Risk Insight: Wisconsin Court Reverses Integrated Systems Analysis
On June 22, 2023, the Wisconsin Supreme Court issued an opinion in 5 Walworth, LLC v. Engerman Contracting in a case regarding commercial general liability (CGL) policies. This case involved an insurance dispute over damages allegedly caused by deficient construction on an in-ground pool.
Prior precedent in the Wisconsin high court in Wisconsin Pharmacal Co. v. Nebraska Cultures of California required that in order for coverage to exist under a CGL policy, property damage must be to property other than the defective work or product. This approach adopted an “integrated systems analysis” to determine whether coverage for property damage existed under the CGL. The integrated systems approach created a barrier for coverage determination purposes outside of the traditional insurance contract.
In the 5 Walworth, LLC v. Engerman Contracting case, the Court rejected the Pharmacal case from 2016, reverting back to the traditional contract interpretation of “property damage” caused by an “occurrence”. Under this approach, faulty workmanship in and of itself is not an occurrence, but can lead to an occurrence that could cause covered property damage under the CGL policy.
The Court remanded the case back to the District Court for further proceedings in light of this decision.
The Wisconsin Supreme Court appears to have reversed its stance on insurance coverage resulting from faulty workmanship or product covered by a commercial general liability policy. Organizations operating within the State of Wisconsin would be well-served to work with their insurance broker and their insurance carrier to make sure they have the proper insurance and/or policy endorsements for coverage in the event of an occurrence.