Finding an "Occurrence," Appellate Court Rules Insurer Must Defend

    Reversing the trial court, the Wisconsin Court of Appeals found the insurer must defend a cross-claim against the insured owner of a building after an explosion occurred. LBC, LLC v Spectrum Brands, Inc., 2023 Wis. App. LEXIS 1251 (Wis. Ct. App, Nov. 30, 2023). 

    LBC leased commercial property to Spectrum. Spectrum stored lithium on the property. The lithium exploded when it came into contact with water that entered the premises during historic flooding in August 2018. Spectrum remediated the premises, vacated the premises prior to the lease's termination date, and stopped paying rent. 

    LBC sued Spectrum, alleging that Spectrum negligently stored the lithium and that Spectrum breached the lease. Spectrum counterclaimed, alleging that LCB breached the lease in various respects, that LCB negligent allowed water to infiltrate the premises, and that Spectrum was constructively evicted. LCB tendered the counterclaim to its insurer, General Casualty. The tender was denied and LCB sued.

    General Casualty moved for summary judgment declaring it did not have a duty to defend or indemnify LCB. The circuit court granted General Casualty's motion, concluding there was no "occurrence." There was no accident because the potential damage was anticipated. This was demonstrated in the lease which had special provisions specifically to prevent the problem which occurred.

    The lease required LCB to do repairs required to maintain and keep in good repair the exterior portions and structural elements of the premises. If the premises was damaged, the lease stated the LCB was responsible for repairs. 

    The appellate court found that Spectrum's counterclaim against LCB alleged an "occurrence" that triggered General Casualty's duty to defend. The leased premises flooded and water came into contract with lithium, causing an explosion. Spectrum alleged that LCB negligently failed to maintain the premises in a manner that would avoid water infiltration. Thus, the alleged occurrence was that the leased premises flooded and water came into contact with lithium, causing an explosion. Although LCB's alleged failure to maintain the premises to prevent water intrusion or infiltration could not be characterised as an "occurrence" in itself, it allegedly resulted in an event that could be: the leased premises flooded and there was a lithium explosion. Therefore, General Casualty had a duty to defend,.

    The court did not address the scope of General Casualty's duty to indemnify because it was premature before LCB's liability was determined.