(Article from Insurance Law Alert, April 2022)
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The Ohio Supreme Court held that the incorporation of a defective component into an integrated product constituted property damage under an umbrella policy. Motorists Mutual Ins. Co. v. Ironics, Inc., 2022 WL 852346 (Ohio Mar. 23, 2022).
Ironics, a metal product company, sold tube scale to another company to be used in the production of glass containers. After the containers were manufactured, it was discovered that the tube scale was contaminated and that incorporation of the contaminated tube scale increased the likelihood that the glass containers would break. Because the contaminated component could not be removed from the containers, the glass company destroyed nearly two tons of product and then sued Ironics. Ironics’ umbrella insurer sought a declaration it had no duty to defend or indemnify the claims.
The Ohio Supreme Court ruled that the incorporation of Ironics’ defective product into the glass containers constituted “property damage” caused by an “accident.” In particular, the court held that there was damage to tangible property other than Ironics’ own property, emphasizing that damage to the glass containers (the final product) is not the same as damage to Ironics’ tube scale (a component of that product).
Deeming the policy language unambiguous and outcome-determinative, the court declined to apply the integrated-system rule, as set forth in Wisconsin Pharmacal Co., LLC v. Nebraska Cultures of California, Inc., 2016 WL 785203 (Wis. Mar. 1, 2016) (discussed in our March 2016 Alert). There, the Wisconsin Supreme Court held that the incorporation of a defective ingredient into a nutritional supplement tablet was not “property damage” caused by an “occurrence.”