Source: https://www.insurancelawhawaii.com/insurance_law_hawaii/duty_to_indemnify/
Timestamp: 2019-04-20 02:37:26+00:00

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Based upon the primary policy's exclusion, the following form excess policy had no duty to indemnify after the insured reached a settlement in the underlying case. Houston Cas. Co. v. Strata Corp., 2019 U.S. App. LEXIS 3936 (8th Cir. Feb. 6, 2019).
An employee of Strata fell to his death at a Montana mine. The estate sued, alleging that Strata's intentional failure to maintain a safe workplace triggered an exception to the Workers' Compensation Act, giving the estate a cause of action against Strata.
Strata had a Workers Compensation and Employers Liability Policy from Liberty Mutual that included a limit of $500,000 for each accident. The policy excluded bodily injury intentionally caused by Strata. The policy also included an Intentional Injury Exclusion Endorsement barring coverage for "bodily injury caused by Strata's intentional, malicious, or deliberate act, whether or not the act was intended to cause injury to the employee injured . . ." Strata also had an excess policy from Houston Casualty Company which had limits of up to $5 million in excess coverage. Houston's policy followed form with the underlying Liberty Mutual policy.
Liberty Mutual defended Strata against the estate's wrongful death lawsuit. The case settled and Liberty Mutual contributed a portion of the settlement in exchange for a full release from Strata. Houston Casualty refused to contribute anything to the settlement.
Houston Casualty sued, seeking a declaratory judgment that it had no duty to defend or indemnify Strata. Strata counterclaimed. On cross-motions for summary judgment, the district court granted summary judgment to Houston Casualty and denied summary judgment for Strata. Strata appealed.
The Eighth Circuit concluded that the district court properly granted summary judgment to Houston Casualty because the excess policy did not cover the estate's claims against Strata. The excess policy expressly stated that it was subject to the exclusions in the underlying coverage. Strata argued that the excess policy did not expressly state that it was subject to endorsements to Liberty Mutual's primary policy. But this argument was unavailing.
Nor was the exclusion ambiguous. The estate alleged that Strata's deliberate and intentional acts caused his death. These allegations brought the estate's lawsuit within the Intentional Acts Exclusion Endorsement. Accordingly, Houston Casualty had no duty to indemnify Strata under the excess policy.
Affirming the district court, the Second Circuit agreed that the excess insurer had a duty to indemnify the insured for sexual abuse claims. Hartford Roman Catholic Diocesan Corp. v. Interstate Fire & Cas. Co., 905 F.3d 84 (2nd Cir. 2018).
The Archdiocese had excess policies from Interstate between September 1, 1978 and September 1, 1983. The Archdiocese had underlying policies with Lloyds and Centennial Insurance Company. Interstate provided the second layer of excess coverage, following form to Lloyds' policies.
Beginning in 2008, Interstate received notice from the Archdiocese that four underlying ciaimants had sent demand letters seeking damages for sexual abuse by priests. The Archdiocese settled with the four victims and asked Interstate for reimbursement of portions of the settlement amounts. When Interstate refused, the Archdiocese filed suit, claiming breach of contract and breach of the covenant of good faith and fair dealing.
Interstate moved for summary judgment based on an assault and battery exclusion, while the Archdiocese moved for summary judgment on breach of contract. After a trial, the district court found that Interstate breached its contract to indemnify, but did not violate the covenant of good faith and fair dealing. Cross appeals followed.
Interstate contended that because the priests who committed the molestation were assureds under the policy, there was no coverage for the Archdiocese under the assault and battery exclusion. The exclusion stated coverage did not apply "to liability of any Assured for assault and battery committed by or at the direction of such Assured . . ." The term "Assured" included the Archdiocese and "any official, trustee, or employee of the for the Archdiocese while acting within the scope of his duties as such . . ." Interstate argued that the exclusion was meant to bar recovery as to all assureds if any one of them committed the assault or battery, arguing that the phrase "such assured" referred back to the phrase "any assured" and thus encompassed them all. Since the priests were assureds, Interstate's argued that recovery is excluded as to the Archdiocese as well.
In response, the Archdiocese observed that the exclusion applied only to a person "acting within the scope of his duties," and that the priests were not acting within the scope of their duties when they committed assault. Further, the wording excluded coverage only to those Assureds who committed or directed the assault rather than to all assureds.
The court agreed with the Archdiocese. Even Interstate agreed in its reservation of rights letter that the priests were acting outside the course and scope of their priestly duties when they allegedly abused the victims. Interstate was bound by its own reading of the policy. Further, even if the priests were "assureds," the exclusion barred coverage only for an assailant, not for all Assureds.
Interstate next argued that there was no coverage if the accident was intended or expected, regardless of whether the resulting loss was intended or expected; intention and expectation was an objective test rather than a subjective question viewed from the standpoint of the insured. The Archdiocese had prior notice of one priest's proclivities before the abuse occurred. Therefore, the issues were whether the molestation was an occurrence and whether it was intended or expected.
The court noted that the Archdiocese wanted to send the priest to the House of Affirmation, a rehabilitation center for sexual dysfunction. But the Center could not accommodate the priest, so he went instead to St. Luke Institute, an alcohol treatment center. The inpatient treatment ended in July 1979, and the priest was reassigned to a school for girls to serve as a chaplain. While the school was informed that the priest had been treated for alcohol abuse, the child molestation was not disclosed. The priest was moved to a high school after his doctor and alcoholism counselor gave full support for a reassignment to a "more exciting teaching assignment." While at the high school, the priest molested a young boy.
The district court determined that the Archdiocese relied upon the doctor's assessment that the priest would not return to sexual abuse of minors if he remained sober, and that the Archdiocese therefore lacked notice that the priest would molest a student.Therefore, under the policy, the Archdiocese did not subjectively know that it was substantially probable that the priest would abuse children.
On appeal, Interstate first argued that the accident itself must be unexpected or unintended, even if the resulting injury came as a surprise. The Second Circuit held, however, that the proper inquiry was whether the injuries were expected, not whether the accidents were expected. The occurrence clause defined an occurrence as an accident that "unexpectedly or unintentionally results in personal injury." The focus, therefore, was on intention and expectation as to the resulting injury rather than the accident itself. To find otherwise would require discounting the clause after "accidents."
Another issue addressed by the Court was whether intention and expectation was determined by an objective test of what a reasonable person knew or should have known (as Interstate argued), or whether it was determined subjectively from the standpoint of the insured (as the district court concluded). The Second Circuit agreed with the district court.
Consequently, the district court was affirmed.
The Fourth Circuit certified the following question to the South Carolina Supreme Court: Does South Carolina law support application of the "at issue" exception to the attorney-client privilege such that a party may waive the privilege by denying liability in its answer? In Re: Mt. Hawley Ins. Co., 2018 U.S. App. LEXIS 17910 (4th Cir. June 28, 2018).
Mt. Hawley insured Contravest Construction Company under an excess commercial liability policy from July 21, 2003 to July 21, 2007. During this period, Contravest constructed a development in South Carolina. In 2011, the Owners Association sued Contravest for alleged defective construction. Mt. Hawley denied tenders to defend or indemnify. Contravest ultimately settled the case.
Contravest and the Owners Association then sued Mt. Hawley, alleging bad faith failure to defend or indemnify, breach of contract, and unjust enrichment. During discovery, the plaintiffs requested Mt. Hawley's file on Contravest's claim for excess coverage relating to the development suit and later, Mt. Hawley's files relating to all of Contravest's claims under its excess liability policies. Mt. Hawley contended that these files contained material protected by the attorney-client privilege, and produced the files in redacted form with accompanying privilege logs. The plaintiffs filed multiple motions to compel, arguing that Mt. Hawley waived the attorney-client privilege as to these files.The district court granted plaintiffs' motions to compel and ordered Mt. Hawley to produce the files for in camera inspection. Mt. Hawley then sought a writ of mandamus from the Fourth Circuit to vacate the district court's order granting the motions to compel.
Mt. Hawley challenged the district court's holding that the relevant files were not protected by the attorney-client privilege because Mt. Hawley put them "at issue" in the case by denying liability for bad faith failure to defend or indemnify. The district court relied upon a prior case holding that if the insurer voluntarily injected an issue in the case, the insurer voluntarily waived the attorney-client privilege. City of Myrtle Beach v. United Nat. Ins. Co., 2010 WL3420044 ( D.S.C. Aug. 27, 2010). In Myrtle Beach, the insurer failed to meet its burden of establishing the absence of waiver of the attorney-client privilege on account of the defenses asserted in its answer, including that the insurer acted reasonably and in good faith.
Here, the district court found that Mt. Hawley denied bad faith liability, thereby waiving the attorney-client privileged with respect to he attorney-client communications in the claim files, to the extent such communications were relevant Fed. R. Civ. Proc. 26. The court thus ordered Mt. Hawley to produce the files for in camera review.
Mt. Hawley contended that if South Carolina law did not support the "at issue" exception, the district court's order granting the motions to compel was erroneous. The Fourth Circuit agreed. Therefore, the issue was sent to the South Carolina Supreme Court by way of the certified question.
The court determined there was a duty to defend negligence and private nuisance claims for dumping materials on the plaintiffs' property. Peters Heavy Construction, Inc. v. X-Pert One Tracking Corp., 2018 Wisc. App. LEXIS 358 (Wis. Ct. App. March 29, 2018).
Peters Heavy Construction sued X-Pert One for negligently depositing shingle materials, tires, and other solid materials on Peters' property, causing damage to Peters, including loss of use of portions of the property. Peters also alleged that X-Pert One's actions negligently created a private nuisance causing harm to Peters' property. X-Pert One's insurer, Northfield Insurance Company, was also sued.
Northfield appointed defense counsel for X-Pert One, but moved for summary judgment to establish there was not coverage. The trial court granted the motion, finding there was no duty to defend or to indemnify. Northfield was dismissed from the case.
The court of appeals reversed. Northfield argued that the complaint alleged that X-Pert One acted intentionally when it deposited material on Peters'' property and failed to remove the material. But even if the material was intentionally left on the property, the complaint alleged that the resulting nuisance was not intended or expected.
Under Wisconsin law, an intentional act could have an unexpected and, thus, accidental result, which could be an occurrence within the meaning of the policy. Therefore, the complaint alleged an occurrence.
"Property damage" was also alleged. The complaint alleged that X-Pert One's negligence "caused damages to the Plaintiff which included . . . damage to Plaintiff's Property which may include diminution in the value of the Plaintiff's Property and loss of use of certain portions of the Property." The complaint also alleged that the negligently created nuisance "has substantially interfered with the Plaintiff's use and enjoyment of Plaintiff's Property." Consequently, the complaint alleged covered property damage in the form of loss of use.
On the duty to indemnify, Northfield failed to show there was an absence of genuine issues of material fact. Northfield relied upon an affidavit stating that shingles and other materials were intentionally deposited on Peters' property. Northfield viewed this evidence as establishing beyond dispute that there was nothing accidental about X-Pert One's conduct and, therefore, no "occurrence." The court disagreed. These factual assertions, even if undisputed, did not address the specifics of why it was true that X-Pert One acted in a manner showing an intent to cause damage to the property or an intent to create a nuisance. Rather, these assertions left open the possibility that X-Pert One negligently handled shingle materials on the property or inadvertently created a nuisance in the course of shingle-related operations.
Therefore, the circuit court's order granting summary judgment in favor of Northfield was reversed and the case remanded for further proceedings.
The court found that the insurer was obligated to indemnify, but not to defend the insured. Old Republic Ins. Co. v. Kenny Constr. Co., 2017 U.S. Dist. LEXIS 189412 (N.D. Ill. Oct. 31, 2017).
Kenny Construction Company was hired by the Army Corp of Engineers to work on the Chicago Deep Tunnel flood control project. Kenny hired Meccon Industries, Inc. as a subcontractor to perform mechanical work and furnish materials for the project. The subcontract required Meccon to provide coverage for the contractor and any other additional insureds as required on the Insurance Requirement Sheet attached to the contract. Neither party was able to produce the Insurance Requirement Sheet.
The subcontract also required Meccon to submit to Kenny certificates from Meccon's carriers noting CGL coverage to cover the indemnity agreement in the contract.
Meecon procured CGL policies from Old Republic from 2002 to 2010 and provided insurance certificates to Kenny between 2002 and 2007. The certificates each listed Kenny as an additional insured under the policies. The certificates, however, also mentioned that they were issued for information only and did not confer any rights upon the certificated holder.
The Old Republic policies did not specifically mention Kenny as an additional insured. Instead, the policies defined "all persons or organizations as required by written contract" to be additional insureds. Although the policies had separate endorsements for ongoing operations and completed operations coverage, the definition of additional insureds was identical in each endorsement.
During Meecon's work, it requested to substitute an alternative part known as a Smith-Blair clamp for parts called for in the plans. Kenny sent the request to the Corp, which approved the changes. In August 2010, the Corp issued a final inspection and acceptance letter to Kenny.
In 2008, however, the Corp had discovered leaks which corroded various mechanical and electrical equipment in the tunnel. It was eventually determined that the Smith-Blair clamps caused the problem because they were not rated to withstand the operating fluid pressures within the tunnel. The Corp issued a Final Decision concluding that Kenny was liable for the damages caused by the negligent approval of the request to use the Smith-Blair clamps. The Final Decision awarded $11 million in property damage to the Corp. Kenny eventually settled by paying the Corp $100,000.
Old Republic was notified of the Final Decision and filed an action for declaratory judgment. Old Republic argued that Kenny was not an additional insured. Old Republic contended Kenny was not a "person or organization required by written contract" to be an additional insured because the Kenny - Meccon subcontract did not require Meccon to make Kenny an additional insured on its CGL policy. Instead, it required only that Meccon provide Kenny with certificates of insurance listing Kenny as an additional insured.
The court disagreed with Old Republic. That the subcontract required Meccon to certify that it had CGL insurance could only be reasonably construed as requirement that Meccon actually have such coverage. Whether the language requiring submittal of Meccon's "evidence of insurance shall include the contractor, the owner and any other additional insureds as required per the Insurance Requirement Sheet," made Kenny an additional insured was ambiguous. Therefore, the court looked to parol evidence.
The certificates of insurance provided that Kenny was in fact an additional insured. Therefore, the intent of the parties to the subcontract was to require that Kenny be an additional insured on Meccon's policy. Since Kenny was therefore an "organization . . . required by written contract" to be an additional insured, it qualified as an additional insured under Old Republic's policy.
Next, Old Republic argued it had neither a duty to defend or nor indemnify because the Final Decision was not a "suit" under the policies. The court agreed that the Final Decision process was not a "suit" under the policy and Old Republic had no duty to defend. But there was nothing in the policy which altered Old Republic's duty to indemnify. They duty to defend was limited to certain types of proceedings ("suits"), but no such restriction existed for the duty to indemnify.
Finally Old Republic argued that Kenny was not covered under the ongoing operations or completed operations additional insured endorsements. Old Republic contended that Kenny could not be covered under the ongoing operations endorsements because there was no evidence that any damage occurred while Meccon was still working on the projects. But when the damage occurred was not relevant because Kenny was an additional insured under both the ongoing operations and completed operations endorsements. The two endorsements used identical language to define additional insured contractors: "all persons or organizations as required by contract." Therefore, Kenny was an additional insured under both endorsements.
The Fifth Circuit construed a contract requiring indemnity and an obligation to provide insurance coverage as creating separate duties. ExxonMobil Corp. v. Elec. Reliability Services, 2017 U.S. App. LEXIS 16031 (5th Cir. Aug. 22, 2017).
Exxon contracted with Electrical Reliability Services (ERS) to perform electrical work and services at Exxon's chemical facility in Beaumont, Texas. The contract included indemnity and insurance provisions. The indemnity provision required that each party indemnify the other from third party claims resulting from the first party's negligence. The insurance provisions required ERS to purchase CGL and other types of insurance, and to name Exxon as an additional insured.
ERS purchased a policy from Old Republic Insurance Company that provided for a $3 million deductible. An endorsement also granted additional insured coverage where ERS had "agreed by any contract" to so provide. The endorsement was qualified as follows, however: "Any additional insureds are additional insureds only in respect to their interest in the operations of the Named Insured and only for such terms and limits which are the lesser of the policies hereon or the written requirements between the Named Insured and the Certificate Holder."
ERS subcontracted part of he work at the Exxon facility to MMR, Inc. John Burnham, an MMR employee, was severely injured while working at the facility. Burnham brought negligence claims against Exxon in state court and later added ERS as a defendant. ERS refused to defend Exxon under the indemnity. Exxon settled with Burnham for $2.5 million. Burnham later dismissed his claims against ERS. Exxon then sought insurance coverage for the settlement payment and defense costs, but ERS and Old Republic denied the requests.
Exxon then brought suit for declaratory judgment against ERS and Old Republic. On cross motions for summary judgment, the district court ruled that ERS's obligation to provide insurance was not limited by the indemnity provision. The court further ruled, however, that ERS complied with its obligation through the additional insured endorsement in the policy.
Despite the district court's partial summary judgment ruling on the issue of coverage, ERS and Old Republic continued to refuse to reimburse Exxon. ERS and Exxon disagreed as to which party was responsible for the payment of the policy's $3 million deductible. Following a bench trial, the district court held: (1) ERS breached the contract by failing to pay the deductible: and (2) Old Republic breached the insurance policy by failing to provide Exxon with a defense in the Burnham lawsuit and failing to cover any amounts above the deductible. In the final judgment, ERS and Old Republic were held jointly and severally liable to Exxon for $3,212,002.70 for the settlement of the Burnham lawsuit, the costs of the suit, and fees in the present suit. ERS and Old Republic appealed.
On appeal, ERS argued that Exxon had the duty to pay the deductible because the indemnity provision required Exxon to indemnify ERS for claims arising from Exxon's sole negligence. Exxon argued that the district court correctly ruled that the insurance requirements were separate and independent of the indemnity requirements of the contract. The Fifth Circuit agreed with Exxon. The insurance provision provided that ERS's obligation to afford coverage to Exxon "shall apply to ERS's self-insured retentions and/or deductibles."
ERS also argued that Exxon's duty to maintain its own insurance in support of Exxon's indemnity obligation established that ERS was not required to insure Exxon for losses caused by Exxon's sole negligence. But a requirement that one party maintain insurance in support of its duties related to a particular contingency did not preclude a requirement that the other party also maintain insurance to cover the same contingency.
Therefore, ERS's obligation to insure Exxon and to pay any applicable deductibles was not limited by the indemnity provision of the contract.
The court also ruled that Old Republic was not jointly and severally liable with ERS for the entire award to Exxon because it was under no obligation to pay amounts that were subject to and did not exceed the deductible. Therefore, the court vacated the district court's judgment on this issue and remanded for modification of the judgment to hold Old Republic jointly and severally liable with ERS only for any amounts either above or not subject to the policy's $2 million deductible.
The insurer's motion for summary judgment, attempting to bar coverage under two endorsements for a wrongful death suit, was denied. Essex Ins. Co. v. FD Event Co., LLC, 2017 U.S. Dist. LEXIS 124400 (C.D. Calif. July 25, 2017).
FD Event owned an amusement attraction known as Free Drop, which was operated at county fairs and festivals. Participants paid an admission fee to FD Event in order to jump from a scaffold structure onto an inflatable airbag below.
FD Event had a policy with Essex. When securing the policy, FD Event understood that there was no coverage for amusement devices, inflatables, rides or animals. 28th Event, who ran the San Bernardino County Fair, was an additional insured on the policy.
During the fair, Sabrina Gordon fell from the scaffold structure, missed the inflatable airbag, and suffered fatal injuries. The Gordon Claimants sued FD Event, 28th District and others for negligent design, construction, and supervision of the FreeDrop. Essex agreed to defend FD Event and 28th District, subject to a reservation of rights.
Essex then sued for a judicial determination that it had no duty to defend or indemnify. It relied on two endorsements, an "Amusement Liability Endorsement" and a "Special Events and Spectator Liability Exclusions Endorsement." The Amusement Liability Endorsement stated "this insurance does not apply to 'bodily injury' . . . arising out of . . . [t]he operation, maintenance, use, or existence of any ride, machinery, equipment . . . not scheduled on the declarations page of this policy."
Essex maintained that the policy was issued with the Amusement Liability Endorsement, but a policy subpoenaed by the Gordon Claimants from a broker did not include the endorsement. An issue of fact therefore existed, preventing summary judgment on this endorsement.
Subsection (c) of the Special Events and Spectator Liability Exclusions Endorsement provided there was "no coverage for bodily injury 'arising out of' participating in an 'exhibition,' 'show,' 'performance' or 'other special event.'" Subsection (e) barred coverage for "bodily injury sustained by any . . . person, while in an activity area, such as, but not limited to: an arena, chute, corral, pit area, race track, set up area, show area, state, staging area, or similar place of activity." Essex contended that because the FreeDrop consisted of a metal scaffold structure next to an inflatable airbag, the scaffold structure constituted an "activity area" under Clause (c).
The court concluded that Clause (c) was not reasonably susceptible to the interpretation proposed by Essex. Essex sought to convert the FreeDrop from a fair attraction into a show or performance because the FreeDrop occurred in plain view of other fair attendees. But Sabrina Gordon engaged in an individual activity, the purpose of which was to experience a free fall from a chosen height. While other fair attendees could watch individuals atop the FreeDrop, the purpose of the FreeDrop was not specifically for spectators; rather it was to profit from individuals seeking to have a free fall experience.
Clause (e), standing alone, was broad. It would bar coverage for any bodily injury occurring in "an activity area" which was defined by a non-exhaustive list of examples. But Clause (e) could not stand alone. Instead, it had to be interpreted within the context of the entire endorsements exclusion. The court determined that "activity area," as defined in Clause (e), referred to activity areas associated with events, and encompassed the locations where participants and spectators would be subject to risk of bodily injury while at such events. They would include horseraces in a chute, corral staging area or race track; theatrical performances or exhibitions of goods in a set up area, stage or show area.
Therefore, coverage was not barred by either Clause (c) or Clause(e) of the Special Events and Spectator Liability Exclusions Endorsement. The interpretations offered by Essex were unreasonable in light of the greater context of the exclusions endorsement, as well as the language of the provision itself.
The court found that the insured's faulty construction of an outside deck did not arise from an occurrence. Employers Mut. Cas. Co. v. West, 2017 U.S. Dist. LEXIS 113951 (N.D. Miss. July 21, 2017).
D.L. Action Construction Company (DLA) constructed multifamily dwellings. They were sued by the homeowners after a deck collapsed at one of the dwellings. Also sued was the subcontractor, Littrell Construction, who installed the deck. The homeowners alleged that Littrell knew that college students would be residing in the units and that the decks would be heavily used. The decks were attached to the building structure using only nails instead of bolts.
On November 22, 2014, the deck collapsed, causing everyone standing on the deck to fall onto cars parked below. Regarding injuries sustained in the fall, the homeowners claimed against Littrell for negligence, breach of warranty, misrepresentation, fraud, fraudulent concealment, and wanton, gross, and/or intentional conduct. DLA cross-claimed against Littrell, seeking indemnification.
Employers Mutual denied coverage because there was no occurrence. The court granted summary judgment to Employers Mutual. In his deposition, Jason Littrell testified that the method he used to fasten the deck, using nails secured into oriented strand board, would not be an appropriate method of fastening a deck used for live loads. Further, he testified that he knew people would use the deck.
Bodily injury or property damage, expected or intended from the standpoint of the insured, could not be the result of an accident. The result of improperly constructing the deck was the failure and collapse of the deck, which were will within Littrell's foresight and anticipation. Consequently, there was no occurrence and Employers Mutual had no duty to defend or indemnity.
The Massachusetts Appeals Court determined that scallops damaged by a cause never determined by the underlying court was sufficient to establish an occurrence under the insured's CGL policy. The Hanover Ins. Group, Inc. v. Raw Seafoods, Inc., 2017 Mass App. LEXIS 49 (Mass. Ct. App. April 26, 2017).
The insured, Raw Seafoods, Inc. (RSI) had a seafood processing facility. One of RSI's customers, Atlantic Capes Fisheries, Inc., sold scallops and other types of seafood around the world. Atlantic purchased fresh scallops from fishing vessels, then transported the scallops to RSI for processing, portioning, packaging, and freezing. RSI's staff inspected the scallops for quality upon arrival and received processing instructions from Atlantic. After processing, the scallops were transported to Arctic Cold Storage (Arctic). Atlantic then shipped its customers' directly from Arctic's facility.
In July 2011, scallops were being shipped through Denmark. Upon inspection, the 37,102 pounds of scallops were found to be decomposed, smelled badly, and were deemed unacceptable for human consumption. The scallops were returned to Arctic's facility, where Atlantic and RSI jointly inspected the shipment and confirmed the damage.
In 2012, Atlantic sued RSI in a complaint that included a negligence count for damage to the scallops. Hanover, RSI's insurer, agreed to defend under a reservation of rights. In the litigation, it was undisputed that the damage occurred while the scallops were in RSI's possession, but the precise cause of the damage was unknown.
Atlantic was awarded summary judgment based upon res ipsa loquitur because the damage could have only been caused by RSI's negligent handling of the product. Judgment was issued to Atlantic in the amount of $599,790.08.
Hanover filed suit seeking declaratory judgment that either the damage to the scallops was not caused by an occurrence or the damage to the scallops fell under one or more of the policy's exclusions. The trial court granted summary judgment to Hanover. The court determined that because there was no demonstrated accident distinct from RSI's performance of its work, RSI could not meet its burden of proving that its claimed loss was caused by an "occurrence," as a matter of law.
On appeal, the court noted that the parties agreed that the cause of the damage was some, as yet, unknown failure on the part of RSI's plant. Hanover argued that RSI had produced no evidence as to precisely how the scallops were damaged, leaving the actual cause of the damage to speculation and conjecture. Therefore, RSI had no reasonable expectation of proving that the damage was caused by an occurrence and could not survive a motion for summary judgment.
The appellate court disagreed with Hanover. While the precise cause or mechanics of the damage was unknown, the summary judgment record supported the conclusion that the damage resulted from an unanticipated mishap during RSI's processing operation. Atlantic prevailed in the underlying litigation on the theory of res ipsa loquitur. Therefore, the judgment on Atlantic's negligence claims precluded a subsequent determination of intentional conduct by RSI.
Whether the policy's exclusions applied or there was a duty to defend could not be established until further proceedings took place in the trial court. Therefore, the judgment was vacated the remanded for further proceedings.
The insured's involvement in damaging a customer's corn syrup while preparing it to be transported was an occurrence and covered under the CGL policy. Travelers Prop. Cas. Co. of Am. v. United States Container Co., 2017 U.S. App. LEXIS 6602 (3rd Cir. April 18, 2017).
USA Container supplied industrial containers, logistical services and warehousing to its customers. In 2006, USA Container contracted with Meelunie B.V./ Amsterdam (Meelunie), a corn syrup distributor, to arrange for the transfer of corn syrup from rail cars to drums so they could be shipped overseas to Meelunie's customers. To move the corn syrup from the rail cars to the drums, it had to be heated in accordance with standard operating procedures (SOPs). USA Container contracted with Passaic River Terminal, LLC to perform all of the work necessary to transfer the corn syrup to the drums for transport. Passaic River failed to follow the SOPs, and damaged Meelunie's corn syrup by overheating it. The damage was only discovered after the corn syrup was shipped to Meelunie's customers, who rejected the shipments.
Meelunie subsequently sold the corn syrup at a reduced rate. Meelunie demanded that USA Container compensate it for the loss. USA Container tendered the claim to its insurer,Travelers, who denied the claim. USA Container settled with Meelunie and sued Travelers.
The district court found that under New Jersey law, the policy covered the property damage. Travelers appealed.
The Third Circuit affirmed. As determined by the district court, the property damage that occurred clearly was an "accident" that "encompassed unintended and unexpected harm caused by negligent conduct." Travelers contended that its policy did not provide coverage to replace or repair defective work. The court disagreed. Under the current case law, the term "occurrence" encompassed unanticipated damage to non-defective property resulting from poor workmanship.
Next, Travelers contended that two exclusions, j (6) and n, barred coverage. Exclusion j (6) provided that coverage did not extend to "[t]hat particular part of any property that must be restored, repaired or replaced because 'your work' was incorrectly performed on it." Here, Meelunie's damaged corn syrup was not "restored, repaired, or replaced" as required by the exclusion.
Exclusion n addressed precautionary recalls. The corn syrup was never recalled, however, so this exclusion was not relevant. Accordingly, USA Container's loss was covered under the policy.

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