The Eighth Circuit U.S. Court of Appeals recently reversed the Southern District of Iowa’s ruling in favor of an insurer when it held, in Decker Plastics, Inc. v. West Bend Mutual Ins. Co., No. 15-2861, 2016 U.S. App. LEXIS 15235 (Aug. 19, 2016) that the contamination of landscaping materials with plastic from defective storage bags was an “occurrence” as defined in a commercial general liability policy (“CGL”) and therefore covered under the policy because it was not simply “damages only to work product.”

Al’s Inc. packaged and sold landscaping materials and Decker Plastics Corp. sold plastic bags to Al’s that Al’s filled with landscaping materials and stored outdoors for sale to its customers. Decker failed to manufacture the bags with an ultraviolet inhibitor which allowed the bags to deteriorate in the sunlight, causing small shreds of plastic to mix in with Al’s landscaping materials, sometimes while the bags were still in Al’s possession and sometimes after they had been sold to customers. Because the plastic shreds could not be separated from Al’s products inexpensively, the company had to clean spilled materials from customer sites, purchase replacement bags from another supplier and pay to clean up its own premises.

Al’s sued Decker to recover its losses and after the parties settled the lawsuit, Decker filed a claim with West Bend under its CGL policy, West Bend denied coverage and Decker filed suit in Iowa state court, which was removed to the federal district court. That court eventually granted West Bend’s motion for summary judgment based on its determination that there was no “occurrence,” as defined in the policy. Decker appealed that ruling.

The appeals court first noted that the policy defined occurrence as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions” and that in a narrowly construed holding, the Iowa Supreme Court had held that “defective workmanship standing alone, that is, resulting in damages only to the work product itself, is not an occurrence under a CGL policy.” When the court applied those facts before it to that law however, it determined that the damages caused by Decker’s faulty workmanship were not damages only to the work product itself, i.e., the bags.  Instead, it stated: “Here, Decker’s defective bags were sold to its customer, Al’s, which then used the bags to store its own property, landscaping materials. The defective bags unexpectedly deteriorated, causing damage to Al’s other property.” In other words, the damages caused by the deterioration of the bags, and not simply the deteriorated work product, was the covered occurrence. As such, the court reversed the district court’s ruling and remanded the case for further proceedings.

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