United States Fire Ins. Co. v. Peterson's Oil Serv.

• Court: U.S. District Court — District of Massachusetts
• Writing for the Court: Denise J. Casper, United States District Judge
• Docket Number: Civil Action 23-cv-40044-DJC
• Decision Date: 17 June 2024
• Parties: UNITED STATES FIRE INSURANCE COMPANY and THE NORTH RIVER INSURANCE COMPANY, Plaintiffs, v. PETERSON'S OIL SERVICE, INC. HOWARD WOOD PETERSON, JR., KRISTEN PETERSON HALUS, and and SHARON PETERSON, Defendants.
• topic: Commercial Litigation,Contracts,Insurance Law

1

UNITED STATES FIRE INSURANCE COMPANY and THE NORTH RIVER INSURANCE COMPANY, Plaintiffs, v. PETERSON'S OIL SERVICE, INC. HOWARD WOOD PETERSON, JR., KRISTEN PETERSON HALUS, and and SHARON PETERSON, Defendants.

Civil Action No. 23-cv-40044-DJC

United States District Court, D. Massachusetts

June 17, 2024

MEMORANDUM AND ORDER

Denise J. Casper, United States District Judge

I. Introduction

Plaintiffs United States Fire Insurance Company (“U.S Fire”) and The North River Insurance Company (“North River”) (collectively “Plaintiffs”) filed this lawsuit against Defendants Peterson's Oil Service, Inc. (“Peterson's Oil”), Howard Wood Peterson, Jr. (“Peterson”), Kristen Peterson Halus and Sharon Peterson (collectively, the “Peterson Defendants”), seeking a declaratory judgment that Plaintiffs have no duty to defend or indemnify the Peterson Defendants for liability arising from a class action in state court under various theories. D. 1. The class plaintiffs in the state court litigation intervened (the “Intervenors”). D. 35. Plaintiffs have now moved for summary judgment. D. 32. For the reasons stated below, the Court DENIES the motion.

II. Standard of Review

The Court grants summary judgment where there is no genuine dispute as to any material fact and the undisputed facts demonstrate that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). “A fact is material if it carries with it the potential to affect the outcome of the suit under applicable law.” Santiago-Ramos v. Centennial P.R. Wireless Corp., 217 F.3d 46, 52 (1st Cir. 2000) (citation omitted). The movant bears the burden of demonstrating the absence of a genuine issue of material fact. Carmona v. Toledo, 215 F.3d 124, 132 (1st Cir. 2000); see Celotex v. Catrett, 477 U.S. 317, 322-23 (1986). If the movant meets its burden, the non-moving party may not rest on the allegations or denials in its pleadings, Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986), but must come forward with specific admissible facts showing that there is a genuine issue for trial. See Borges ex rel. S.M.B.W. v. Serrano-Isern, 605 F.3d 1, 5 (1st Cir. 2010). The Court “view[s] the record in the light most favorable to the nonmovant, drawing reasonable inferences in his favor.” Noonan v. Staples, Inc., 556 F.3d 20, 25 (1st Cir. 2009).

III. Factual Background

The Court draws the following facts from the parties' statements of undisputed facts and accompanying exhibits. D. 31; D. 32; D. 43; D. 44; D. 47. These facts are undisputed unless otherwise noted.

A. The Relevant Insurance Policies

Plaintiffs issued insurance policies to Peterson's Oil for five years. D. 43 ¶ 1; D. 47 ¶ 1; see, e.g., D. 31-1-31-10. North River issued a primary commercial general liability policy (a “Primary Policy”) covering July 5, 2011 to July 5, 2012 and five commercial umbrella liability (“Umbrella Policies”) policies covering July 5, 2011 to July 5, 2016. D. 43 ¶¶ 1-2, 8; D. 47 ¶ 1-2, 8.^[1] U.S. Fire issued four Primary Policies covering the period July 5, 2012 through July 5, 2016. D. 43 ¶¶ 1-2; D. 47 ¶ 1, 8.

1. The Primary Policies

The Primary Policies insure Peterson's Oil for “‘bodily injury' or ‘property damage' only if: (1) An “occurrence” is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” D. 43 ¶ 6; D. 47 ¶ 6. The Primary Policies provide liability up to a limit of $1,000,000 per occurrence and $2,000,000 as a general aggregate limit. D. 43 ¶ 3; D. 47 ¶ 3. An endorsement to the Primary Policies titled “Limited Coverage -Failure to Supply” limits the amount covered for “property damage arising out of the failure of any insured to adequately supply gas, oil, water, electricity or steam” to $250,000 “regardless of the number of insureds, claims made or ‘suits'” brought.” D. 43 ¶ 5; D. 47 ¶ 5.

2. The Umbrella Policies

The Umbrella Policies provide additional coverage in the amount of $15,000,000 per occurrence and in the aggregate if “‘Property Damage' is caused by an ‘Occurrence.'” D. 43 ¶¶ 910; D. 47 ¶¶ 9-10. “Property Damage” and “Occurrence” are defined similarly in the Umbrella Policies as they are in the Primary Policies. D. 43 ¶¶ 15, 16; D. 47 ¶¶ 15, 16.^[2] The Umbrella Policies contain several exclusions and limitations that are potentially relevant to the present case.

First, the Umbrella Policies from July 5, 2011 to July 5, 2015 contain a “Failure to Supply Exclusion” which excludes coverage “‘Property Damage' arising out of the failure of any insured to adequately supply gas, oil, water, electricity or steam.” D. 43 ¶ 11; D. 47 ¶ 11.

Second, the Umbrella Policies from July 5, 2014 to July 5, 2016 contain a “Failure to Supply Limitation” which excludes “‘Property Damage' . . . arising out of the failure of any Insured to provide an adequate supply of gas, oil, electricity, steam, or any other form of energy, or water.” D. 43 ¶ 12; D. 47 ¶ 12. This exclusion expressly “does not apply to . . . ‘Property Damage' that is covered by ‘Underlying Insurance' for the full limit scheduled as ‘Underlying Insurance by this policy.” D. 43 ¶ 12; D. 47 ¶ 12.

Finally, the Umbrella Policies in effect from July 5, 2012 to July 5, 2016 contain a “Sublimited Coverage Exclusion” which excludes coverage for property damage “resulting from, arising out of or in any way related to injury, damage, cost or expense for which coverage under any ‘Underlying Insurance' is subject to a ‘Sublimit.'” D. 43 ¶ 13; D. 47 ¶ 13. A “Sublimit” is defined as “any limit of insurance under any ‘Underlying Insurance' applicable to a specific hazard, peril, cause or injury or damage which is less than limits of liability applicable in general in such ‘Underlying Insurance.'” D. 43 ¶ 13; D. 47 ¶ 13.

B. The Underlying Litigation

On or about March 15, 2019, the Intervenors sued the Peterson Defendants in state court, alleging that the Peterson Defendants sold Intervenors fuel for home heating which contained more than 5% biodiesel. D. 31-12 ¶ 28; D. 43 ¶¶ 17, 20-22; D. 47 ¶¶ 17, 20-22. Intervenors further allege that fuel containing more than 5% biodiesel does not meet industry standards and caused damage to Claimants' home heating equipment. D. 31-12 ¶¶ 28, 132, 159, 161, 211, 217; D. 43 ¶¶ 20-27; D. 47 ¶¶ 20-27; D. 31-12 ¶ 28. The Peterson Defendants allegedly did not fully disclose the presence of biodiesel in their fuel, despite knowing the risk posed by high-biodiesel blended fuel. D. 31-12 ¶¶ 157-62, 207, 215; D. 43 ¶¶ 24-27; D. 47 ¶¶ 24-27. Plaintiffs are defending the Peterson Defendants in the underlying action pursuant to a reservation of rights. D. 43 ¶ 18; D. 47 ¶ 18.

The fact discovery deadline in the underlying action has passed. D. 43 ¶ 31; D. 47 ¶ 31.^[3]As part of discovery, Peterson was deposed in his individual capacity and as a designee of Peterson's Oil under Fed.R.Civ.P. 30(b)(6). D. 31-13; D. 31-14; D. 43 ¶ 31; D. 47 ¶ 31. Peterson testified that he started blending biodiesel into home heating oil in 2012 because “[c]limate change was becoming a matter of life and death for most people who lived in the Commonwealth of Massachusetts.” D. 43 ¶ 32; D. 47 ¶ 32. The parties do not dispute that “Peterson intentionally blended biodiesel into its fuel.” D. 43 ¶ 32; see D. 47 ¶ 32 (disputing “aspects of Plaintiffs' characterizations as written” and “that testimony is complete,” but noting “that Howard Peterson's testimony speaks for itself”).

IV. Procedural History

Plaintiffs instituted this action on April 13, 2023. D. 1. Plaintiffs have now moved for summary judgment. D. 30. The Court heard the parties on the pending motion, D. 30, and took the matter under advisement. D. 52.

V. Discussion

A. Scope of the Duty to Defend and Duty to Indemnify

It is well-settled Massachusetts law that an insurer's duty to defend is broader than its duty to indemnify. Essex Ins. Co. v. BloomSouth Flooring Corp., 562 F.3d 399, 403 (1st Cir. 2009).

To determine whether the insurer has a duty to defend, the Court must compare the facts alleged in the underlying complaint against the provisions of the insurance policy. Id. “[I]f the allegations of the [underlying] complaint are reasonably susceptible of an interpretation that they state a claim covered by the terms of the insurance policy,” then the insurer has a duty to defend. HDH Corp. v. Atl. Charter Ins. Co., 425 Mass. 433, 436 (1997). So long as the insurer is obliged to defend one count of the underlying complaint, “the insurer must defend the insured on all counts, including those that are not covered.” Mount Vernon Fire Ins. Co. v. Visionaid, Inc., 477 Mass. 343, 351 (2017). By comparison, the duty to indemnify “arises only after the insured's liability has been established.” Wilkinson v. Citation Ins. Co., 447 Mass. 663, 671 (2006). Typically, a declaratory judgment on the insurer's duty to indemnify “is not yet ripe” if “the underlying action has not determined liability or adjudicated factual disputes.” See State Farm Fire & Cas. Co. v. Pike, 389 F.Supp.3d 94, 99 (D. Mass. 2019); see John Moriarty & Assocs., Inc. v. Zurich Am. Ins. Co., 102 Mass.App.Ct. 474, 489 (2023) (explaining that request for declaratory relief was premature because it “may turn on facts proved in the underlying action”).

Once an insurer undertakes to defend its insured, as Plaintiffs have done here, the insurer “may not unilaterally withdraw a defense based on new facts outside the scope of the underlying complaint.” Medmarc Cas. Ins. Co. v Harvard Bioscience, Inc., No. 2184-cv-02093-BLS2, 2022 WL 1416489, at *6 (Mass. Super. Jan. 24, 2022). When the underlying complaint is reasonably susceptible of an interpretation that coverage exists, but the insurer wishes to withdraw...