retail stores.

PPC wanted consumers who purchased the promotional package to receive the Care Free panty-shields at no extra cost; therefore, PPC asked Ameripac to completely cover the UPC bar codes on both the Stay Free and Care Free products and replace them with a new UPC label. When scanned at Wal-Mart, the new UPC label was to reflect the price of only the Stay Free maxi-pads.

After PPC's promotional campaign began, Wal-Mart claimed that, on a number of the promotional packages, Ameripac had failed to properly cover the old UPC bar code on the less expensive Care Free panty-shields. As a result, Wal-Mart claimed that it had scanned many of the promotional packages at an incorrect, lower price. ¹ Wal-Mart made a claim against PPC for approximately $200,000 for the incorrect labeling; this amount reflects undercharges from the improper UPC bar codes and Wal-Mart's costs to inspect and relabel the remaining unsold promotional packages. PPC then sought damages from Ameripac/Wisconsin Label for its own losses ($25,000), as well as for the $200,000 it had paid to Wal-Mart. Since that time, PPC has withheld payment on Ameripac's invoices; these invoices, totaling approximately $125,000, reflect the work Ameripac contracted with PPC to perform.

Wisconsin Label tendered the claim to its insurer, Northbrook. Northbrook denied the claim, stating that no property damage occurred and that even if property damage did occur, the "impaired property exclusion" precludes coverage. Wisconsin Label filed suit seeking a declaration of coverage and damages. Northbrook moved for summary judgment. The trial court granted the motion. Wisconsin Label appeals.

II. STANDARD OF REVIEW

We review a trial court's summary judgment de novo, but we nonetheless value a trial court's decision on such a question. M & I First Nat'l Bank v. Episcopal Homes Mgmt., 195 Wis.2d 485, 496-97, 536 N.W.2d 175, 182 (Ct.App.1995). Whether the trial court properly granted summary judgment is a question of law. Id. In making this determination, we apply the same methodology as the trial court. Id. Because summary judgment methodology is well known, we need not repeat it "except to observe that summary judgment is appropriate when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law." Id. (citing § 802.08(2), STATS.).

Summary judgment may be used to address insurance policy coverage issues. Link v. General Cas. Co., 185 Wis.2d 394, 398, 518 N.W.2d 261, 262 (Ct.App. 1994)[221 Wis.2d S806] 1994) In this case, the parties stipulated to the material facts, but disagree on the interpretation of the insurance policy Northbrook issued to Ameripac/Wisconsin Label. Therefore, we may properly decide this case on summary judgment. See id.

The interpretation of an insurance policy is a question of law this court reviews de novo, and we apply the same rules of construction that we apply to contracts generally. Smith v. Atlantic Mut. Ins. Co., 155 Wis.2d 808, 810, 456 N.W.2d 597, 598 (1990). In interpreting the policy, our objective is to determine the parties' true intentions. Kremers-Urban Co. v. American Employers Ins. Co., 119 Wis.2d 722, 735, 351 N.W.2d 156, 163 (1984). We must give an insurance policy's language its common and ordinary meaning; moreover, we construe the language as would the reasonable person in the position of the insured. Cieslewicz v. Mutual Serv. Cas. Ins. Co., 84 Wis.2d 91, 97-98, 267 N.W.2d 595, 598 (1978).

An insurance policy is ambiguous if the language when read in context is fairly or reasonably susceptible to more than one construction. See Sprangers v. Greatway Ins. Co., 182 Wis.2d 521, 536-37, 514 N.W.2d 1, 6 (1994). We resolve ambiguities in an insurance policy against the insurer and in favor of the insured. See Garriguenc v. Love, 67 Wis.2d 130, 135, 226 N.W.2d 414, 417 (1975). Whether ambiguities exist is a question of law. See Western Cas. & Surety Co. v. Budrus, 112 Wis.2d 348, 351, 332 N.W.2d 837, 839 (Ct.App.1983).

When no ambiguities exist and the policy's terms are plain on their face, we will not rewrite the policy by construction. Limpert v. Smith, 56 Wis.2d 632, 640, 203 N.W.2d 29, 33 (1973). By contrast, we will apply the policy terms. See Budrus, 112 Wis.2d at 351, 332 N.W.2d at 839. While provisions, conditions, and exceptions tending to limit liability are strictly construed against the insurer, we "will not, under the guise of strict construction ... rewrite a policy to bind the insurer to a risk that it did not contemplate and for which it has not been paid." Bankert v. Threshermen's Mut. Ins. Co., 105 Wis.2d 438, 444-45, 313 N.W.2d 854, 857 (Ct.App.1981).

III. ANALYSIS ²

Northbrook's general commercial liability policy states that it will pay "those sums that the Insured becomes legally obligated to pay as damages because of bodily injury or property damage to which this insurance applies." (Emphasis added.) Northbrook's policy "applies to any bodily injury or property damage only if: (1) the bodily injury or property damage is caused by an occurrence ... (2) The bodily injury or property damage occurs during the policy period." The policy defines "property damage" as follows:

a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or

b. Loss of use of tangible property that is not physically injured. All such loss shall be deemed to occur at the time of the occurrence that caused it.

A. "Physical injury"

Wisconsin Label argues that physical property damage occurred because: (1) the mislabeling diminished the value of Wal-Mart and PPC's property; and (2) the mislabeling "required physical measures to repair." It contends that the packaging failed one of its functions ³--to communicate the price to cash register clerks. Wisconsin Label asserts that the trial court never addressed how physically uninjured property can nevertheless require physical repair.

The "occurrence" under the policy in this case is the mislabeling of the promotional packages. The alleged injury is that the packaging that Wisconsin Label provided to PPC under contract "needed to be repaired." Because we discern no ambiguity in the policy's phrase "physical injury to tangible property," we will apply the policy's terms. See Budrus, 112 Wis.2d [221 Wis.2d 809] at 351, 332 N.W.2d at 839. Giving "physical injury" its common and ordinary meaning, Kremers-Urban Co., 119 Wis.2d at 735, 351 N.W.2d at 163, we agree with Northbrook that a reasonable insured would construe "physical injury" as meaning some physical damage to the property.

Here, the mislabeling did not result in any physical injury to the promotional products or their packaging. The fact that the packaging had to be relabeled does not mean that physical injury occurred in the first instance. The lost profits for which Wisconsin Label seeks recovery in its complaint are economic losses for its failure to comply with the terms of its contract with PPC. Economic losses are not property damage within the "physical injury" provision of the definition of property damage. ⁴ See Qualman v. Bruckmoser, 163 Wis.2d 361, 366-68, 471 N.W.2d 282, 285-86 (Ct.App.1991) (breach of contract and misrepresentation case stating that economic losses do not constitute "physical injury to ... tangible property"). ⁵

To support its argument that the mislabeling caused physical injury, Wisconsin Label relies entirely on Eljer Mfg. v. Liberty Mut. Ins. Co., 972 F.2d 805 (7th Cir.1992). Wisconsin Label asserts that, under Eljer: (a) physical injury occurs "when a defective work or component" is incorporated into another product and must be repaired at some cost to prevent future...