Smartfoods, Inc. v. Northbrook Property and Cas. Co., 92-P-897

• Decision Date: 26 August 1993
• Docket Number: No. 92-P-897,92-P-897
• Citation: 35 Mass.App.Ct. 239,618 N.E.2d 1365
• Parties: SMARTFOODS, INC., et al. 1 v. NORTHBROOK PROPERTY AND CASUALTY COMPANY et al. 2
• Court: Appeals Court of Massachusetts

Page 1365

618 N.E.2d 1365

35 Mass.App.Ct. 239

SMARTFOODS, INC., et al. ¹ v. NORTHBROOK PROPERTY AND CASUALTY COMPANY et al. ²

No. 92-P-897.

Appeals Court of Massachusetts,

Middlesex.

Argued May 12, 1993.

Decided Aug. 26, 1993.

Daniel L. Goldberg, Lawrence S. Buonomo, Boston, with him, for plaintiffs.

William H. Clancy, Boston, for Northbrook Property and Cas.

John P. Graceffa, Boston, for American Motorists Ins. Co.

Before BROWN, KASS and LAURENCE, JJ.

KASS, Justice.

Seven distributors of cheese popcorn products for Smartfoods, Inc. (Smartfoods), each brought separate actions against Smartfoods after Smartfoods cancelled distribution arrangements with them. The distributors alleged the conventional panoply of grievances: breach of contract; breach of implied covenant of good faith and fair dealing; unfair and deceptive trade practices (G.L. c. 93A); tortious interference with contractual and advantageous relations; and misappropriation of trade secrets. Smartfoods tendered defense of those actions to its general liability insurance carriers, who disclaimed coverage.

In the case before us, Smartfoods sought a declaratory judgment concerning the duty of the insurers to defend under their respective insurance contracts. Smartfoods' complaint also asked damages for breach of contract and unfair settlement practices (G.L. cc. 93A and 176D). A judge of the Superior Court took the case on cross motions for summary judgment and allowed the motions of the insurers, i.e., he decided that the insurers did not, under their respective policies, have a duty to defend the actions brought against Smartfoods by the distributors. We affirm for reasons substantially the same as those advanced by the motion judge in his memorandum of decision.

In considering this case, we are not concerned with the merits of the actions brought against Smartfoods by the distributors. ³ Our inquiry is whether "the allegations of the complaint are 'reasonably susceptible' of an interpretation that they state or adumbrate a claim covered" by the terms of the insurance policies. Sterilite Corp. v. Continental Cas. Co., 17 Mass.App.Ct. 316, 318, 458 N.E.2d 338 (1983). See also Continental Cas. Co. v. Gilbane Bldg. Co., 391 Mass. 143, 146-147, 461 N.E.2d 209 (1984); Boston Symphony Orchestra, Inc. v. Commercial Union Ins. Co., 406 Mass. 7, 12-13, 545 N.E.2d 1156 (1989); Terrio v. McDonough, 16 Mass.App.Ct. 163, 166-169, 450 N.E.2d 190 (1983); Wolov v. Michaud Bus Lines, Inc. v. Royal Globe Ins. Co., 21 Mass.App.Ct. 60, 62-63, 484 N.E.2d 644 (1985); Peerless Ins. Co. v. Hartford Ins. Co., 34 Mass.App.Ct. 534, 536, 613 N.E.2d 125 (1993).

Guided by those principles, we turn to the lead distributor's complaint, that of Utt Distributing Co., Inc. (Utt), which the parties agree serves as a template for the other six. Utt says that Smartfoods, when Utt first encountered it, was a start-up company with a promising new snack product but no track record or distribution experience. Distributors could help Smartfoods obtain shelf space in stores and supermarkets and eliminate the need for local advertising. To potential distributors, including Utt, Smartfoods touted not only the merits of its product but its intention to deal exclusively with Utt in its market area so long as Utt did well with the Smartfoods product line. In reliance on Smartfoods' representations, Utt ceased distributing another brand of popcorn, bought floor racks for installation in stores, shared the expense of providing free product samples to retailers, hired an upper-level manager, purchased a new motor vehicle to be used in the sales effort, and engaged in other marketing efforts.

The success of Smartfoods' product in the marketplace was such that it became a merger candidate. In 1989, Frito-Lay, Inc., more specifically Frito-Lay Acquisition Corp., acquired all the stock of Smartfoods. Frito-Lay, which now owned Smartfoods as a wholly-owned subsidiary, had its own distribution system and caused Smartfoods to terminate its existing distribution agreements, effective thirty days after termination notice. All the distributors had done well and, at the time of cancellation, were doing well with the Smartfoods product.

Although it requires a flight of the imagination to suppose that when Smartfoods bought general liability insurance it expected that the policy would cover legal expenses incident to what, notwithstanding the numerous counts, is at its core a breach of contract suit, our task is to match the complaint against the policies. We begin with the policy issued by American Motorists Insurance Company (AMIC).

The first coverage in the AMIC policy under which Smartfoods claims is the property damage coverage (coverage B), which applies to damage caused by an "occurrence." An "occurrence" under the policy means "an accident ... which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured." Assuming, only for sake of discussion, that the distributors had suffered property damage within the meaning of the policy, the termination of the distribution agreements was not an "accident," a word which, by definition, implies the unexpected. See American Heritage Dict. 11 (3d ed. 1992); Oxford English Dict. 14 (Compact ed. 1971). Rather, the termination of the agreements was a calculated business decision by Smartfoods itself. Nor was the resulting harm to the distributors, loss of profits and at least temporary excess capacity in personnel and equipment, unexpected or unintended by Smartfoods. Some degree of intangible harm of that sort was inevitable, and the case falls outside of such as Quincy Mut. Fire Ins. Co. v. Abernathy, 393 Mass. 81, 84, 469 N.E.2d 797 (1984), which held that a volitional act may nonetheless be accidental, in an insurance policy context, if the insured did not specifically intend to cause the harm that occurred or was not substantially certain the harm would occur. If, however, an insured knows with substantial certainty that harm will follow from his conduct, like setting a fire, it is not necessary that he gauge the degree of harm with precision. Newton v. Norfolk & Dedham Mut. Fire Ins. Co., 26 Mass.App.Ct. 202, 203-205, 525 N.E.2d 685 (1988), Newton v. Krasnigor, 404 Mass. 682, 536 N.E.2d 1078 (1989), and cases and authorities there cited. See also Terrio v. McDonough, 16 Mass.App.Ct. at 169, 450 N.E.2d 190 (if a person is pushed down a flight of stairs it is to be expected that person will be hurt). The damage claimed by the distributors, therefore, does not fall within the meaning of an "occurrence"; the damage, on the other hand, does fit the exclusion from coverage of damage from conduct and results which the insured intended.

That is not the end of the story. "Property damage," under the policy, means, in the first instance, "physical injury to or destruction of tangible property." There was no such injury or destruction. The phrase "property damage" also means "loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence...." Smartfoods attempts to fit into the "loss of use" category the distributors' claim that they were entitled to damages because Smartfoods' cancellation left them with surplus display racks and excess capacity in a van and five trucks bought to help handle the Smartfoods product. To cast an insufficiency of demand for the use of property to its fullest potential as a loss of use of that property is an exercise in turning language inside out. The property was there to be used. Economic loss incident to inability to exploit that available property profitably is not within the scope of property damage coverage. See Lassen Canyon Nursery, Inc. v. Royal Ins. Co., 720 F.2d 1016, 1018 (9th Cir.1983). Moreover, under the policy, the loss must be a result of an "occurrence," and, as we have seen, there was no "occurrence" in the policy sense. ⁴

If the complaints of the distributors cannot be read as stating a claim of damage to property within...