Insurers Motion to Determine Lack of Occurrence Fails
The federal district court, interpreting Massachusetts law, found there were genuine issues of fact as to whether the insured's mixing of biodiesel with home heating fuel was an occurrence. United States Fire Ins. Co. v. Peterson's Oil Serv., Inc., 2024 U.S. Dist. LEXIS 106980 (D. Mass. June 17, 2024).
Homeowners sued Peterson's Oil Service, alleging that Peterson sold them fuel for home heating which contained more that 5% biodiesel. The homeowenrs further alleged that fuel containing more than 5% biodiesel did not meet industry standards and caued damage to their home heating equipment. Peterson allegedly did not fully disclose the presence of biodiesel in their fuel, despite knowing the risk posed by high-biodiesel blended fuel.
The insurers, United States Fire Insurance Company and The North River Insurance Company, defended Peterson under a reservation of rights. United States Fire issued priomary policies with limits of $1,000,000 per occurrence and $2,000,000 as a general aggregate limit. An endorsement titled "Limited Coverage – Failure to Supply" limited the amount covered for "property damage arising out of the failure of any insured to adequately supply gas, oil, water, electricty or steam" to $250,000. North River issued umbrella policies with additional coverage in the amount of $15,000,000 per occurrnce and in the aggregate if property damage was caused by an occurrence. The umbrella policies also contained a "Failure to Supply Exclusion" which excluded coverage for "property damage arising out of the failure of an insured to adequately supply gas, oil, water, electricty or steam."
The insurers filed suit and moved for summary judgment to establish they had no duty to defend or indemnify. The insurers first asserted there was no occurrence because Peterson intentionally acted by mixing biofuel with heating oil. Based on Peterson's deposition testimony, there was no dispute that the blending of biodiesel with heating oil was a volitional act. This, however, was not the type of conduct that inherently demonstrated a specific intent to cause property damage. The question was whether Peterson blended biodiesel knowing that the damage to the homeowners' heating system would occur.
Peterson testified that he tested the biodiesel on his own home heating equipment without issue when he made the decision to begin blending biodiesel. None of the evidence before the court suggested that Peterson was aware of a pattern of heating equipment damage during the insurers' policy periods. In light of this record, Peterson created at least a genuine dispute of material fact as to whether Peterson was substantially certain that blended heating oil would cause heating equipment failure during the effective period of the policies. Therefore, the insurers' motion was denied as to their claim that the homeowners' damage was not caused by an occurrence.
The insurers also moved for a determination that an coverage wa limtied to $250,000 per policy period under the primary policies. Further, the umbrella policies excluded any property damage "arising out of the failure of any insured to adequately supply gas, oil, water, electricity or steam" or "to provide an adequate supply of gas, oil, electricity, steam, or any other form of energy, or water, to any person or entity."
The combined effect of these "Faiure to Supply provisions" was to exclude coverage under the umbrella policies entirely and limit coverage to $250,000 per year under the primary policies for property damage arising out of Peterson's failure "to adequately supply" heating fuel.
The insurers bore the burden of proving the Failure to Supply provisions applied to the underlying litigation. The placement of the "adequately" or "adequate" modifier immediately before the term "supply" in the Failure to Supply provisions was at least ambiguous. The plain meaning of the terms "supply" was related to quantity. The ambiguity was consrued in favor of the insured. Therefore, the insurers' motion for summary judgment on the basis that coverage ws limited to $250,000 per policy year was denied. The court granted sumamry judgment in favor of Peterson on the application of the Failure to Supply provisions as to the underlyng litigation.
