Wisconsin Supreme Court rules insurers for supplement suppliers not responsible for wrong probiotic

By The Northern California Record | Apr 27, 2016

An insurer for a California probiotic supplier will not be required to cover damages from the supplier's incorporation of the wrong probiotic into a health supplement.

Under a Wisconsin Supreme Court ruling, the insurer for California-based Nebraska Cultures and the insurer for Jeneil Biotech Inc. are not responsible for paying for damages arising from the error of the suppliers.

The Wisconsin Supreme Court ruled in a 3-2-majority ruling in early

March. The ruling in Wisconsin Pharmacal Company LLC v. Nebraska

Cultures of California Inc. stated that the “incorporation of a defective

ingredient into the supplement tablets did not damage other property,” under

the policy of insurance.

“We conclude that there is no ‘property damage’ caused by an

"occurrence" because the incorporation of a defective ingredient into

the supplement tablets did not damage other property and did not result in loss

of use of property,” Chief Justice Patience Drake Roggensack said in her


Nebraska Cultures declined requests for comment. Attorneys for Jeneil,

Nebraska Cultures and Nebraska Cultures’ insurer, The Evanston Insurance Company, did not respond to requests for comment. The attorney with Hinshaw & Culbertson LLP for Jeneil's insurer, The Netherlands Insurance Company, said he could not discuss the


Wisconsin Pharmacal Co., a maker of probiotic supplements for a major

retailer, contracted with Nutritional Manufacturing Services LLC for a specific

probiotic: Lactobacillus rhamnosus (LRA).

Nutritional Manufacturing Services then contracted with Nebraska

Cultures of California, who also contracted with Jeneil Biotech for the LRA.

Finally, Nebraska Cultures sold the Jeneil Biotech-supplied probiotic to

Nutritional Manufacturing.

Nutritional Manufacturing blending the probiotic with other ingredients

to form the supplement tablets and they were shipped for packaging back to

Wisconsin Pharmacal and sent to the retailer.

However, independent testing showed that Jeneil Biotech supplied a

different probiotic— Lactobacillus acidophilus (LA)— and the retailer had to

recall the product. The supplement chewable tablets were destroyed.

Wisconsin Pharmacal filed suit against Nebraska Cultures, Jeneil and

their insurers, but a trial court dismissed the claims against the two


Nebraska Cultures’ insurance company, Evanston Insurance Co., provided

coverage for losses from “bodily injury” or “property damage” caused by an

“occurrence,” with property damage being defined as “physical injury or

destruction or tangible property or lose of use of tangible property.”

In this case, California courts consider whether the product is

hazardous. If it is, then it is automatically considered property damaged. However,

this supplement was not found to be hazardous.

Jeneil’s insurance company, The Netherlands Co., provided coverage for

losses from “bodily injury” or “property damage” caused by an “occurrence,”

with property damage being defined as physical injury to property or loss of

use of tangible property.

“While Jeneil argues that the incorporation of a defective ingredient

rendered the tablets and other ingredients useless, thereby constituting loss

of use, Pharmacal did not actually lose use of the tablets,” Roggensack said.

“Instead, Pharmacal permanently lost the entire value of the tablets.

Accordingly, we conclude that the Netherlands policy does not provide coverage

because there is no property damage due to "loss of use of tangible

property that has not been physically injured."

According to the court, blending a defective ingredient with other

ingredients to create the supplement tablets formed an “integrated system.” Because

the ingredients could not be separated from each other, any injury was to the

integrated system itself and no other property.

There was no evidence that using LA physically altered the other

ingredients if LRA had been used instead, therefore, there was no property


“Stated otherwise, upon blending LA, rather than LRA, with other

ingredients, all of the ingredients were integrated into one product, the

tablets,” Roggensack said.

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