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

Superior Court of Massachusetts, Suffolk, Business Litigation Session

January 22, 2018

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

          File Date: January 23, 2018

Judge (with first initial, no space for Sullivan, Dorsey, and Walsh): Sanders, Janet L., J.

          MEMORANDUM OF DECISION AND ORDER ON DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT

          Janet L. Sanders Justice

         This case concerns a dispute over coverage between an insured and its insurer. Defendant Raw Seafoods, Inc. (RSI) is a seafood processor. In 2012, an RSI customer, Atlantic Capes Fisheries, Inc. (Atlantic), filed an action in federal court alleging that RSI’s negligent processing of its scallops resulted in their premature spoilage. RSI’s insurer, plaintiff Hanover Insurance Group, Inc. (Hanover), agreed to defend RSI under a reservation of rights and then filed the present action, seeking a declaration that it had no duty to indemnify RSI for any judgment Atlantic obtained. After the federal court judge granted summary judgment in favor of Atlantic and entered judgment against RSI, the parties filed cross motions for partial summary judgment in the instant action. This Court (Roach, J.) granted summary judgment in favor of Hanover but the Appeals Court reversed. 91 Mass.App.Ct. 401 (2017). RSI now renews its Motion for Partial Summary Judgment. For the reasons that follow, the Motion is Allowed.

         BACKGROUND

         RSI is a seafood processing facility in Fall River. Atlantic, a seafood company that sells scallops and other seafood, regularly uses RSI to apportion, pack, and freeze the fresh scallops that it purchases from fishing vessels. Upon delivery of Atlantic’s scallops, RSI staff inspects the scallops for quality, reports the results to Atlantic, and receives processing instructions. After processing, the scallops are transported to a third-party cold storage facility, Arctic Cold Storage (Arctic), from which Atlantic ships its customers’ orders.

         In July 2011, a batch of scallops that RSI had processed made their way through customs in Denmark where it was observed that the scallops were decomposed and emitting a strong smell of ammonia. They were deemed unacceptable for human consumption and sent back to the United States. Once in the United States, the Food and Drug Administration tested the batch and confirmed that it was spoiled. The batch of scallops was then returned to Arctic’s facility, where representatives from Atlantic and RSI jointly inspected the shipment and again confirmed the damage. They also inspected another batch of scallops processed by RSI around the same time as the rejected batch, and discovered more damaged scallops.

         At the time, Hanover insured RSI through a Commercial General Liability (CGL) policy. The Policy 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." The Policy applies to " property damage" that is caused by an " occurrence, " which is defined as " an accident, including continuous or repeated exposure to substantially the same general harmful conditions." The Policy contains several exclusions as well as a " special broadening endorsement, " which modifies the scope of certain exclusions.

         In June 2012, Atlantic sued RSI in the United States District Court for the District of Massachusetts, alleging that the damage to the scallops was caused by RSI’s negligence. Hanover agreed to defend RSI under a reservation of rights. Shortly thereafter, Hanover filed the present lawsuit, seeking a declaratory judgment that either the damage to the scallops was not caused by an " occurrence" within the meaning of the Policy, or that certain Policy exclusions applied, such that it had no duty to indemnify RSI for any judgment Atlantic obtained. RSI asserted counterclaims for breach of contract and violations of G.L.c. 93A and 176D, and further alleged that it was entitled to a declaration that the damage was covered. Upon motion by RSI, the Court stayed discovery pending resolution of the federal litigation.

         While the stay was in place, discovery proceeded in the federal action. In deposition testimony, the president of RSI, Jason Hutchens, conceded that the scallops were delivered to RSI in good condition, but that " somewhere in [RSI’s] system, the product got messed up."

         Hutchens testified: " [I]n almost the seventeen years we’ve been doing this, 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 have never seen anything like it and have not 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." Hutchens agreed, however, that the damage occurred while the scallops were 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." The precise cause of the damage remains unknown.

         In June 2014, Atlantic moved for summary judgment in the federal action, relying on the doctrine of res ipsa loquitur . Atlantic argued that the undisputed facts showed that it had delivered the scallops to RSI in good condition, that RSI had exclusive control over the scallops until they were delivered to Arctic in a frozen state, and that nothing occurred after that delivery that would have caused the damage. Agreeing with this reasoning, the federal court allowed Atlantic’s motion.

         After judgment entered against RSI, the parties in the instant case filed cross motions for partial summary judgment on the issue of coverage. Judge Roach granted summary judgment in favor of Hanover, concluding that RSI could not meet its burden of proving that the loss was caused by an " occurrence" because " there was no demonstrated accident distinct from [RSI’s] performance of its work." In reaching that conclusion, Judge Roach relied on Pacific Indemnity Co. v. Lampro (Lampro), 86 Mass.App.Ct. 60, 65 (2014), reasoning that the possibility that raw seafood could be spoiled or damaged during handling is a " normal, foreseeable and expected incident" of the seafood processing business and is therefore not an accident.

         RSI appealed and in April 2017, the Appeals Court set aside the Judgment in Hanover’s favor and remanded the case. In doing so, the Court made several observations relevant to the renewed motion presently before this Court. First, the Appeals Court noted that, in allowing Atlantic’s motion for summary judgment in the federal action, the court had necessarily determined that the only explanation for the damage to the scallops was that RSI was negligent in handling the product. Hanover could not relitigate this factual issue. In other words, Hanover could not take the position in this litigation that the damage could have been the result of intentional conduct. 91 Mass.App.Ct. at 407. Second, the Appeals Court concluded that Lampro was distinguishable, and that the instant case was instead similar to Beacon Textiles Corp. v. Employers Mut. Liab. Ins. Co.,355 Mass. 643 (1969), which supported RSI’s position. 91 Mass.App.Ct. at 409-10. The Court remanded the ...


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