INSURANCE-RELATED COURT CASES
Digested from case reports published online
COURT DECISIONS
The insurer’s argument was “inadequate”
Peterson’s Oil Service, Inc. (Peterson’s), a fuel and heating oil distributor, faced a class action lawsuit filed on behalf of a group of disgruntled heating oil customers (The Class). The claim was that, over a period of several years, Peterson’s supplied a blend of heating oil that failed to perform properly and eventually damaged their heating equipment.
During the time period in which the plaintiff class’s alleged damages occurred (beginning in 2011), Peterson’s was insured. The company held general liability and umbrella liability policies issued respectively by United States Fire Insurance Company and the North River Insurance Company. (This summary will use Fire/River as its insurer reference.)
From the years 2011 through 2016, Fire/River provided commercial general liability occurrence-based policies with $1 million per-occurrence limits ($2 million policy year aggregate). The umbrella policies provided $15 million per-occurrence (and policy aggregate) limits. Both policies defined occurrences as accidents. Essentially both the successive CGL and umbrella policies included limitations for losses involving a failure to adequately supply electricity, gas, oil, steam or water. In such instances, any loss was capped at a total of $250,000 per CGL policy period. The umbrellas, essentially, aligned with the primary policy cap.
The Class brought five complaints against Peterson’s, including breach of contract (failing to supply a proper fuel blend), fraud (misrepresenting as well as omitting information about fuel quality), and negligence. The negligent action was failing to take reasonable care to distribute fuel that would efficiently heat homes and not harm any heating equipment.
Fire/River initially defended the lawsuit against Peterson’s under a Reservation of Rights. Later, the insurers filed their own case asking to be relieved of any duty to defend or cover the damages sought by The Class. But things did not go the insurers’ way. A lower court ruled in favor of Peterson’s. Fire/River then appealed, continuing to seek a way out of having to continue defending and paying for any damages. The Class joined Peterson’s in opposition to that move.
Fire/River, essentially, doubled down on their previous position. They argued that, as the court records indicated that a Peterson’s executive made the decision to use significantly higher levels of biodiesel in the fuel mix they used to supply their heating oil customers, the damages were not the result of an occurrence. They also made a point that, should a coverage obligation be found to exist, it should be limited to the $250,000 per-policy limit created by their failure-to-supply endorsements under the CGL policies. The higher court, after considering the court records, policy wording, state law and relevant cases came to its own conclusions.
With regard to Fire/River’s position on ending its defense obligation, the court found that no information existed in the record, nor was there any outside fact presented, that supported terminating any legal defense against The Class’s lawsuit.
The court’s defense decision hinged on its opinion regarding the underlying complaint that triggered Peterson’s claim. The court held that a material, triable fact existed regarding whether an occurrence existed. The lower court found that, while the oil distributor did knowingly use a higher level of biodiesel in its fuel mixture, there was no conclusive evidence that the executive or the company knew that the mixture was damaging the heating equipment of any customers. Complaints from customers were not made to the company until 2018.
With regard to the policies’ failure to “adequately supply” wording, the court disagreed with Fire/River’s take. The insurers argued that the provision referred to adequately supply (in this case) oil of sufficient quality to meet customer needs. The higher court aligned with the position of the lower court. It also found that the wording could also be interpreted as referring to sufficient quantity as well as to both quantity and quality. Therefore, the provision was subject to more than a single meaning. The ambiguity then fell in favor of the policyholder.
In light of its review, the lower court ruling in favor of Peterson’s was affirmed.
United States Fire Ins. Co. and The North River Ins. Co. v. Peterson’s Oil Service, Inc., et. al.—U.S. Court of Appeals for the 1st Circuit—No. 24-1671—September 9, 2025.
