Liability Insurance Contributing Columnist


Unique Case Creates Uncertainty for
Dairy Processors

Jen Pino-Gallagher
Director of Food & Agribusiness Practice
M3 Insurance

March 24, 2023


There is an old saying in the insurance world that goes something like this: “Insurance policies cover what the courts say it covers.

Various courts, specifically a ruling from the Wisconsin Supreme Court in 2016, are creating uncertainty for food processors about whether their current commercial general liability policy will cover property damage claims. There are many scenarios for which a food producer could be found liable for property damage. An example would be selling a dairy ingredient that is adulterated or non-conforming, causing a situation in which it damages a finished food product, rendering it unusable.

In 2016, the Wisconsin Supreme Court heard a case, Wisconsin Pharmacal Co., LLC v. Nebraska Cultures of California, Inc. The case involved a probiotic supplement tablet that was rendered unusable and had to be recalled and destroyed as a result of the inclusion of an incorrect ingredient. In their ruling, the court adopted the “integrated systems” approach and ruled that the incorporation of a defective, or incorrect ingredient, did not constitute property damage.

As a result of court cases like this, situations have arisen in Wisconsin and other states in which there is uncertainty about whether product liability claims resulting from the use of a defective or incorrect ingredient will be covered by insurance.

The Wisconsin Pharmacal decision creates a situation that could lead to limited coverage under a processor’s Commercial General Liability policy when its product is “integrated” into another product that cannot be separated. As a result, there is a potential that a dairy processor could face the burden of paying for the damage to their customer’s products out of their own pocket.

Every dairy processor who makes a product that is an ingredient in a finished good should be aware of the case law that could have consequences on their insurance coverage.

This interpretation of property damage is not impacting only Wisconsin food processors. The 2016 case is having wide-reaching impact. For example, in 2019 an Ohio Court referenced the Wisconsin case as reason to rule that no property damage occurred when a non-conforming nonfat dry milk (NDM) ingredient was incorporated into baby-formula rendering it unusable.

The last thing you want in the event of a product issue is to lack insurance coverage due to a court ruling. With this uncertainty, one of the most important steps that dairy processors can take is to discuss this issue with their insurance broker. Creative coverage solutions that can reduce uncertainty and minimize your financial risk do exist — but asking for them is the first step.

Jen Pino-Gallagher is director of the food and agribusiness practice at M3 Insurance. M3 Insurance offers insight, advice and strategies to help clients manage risk, purchase insurance and provide employee benefits. The views expressed above do not necessarily reflect those of Cheese Reporter. You can contact the columnist by calling (800) 272-2443, or by visiting


Jen Pino-Gallagher

Jen Pino-Gallagher is a Director of Food & Agribusiness Practice at M3 Insurance. M3 Insurance offers insight, advice and strategies to help clients manage risk, purchase insurance and provide employee benefits.
For more information, call (800) 272-2443 , visit

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