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The Hanover Insurance Group Inc. v. Raw Seafoods Inc.

Appeals Court of Massachusetts, Suffolk

April 26, 2017

THE HANOVER INSURANCE GROUP, INC.
v.
RAW SEAFOODS, INC.

          Heard: September 16, 2016.

         Civil action commenced in the Superior Court Department on September 21, 2012.

         The case was heard by Christine M. Roach, J., on motions for summary judgment.

          Michael J. Daly (Samuel P. Blatchley also present) for the defendant.

          Jeffrey E. Dolan (Anthony M. Campo also present) for the plaintiff.

          Present: Agnes, Neyman, & Henry, JJ.

          NEYMAN, J.

         In this case we analyze whether damage to scallops at a seafood processing facility, where the precise cause of damage is unknown, constituted an "occurrence" within the meaning of a commercial general liability (CGL) policy. A Superior Court judge concluded that the defendant-insured, Raw Seafoods, Inc. (RSI), has no reasonable expectation of proving that its claimed loss was caused by an occurrence, and granted summary judgment in favor of the plaintiff-insurer, Hanover Insurance Group, Inc. RSI appeals therefrom. We reverse.

         Background.

         1. RSI and the damaged scallops.

         RSI is a seafood processing facility in Fall River. One of RSI's customers, Atlantic Capes Fisheries, Inc. (Atlantic), sells scallops and other types of seafood around the world. Atlantic purchases fresh scallops from fishing vessels, then transports the scallops to RSI for processing, portioning, packaging, and freezing. RSI's staff inspects the scallops for quality upon arrival, reports the results to Atlantic, and receives processing instructions from Atlantic. After processing, the scallops are transported to Arctic Cold Storage (Arctic), a third-party cold storage facility. Atlantic then ships its customers' orders directly from Arctic's facility. RSI handles approximately 4 million to 6 million pounds of scallops for Atlantic per year.

         In July, 2011, RSI-processed scallops were making their way through customs in Denmark, heading to an Atlantic customer. Upon inspection, the 37, 102 pounds of scallops were found to be decomposed, exhibited a strong ammonia smell, and were deemed unacceptable for human consumption. By all accounts, something was rotten in the state of Denmark.[1] The United States Food and Drug Administration tested the scallops and confirmed that they were spoiled. The scallops were then returned to Arctic's facility, where representatives from Atlantic and RSI jointly inspected the shipment and confirmed the damage. They also inspected another batch of scallops, processed by RSI for Atlantic around the same time as the rejected batch, and discovered approximately 20, 000 additional pounds of damaged product.

         2. The underlying litigation.

         In 2012, Atlantic brought an action against RSI in the United States District Court for the District of Massachusetts (the "underlying litigation"), which included a count for negligence for the damage to the scallops. At that time, Hanover insured RSI pursuant to a CGL policy (policy), and agreed to defend RSI in the underlying litigation (with counsel selected by RSI), while reserving its right to deny coverage under the policy.

         During discovery in the underlying litigation, RSI's president, Jason Hutchens, acknowledged that the scallops were delivered to RSI in good condition, but that "somewhere in [RSI's] system, the product got messed up." It is undisputed that the damage occurred while the scallops were in RSI's possession, but the precise cause of the damage at RSI's facility remains unknown. Hutchens stated that "we've never seen anything like this before ... we beat our heads against the wall for, it seemed like months, trying to figure this out. We've never seen anything like it and haven't seen anything after this problem. But we can't put our hands around it, how it happened and why it happened -- we don't know." Nonetheless, he agreed that, to his understanding, "[t]he damage occurred in [RSI's] custody" and "was the result of some, as yet, unknown failure on the part of [RSI's] processing people or handling people within [RSI's] plant." He further agreed that the damage to the scallops could have occurred because someone failed to "maintain temperatures carefully enough." Atlantic's chief operating officer, Jeffrey Bolton, agreed with Hutchens's statements and added that his "assumption is that somewhere along the line during the process of the scallops that [Atlantic] shipped to [RSI], there was temperature abuse, and that's why they were deemed decomposed."

         Atlantic moved for summary judgment in the underlying litigation under the doctrine of res ipsa loquitur, arguing that it was undisputed that Atlantic had delivered the scallops to RSI in good condition; RSI had exclusive control over the scallops until they were delivered to Arctic in a frozen state; the scallops were not damaged after they were delivered to Arctic; although the precise cause of the damage was unknown, RSI accepted responsibility for damaging the scallops; and the damage could only have been caused by RSI's negligent handling of the product. Atlantic further contended that while it could not conclusively establish precisely where in RSI's handling the scallops were damaged, the most likely cause was "temperature abuse" caused by "RSI's personnel's failure to monitor the temperature in some vats of scallops." A Federal District Court judge granted Atlantic's motion for summary judgment "for the reasons stated therein, " and issued a judgment against RSI and in favor of Atlantic in the amount of $599, 790.08 with postjudgment interest.

         3. The policy.

         At all relevant times Hanover insured RSI. RSI's policy with Hanover provides in relevant part that Hanover "will pay those sums that the insured becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage' to which this insurance applies." By its terms, the policy applies to "property damage" that is caused by an "occurrence." The policy defines "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." The policy also contains several exclusions limiting the application of the policy, as well as a "special broadening endorsement."[2] However, where the judge decided the motion for summary judgment solely on her determination ...


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