The U.S. Court of Appeals for the Eighth Circuit has affirmed a district court decision that an insured was not entitled to coverage of a claim because it did not involve "physical injury" to tangible property.
The Case
Decker Plastics Corp. sold plastic bags to Al's, Inc., which filled the bags with landscaping materials (rock, gravel, and sand) and stored them outdoors for sale to its wholesale customers.
Al's alleged that because Decker failed to manufacture the bags with an ultraviolet inhibitor, the bags deteriorated in the sunlight, spilling the contents off pallets and causing shreds of plastic to commingle with the landscaping materials, both while in Al's inventory and after delivery to its customers.
Al's sued Decker, alleging negligence, breach of warranty, and defective product.
Decker's insurer, West Bend Mutual Insurance Company, refused to defend or indemnify Decker under its commercial general liability ("CGL") insurance policy.
Decker paid $125,000 to settle Al's claims. Decker then sued West Bend.
The U.S. District Court for the Southern District of Iowa granted West Bend summary judgment, concluding there had been no "occurrence" triggering property damage coverage.
Decker appealed to the Eighth Circuit, which reversed, concluding that "deterioration of the bags was the covered occurrence," and "covered property damage (if any) was to Al's property other than the bags." Decker Plastics Inc. v. West Bend Mutual Ins. Co., 833 F.3d 986 (8th Cir. 2016). The Eighth Circuit remanded to the district court to address West Bend's alternative claims, including that there was no covered "property damage."
On remand, the district court again granted summary judgment for West Bend, concluding, among other things, that there was no covered property damage.
Decker again appealed to the Eighth Circuit.
The West Bend Policy
The West Bend policy provided that West Bend would pay:
those sums that the insured becomes legally obligated to pay as damages because of . . . "property damage" to which this insurance applies.
It defined
property damage
as:
a. Physical injury to tangible property, including all resulting loss of use of that propertyThe Eighth Circuit's Decision
The Eighth Circuit affirmed.
In its decision, the eighth circuit explained that the critical question was whether there had been some "physical injury" to Al's "tangible property." If there was covered physical injury to tangible property, "all damages caused by the [injury], such as lost profits and investments, would be covered by the policy," the circuit court added.
It then stated that, although the question was "not free from doubt," it agreed with the district court that Al's tangible property – its landscaping materials – had not suffered physical injury. They had not been "physically altered or destroyed" or "physically injured due to the incorporation of the deteriorated packaging material."
The contamination made the landscaping product unsaleable, and the contaminating plastic could not be economically removed, the circuit court acknowledged. However, it concluded, absent physical alteration, Al's property had suffered only diminution in value, and Decker's claims had been properly dismissed because there was no property damage triggering coverage under West Bend's policy.
The case is Decker Plastics Corp. v. West Bend Mutual Ins. Co., No. 17-1319 (8th Cir. Jan. 29, 2018). Attorneys involved include: For Decker Plastics Inc., Plaintiff – Appellant: Douglas W. Krenzer, Amy Marie Locher, Thomas M. Locher, LOCHER & PAVELKA, Omaha, NE. For West Bend Mutual Insurance Company, Defendant – Appellee: John F. Lorentzen, NYEMASTER & GOODE, Des Moines, IA.