Spoiled Scallops are an Occurrence Under a General Liability Policy
The Massachusetts Appeals Court Recalibrates from its Narrow Interpretation of an Occurrence in a 2014 Tree-Clearing Case
Most general liability policies provide coverage for property damage caused by an “occurrence,” defined as an “accident.” Generally speaking, that does not include conduct intended or substantially certain to cause harm, but does include negligence. In some cases, often those involving construction defects, insurers have argued that, even if pursued under a negligence theory, a claim for defects in an insured’s own work or product does not allege an occurrence, although those cases more often turn on the application of the “business risks” exclusions than on the occurrence requirement.
The ongoing skirmish between insurers and policyholders over the boundary between accidental events and defects in the insured’s work or product continues in Hanover Insurance Group v. Raw Seafoods, Inc., _ Mass. App. Ct. _ (2017). In Raw Seafoods, the Massachusetts Appeals Court considers whether a shipment of scallops that spoiled while in the hands of the insured seafood processor was damaged by accident. The underlying suit resulted in a determination of negligence on the part of the insured under a res ipsa loquitur theory (meaning that, although the precise cause of the damage could not be established, the insured’s exclusive control of the scallops at the time they were damaged supported an inference that it was negligent). The processor’s insurer argued, relying on language in Pacific Indem. Co. v. Lampro, 86 Mass. App. Ct. 60 (2014), that because there was no evidence as to precisely how the scallops were damaged, the processor could not meet its burden to prove the damage was caused by an occurrence and not a “normal, foreseeable, and expected incident of doing business.” The Appeals Court disagreed, reversing the trial court’s entry of summary judgment for the insurer and holding that, because the underlying summary judgment against the processor was for negligence, the insured had a reasonable expectation of proving that the damage to the scallops was an “occurrence.”
In Lampro, a contractor failed, for reasons that were not explained, to follow the regulatory permits and engineering plans, and clear-cut a stand of lakefront trees. The court held that the risk of cutting unintended trees was a “normal, foreseeable, and expected incident of doing business,” and not a covered occurrence. The court in Raw Seafoods distinguished Lampro, noting that the claim in Lampro was for the cost of redoing the insured’s work, and not for the value of the damaged property. The court also relied on the fact that the damage to the scallops was an unusual and unexplained event.
The problem presented by Lampro is that its narrow articulation of what constitutes an “occurrence” suggests that foreseeable risks of a business are not an “accident.” Since negligence is liability for a breach of a duty of care that leads to reasonably foreseeable harm, the formulation in Lampro threatens coverage for the very negligence claims for which policyholders purchase insurance. At a minimum, Lampro requires courts to make fine factual distinctions between risks that, while foreseeable, are unusual enough to be “fortuitous,” and risks that are sufficiently “normal” or “expected” that they are not accidental.
Further, well-established Massachusetts case law holds that an “injury which ensues from the volitional act of an insured is still an ‘accident’ within the meaning of an insurance policy if the insured does not specifically intend to cause the resulting harm or is not substantially certain that such harm will occur.” Quincy Mutual Fire Ins. Co. v. Abernathy, 393 Mass. 81, 84 (1984). Oddly, neither Lampro nor Raw Seafood discusses this seemingly pertinent principle, despite the facts that the court in Lampro did not conclude (at least, not expressly) that the policyholder intended to cut down trees it knew or believed fell outside the permits, and there was no indication that the policyholder in Raw Seafoods expected or intended to damage the scallops.
While it does not rely on the language from Quincy Mutual quoted above, Raw Seafood cites Quincy Mutual repeatedly, and affirms that “accident” is broadly construed under Massachusetts law and means “an unexpected happening without intention or design.” Beacon Textiles Corp. v. Employers Mutual Liability Ins. Co., 355 Mass. 643, 646 (1969). Relying on Beacon Textiles, which held that a claim for loss sustained when defectively dyed yarn changed color after it was incorporated into sweaters alleged an “accident,” the court in Raw Seafood concluded that the processor had a reasonable expectation of proving that the unexplained damage to the scallops was caused by an occurrence, and reversed the entry of summary judgment for the insurer. However, the court remanded for a determination as to whether any exclusions to the policy might bar coverage.
It is difficult to reconcile the narrow formulation of “occurrence” in Lampro with the principle that liability insurance covers the risk of foreseeable but unintended harm to person or property (unless the harm is substantially certain to happen from the standpoint of the insured). The result in Raw Seafoods, which places the determination whether the claim alleges a business risk outside the policy’s coverage on the policy’s “business risk” exclusions rather than on the definition of an “occurrence,” is likely to result in more predictable outcomes, to the benefit of both insurers and policyholders.
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