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  • August 30, 2023

    Damage to Cattle From Intentional Diet Substitution Covered by CGL Policy

    An insurer for a company that allegedly damaged a dairy herd by substituting a feed mix component is not entitled to summary judgment because the substitution was not accidental, the Wisconsin Court of Appeals has ruled.

    Jeff M. Brown

    A Row of Black And White Holstein Dairy Cows Feeding In A Modern Barn

    Aug. 30, 2023 – An insurer for a company that allegedly damaged a dairy herd by substituting a feed mix component is not entitled to summary judgment because the substitution was not accidental, the Wisconsin Court of Appeals has ruled.

    In Riverback Farms, LLC v. Saukville Feed Supplies, Inc., 2023 AP 40, the Wisconsin Court of Appeals District II also held that physical ailments suffered by the cattle after the substitution were property damage under the policy. 

    Quest to Boost Butterfat

    For four decades, Riverback Farms LLC (Riverback), a dairy farm in West Bend, bought the feed mix for its cattle from Saukville Feed Supplies, Inc. (Saukville). Riverback owns about 1,000 Holstein cattle and milks 400 of them.

    Jeff M. Brown Jeff M. Brown , Willamette Univ. School of Law 1997, is a legal writer for the State Bar of Wisconsin, Madison. He can be reached by email or by phone at (608) 250-6126.

    In December 2015, Integrity Nutrition, Inc. (Integrity), Riverback’s nutritionist, recommended that the farm add Min-Ad to its feed mix.

    Michael Freund, Integrity’s principal, recommended Min-Ad to boost the amount of bio-available magnesium and calcium in the herd’s diet (magnesium and calcium are essential to producing butterfat, a key ingredient in milk).

    After reviewing Integrity’s recommendation to add Min-Ad, Saukville decided that a finely-ground version of Waukesha Barnlime, called Fine Lime, would work just as well as Min-Ad. This decision was not communicated to Riverback.

    Nick Laatsch, Saukville’s owner, said that Saukville did not intend, foresee, or expect that substituting Fine Lime for Min-Ad would have an adverse effect on Riverback’s cattle.

    Sick Cows, Watery Milk

    Riverback claimed that after Fine Lime was added to the herd’s diet, the deficiency in bio-available magnesium caused the following health problems in its cattle:

    • metabolic acidosis (too much acid in the body);

    • ulcers; and

    • grass tetany, a potentially fatal disease.

    Riverback also claimed that the butterfat content in the herd’s milk dropped after Fine Lime was added to its cows’ diet.

    In July 2019, Freund discovered that Saukville had failed to add a highly bio-available magnesium ingredient to the feed mix when he reviewed Integrity’s invoices. The invoices showed that the ingredients that Integrity had added to the feed mix cost $.08 per pound instead of $.22 per pound.

    After Freund’s discovery, the Fine Lime was replaced with Min-Ad, and the butterfat content in the milk produced by Riverback’s herd went back to 2015 levels.

    Lawsuit, Followed by Summary Judgment

    Riverback sued Saukville and its insurer Secura Insurance (Secura) in Ozaukee County Circuit Court.

    Riverback sought $250,000 in damages on various contract claims, and for the reduced production of milk attributable to the drop in butterfat content.

    Secura moved for summary judgment, arguing that it had no duty to defend Saukville.

    The circuit court granted Secura’s motion, after concluding that: 1) there was no initial grant of coverage because there had been no “occurrence” under the commercial general liability (CGL) policy issued by the company; and 2) the claim about the reduced butterfat was not property damage under the CGL policy.

    Riverback appealed.

    What Is an ‘Accident’?

    Writing for a three-judge panel, Judge Maria S. Lazar pointed out that under the Secura policy, the company must pay for “property damage” caused by “an occurrence,” with the latter term defined in the policy as an “accident.”

    Lazar noted that the policy provided no definition for “accident.”

    However, she wrote, under Wisconsin Supreme Court caselaw, the term “accident” in a CGL policy means “‘an event or condition occurring by chance or arising from unknown or remote causes.’”

    Secura argued that adding Fine Lime to the feed mix instead of Min-Ad could not be an accident because it was done intentionally. But that argument missed the mark, Judge Lazar concluded.

    “While it is undisputed that Saukville intentionally substituted the feed component, the record shows that the resulting magnesium deficiency that allegedly caused physical harm to the cattle could have been ‘without … foresight or expectation,’ and thus an accident/occurrence,” Lazar wrote.

    Recent Supreme Court Decision

    Judge Lazar reasoned that that conclusion was supported by the supreme court’s recent holding in 5 Walworth, LLC v. Engerman Contracting, Inc., 2023 WI 51.

    “In 5 Walworth, the supreme court again affirmed that an initial intentional act by the insured – the provision of goods, products, or work – can set in motion a chain of events that includes an accident, a covered occurrence, causing property damage,” Lazar wrote.

    “The focus is on whether the injury or damages was foreseeable or expected, not whether the action that caused the damages was intended.”

    Harm to Cattle Was ‘Property Damage’

    Judge Lazar had little trouble concluding that the harm suffered by Riverback’s cattle constituted "property damage" under the Secura policy.

    Under supreme court caselaw, she pointed out, physical injury to tangible property occurs when the property is physically altered, and Saukville’s expert witness testified that Riverback’s cattle suffered physical injury from consuming the Fine Lime.

    “It cannot be seriously disputed that the identified physical injuries to the cattle allegedly caused by the magnesium deficiency … constitute property damage and a change of material dimension,” Lazar wrote.

    Impaired Property Exclusion Doesn’t Apply

    Secura argued that a policy exclusion for impaired property should apply to bar Riverback’s suit.

    But Judge Lazar pointed out that under the policy, that exclusion applied only to property that wasn’t physically injured.

    Additionally, she noted, the exclusion requires that the impaired property can be restored to use by repair, replacement, or adjustment of the product – in Riverback’s case, the feed mix.

    “Riverback’s claims do not relate to any incorporation of Saukville Feed’s product or work into Riverback’s property, nor is there any suggestion that the feed the cattle ate could be repaired, replaced, adjusted, or removed,” Lazard wrote.

    The court of appeals remanded the case to the circuit court for further proceedings.

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