In the underlying suit, Land O’Lakes and DMS, the marketing company that hired the insured, Clouse Trucking, to deliver milk, accused Clouse of reselling milk that had been previously rejected by another buyer for being contaminated with antibiotics. The contaminated milk was then mixed with other milk in Land O’ Lakes’ silo, and Land O’ Lakes was forced to dispose of the entire amount.
Clouse’s CGL insurer and Cargo Carrier Liability insurer both refused to defend Clouse. Another insurer that had initially agreed to defend Clouse before settling later filed a lawsuit against the two other insurers for contribution and indemnification. The court dismissed the lawsuit, finding that neither insurer had a duty to defend or indemnify.
The court held that the injury allegedly suffered did not meet the CGL policy’s definition of “occurrence,” which involves an “accident.” which, the court noted, “refers to an unexpected and undesirable event occurring unintentionally.” Since the allegations against Clouse were that Clouse engaged in a “series of intentional acts” designed to deceive Land O’ Lakes into buying the contaminated milk, including forging the driver’s signature and delivering false samples of raw milk to Land O’Lakes, the court held that there was no “occurrence.” The court held that the counts of negligent misrepresentation and negligence were general allegations that were “belied” by the “specific allegations which were incorporated by reference into each claim.” As the court noted, “the nature of these factual allegations, not the label of the cause of action, controls St. Paul’s duty to defend.”
Additionally, the court held that the CGL insurer did not have a duty to defend or indemnify against DMS’s claims, which included breach of implied contract and negligence, since the CGL policy excluded coverage for property damage “for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement.” The court held that the implied nature of the contract between DMS and Clouse was irrelevant. Similarly, according to the court, the negligence claim involved Clouse’s violation of a duty created by the same implied contract, and therefore these claims were also excluded.
Further, the court held that the Cargo Carrier Liability insurer did not have a defense obligation under its policy that provided coverage for “Covered Property … of others in due course of transit.” The court held that the Land O’ Lakes milk in the silo that was contaminated was never transported by Clouse and thus was never “in transit”; the claims were excluded as alleging “dishonest or criminal” acts and “any willful act intended to cause a ‘loss’ committed by you or anyone else at your direction”; the policy contained only a right to defend, and not a duty; and the policy was explicitly made excess to the settling insurer’s policy.
