The insured sold a number of feed store silos to customers. As part of the sales, the insured represented that the silos were constructed in a manner that made them air tight so that oxygen could not get to the feed and cause mold and spoilage.

Several suits were brought against the insured alleging this not to be true and that feed contained within the silos did indeed mold and spoil. As a result cattle became ill and harm occurred. As an example, milk cows produced less milk. The insured was accused of a number of charges including fraud, conspiracy to commit fraud, mail fraud and so forth.

The original insurer defended or reimbursed the insured for defense until the time that all of the complaints were dismissed except the fraud, mail fraud and conspiracy allegations. At that point, the insurer notified the insured that the remaining actions were not covered by the policy as they were intentional in nature. The insured settled two claims for sizable amounts and then filed action against his insurers for failure to defend and pay the settlements. The insured contended that he had not intended to cause harm. Instead, it was reckless or negligent misrepresentations. A trial court ruled in favor of the insured.

Upon appeal, the insurers involved (multiple insurers participated because of the length of time covered in the various actions) contended that fraud is an intentional act and thus not a covered occurrence. The Appeals Court agreed with the insurers, stating: "The natural and ordinary consequences of intentional fraudulent acts is to cause some harm. Therefore, the requisite sufficient certainty that Smith (the insured) intended to cause some harm from the intentional fraudulent conduct is present in this case." The decision of the trail court was overturned.

A. O. Smith Corporation et al., Plaintiffs-Respondents v. Allstate Insurance Companies et al., Defendants-Appellants. WisCtApp. No. 96-3496. Filed October 20, 1998. CCH 1998 Fire and Casualty Cases, Paragraph 7087.