Wisconsin Supreme Court Clarifies That “Property Damage” Under CGL Does Not Require Damage to Other Property

In a recent construction defect decision, a majority of the Wisconsin Supreme Court held that the initial grant of coverage under a standard Commercial General Liability (CGL) insurance policy does not require that the damage be to property other than the insured’s own product or work. 5 Walworth, LLC v. Engerman Contracting, Inc., 2023 WI 51, 408 Wis. 2d 39, 992 N.W.2d 31. Engerman Contracting involved a claim of faulty construction of a pool complex in which the “shotcrete” used to construct the walls and bottom of the pool cracked causing water to leak into the surrounding soil. This ultimately required the removal and reconstruction of the pool.

The court rejected the “integrated systems analysis” applied in Wisconsin Pharmacal Co., LLC v. Nebraska Cultures of California, Inc., which looked at “whether the product is to be treated as a unified whole or whether a defective component can be separated out such that the claimed damage constitutes damage to property other than the defective component itself.” 2016 WI 14, ¶ 28, 367 Wis. 2d 221, 241–42, 876 N.W.2d 72, 81. The Engerman Contracting court expressly overruled Wisconsin Pharmacal, finding it inconsistent with the insurance policy’s language and Wisconsin precedent, notably, Am. Fam. Mut. Ins. Co. v. American Girl, Inc., 2004 WI 2, 268 Wis.2d 16, 673 N.W.2d 65. The Engerman Contracting court found no basis to limit the grant of coverage to damage to “other property” in either the language of the insuring agreement covering “property damage” caused by an “occurrence” or in the definition of “property damage” (in pertinent part, “physical injury to tangible property”).

Interestingly, the court also held that the “your product” exclusion raised by the “shotcrete” supplier’s carrier did not apply because a finder of fact could conclude that the defective “shotcrete” caused damage to the surrounding soil and pool structure. In cases where there is only damage to an insured’s product, the “your product” exclusion may limit the impact of the Engerman Contracting decision.


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