When is a scallop like a sweater?
The Appeals Court rejects the premise that an insured must specify the precise cause of damage to claim coverage under CGL policies.
In a considered opinion, the Appeals Court found against Hanover Insurance Company in an insurance coverage case buttressing their earlier ruling in Beacon Textiles. See The Hanover Ins. Group, Inc. v. Raw Seafoods, Inc., (April 2017)
In July 2011, 37,000 pounds of scallops were found to be decomposed while making their way through customs in Denmark. The entity that processed the scallops, RSI, accepted responsibility for the damaged goods, although the cause of the damage remains an unsolved mystery.
Atlantic Fisheries sued RSI, including a count for negligence for the damage to the scallops. RSI’s insurance carrier, Hanover, defended RSI, while reserving its right to deny coverage under the policy. At summary judgment, the Federal Court held that RSI was negligent under the doctrine of res ipsa loquitur.
Hanover sought a declaratory judgment that either the damage to the scallops was not caused by an "occurrence" within the meaning of the insurance policy, or the damage to the scallops fell under one or more exclusions to the policy, with the practical effect that Hanover would not be responsible to pay the judgment in the underlying litigation.
The Appeals Court found that this mysterious occurrence falls under the definition of “accident,” noting that the type of damage in the case had never happened before or since, there was no evidence that the spoilage was the result of an intentional act. Further, the underlying litigation by Atlantic against RSI went to judgment on a claim of negligence in the form of res ipsa loquitur.
If you want to destroy my sweater…
In Beacon Textiles, the Court held that where an unknown defect affected yarn while the insured was in control of the product, the insured could claim coverage under the accident provision of an insurance policy. Here, the Appeals Court reversed the lower court’s finding of summary judgment for Hanover, stating that the Beacon Textiles precedent, combined with the finding of negligence in the underlying litigation and the broad construction of the term "occurrence" in a CGL policy, compels us to conclude that RSI has a reasonable expectation of proving that the unexplained damage was caused by an occurrence. See Vappi & Co., 348 Mass. at 432 ("This court will be slow to adopt any narrow construction of the term 'accident' which will limit or defeat any coverage fairly intended to be given by a policy described by the insurer in such broad terms.)
-Defronzo, J. (with credit to "Undone" by Wheezer)