155 F.4th 22
1st Cir.2025Background
- Peterson’s Oil sold heating fuel between 2012–2019 that allegedly contained >5% biodiesel (industry cap) and an average of ~35% between 2015–2018; customers later claimed heating failures and damage.
- Customer-plaintiffs filed a Massachusetts class action alleging breach of contract, fraud, and negligence (including claims heating systems were physically damaged by the blended fuel).
- Peterson’s had successive commercial general liability primary policies (2011–2016) defining “occurrence” as an “accident” and covering property damage; primary policies included a Failure-to-Supply endorsement capping such losses at $250,000 per year.
- Corresponding umbrella policies (2011–2016) provided excess limits but either excluded or limited coverage for losses “arising out of the failure to adequately supply” gas, oil, electricity, steam, or similar.
- Insurers defended under reservation of rights, then sued for a declaratory judgment in federal court seeking to end their duty to defend/indemnify; district court denied Insurers’ motion for summary judgment and ordered continuation of the defense.
- Insurers appealed arguing (1) the customer claims did not allege an “occurrence” because Peterson’s intentionally altered fuel composition, and (2) failure-to-supply provisions applied to limit or exclude coverage; the First Circuit affirmed.
Issues
| Issue | Insurers' Argument | Peterson’s / Plaintiffs' Argument | Held |
|---|---|---|---|
| Whether underlying claims arise from an "occurrence" (i.e., an "accident") | Peterson’s intentional decision to blend fuel shows insured intended or was substantially certain harm would occur, so no "occurrence" | Complaint pleads negligence and reckless but not specifically intended harm; negligent delivery of damaging fuel is an "accident" | Court: Complaint plausibly pleads an "occurrence" (negligence/recklessness can be accidental); duty to defend remains |
| Whether extrinsic discovery conclusively establishes lack of an "occurrence" | Deposition evidence of intentional blending is an undisputed extrinsic fact removing coverage | Underlying complaint (well‑pleaded allegations) and absence of conclusive extrinsic proof of intent preserve duty to defend | Court: No undisputed extrinsic fact that takes case outside coverage; duty to defend stands |
| Whether Failure-to-Supply provisions limit coverage to $250,000 or exclude coverage | "Adequately" / "adequate" refers to both quantity and quality, so substandard (high-biodiesel) fuel falls within exclusion/limitation | "Adequately" modifies "supply" (focuses on sufficiency/quantity); provision is ambiguous and must be construed against insurer | Court: Term is ambiguous; construing ambiguities against insurer, failure-to-supply provisions do not limit/ bar coverage here |
| Whether district court judgment on defense obligation was appealable | Insurers contend district court erred and appeal is proper | Peterson’s challenges jurisdiction but case resolved on merits | Court assumed jurisdiction and affirmed on the merits |
Key Cases Cited
- Millipore Corp. v. Travelers Indem. Co., 115 F.3d 21 (1st Cir.) (duty to defend is antecedent to duty to indemnify)
- Billings v. Commercial Ins. Co., 936 N.E.2d 408 (Mass. 2010) (duty to defend hinges on complaint and readily knowable facts; ambiguities resolved for insured)
- Worcester Ins. Co. v. Fells Acres Day Sch., Inc., 558 N.E.2d 958 (Mass. 1990) (reckless conduct can be "accidental" for coverage purposes)
- Quincy Mut. Fire Ins. Co. v. Abernathy, 469 N.E.2d 797 (Mass. 1984) ("accident" construed broadly; unintended harms may be accidental)
- Terra Nova Ins. Co. v. Fray‑Witzer, 869 N.E.2d 565 (Mass. 2007) (insured’s intent/expectation is key to defining "accident")
- Deutsche Bank Nat'l Ass'n v. First Am. Title Ins. Co., 991 N.E.2d 638 (Mass. 2013) ("in for one, in for all" duty to defend rule)
- Williams v. United States, 858 F.3d 708 (1st Cir.) (appellate courts may affirm on any correct basis in the record)