Four related companies known as Cold Storage Solutions operated cold storage warehouses. They hired Eastern Insurance Group to obtain warehouse liability insurance for them.  Eastern informed them that it had done so, but in fact it had failed to obtain insurance for one of the entities, CSS III.

On October 9, 2011, a forklift operator drove into a racking system in a freezer at the CSS III warehouse, causing racks holding millions of pounds of frozen food to collapse.

Whitecap International Seafood Exporters stored snow crab at the warehouse. Some crab was undamaged in the accident but had to be moved from the warehouse because of the risk that additional racks would collapse.  CSS employees allowed the crab to be left outside the freezer for five to six hours during the process of moving it from the warehouse.  That caused temperature fluctuation damage.

Litigation ensued.  As part of the settlement agreement, Cold Storage Solutions assigned to Whitecap the claim against Eastern for its failure to obtain insurance for CSS III.  In Whitecap Int’l Seafood Exporters, Inc. v. Eastern Ins. Group, LLC, __ N.E.3d __, 2020 WL 3023105 (Mass App. Ct.), the issue before the court was whether CSS III’s liability would have been covered if Eastern had obtained insurance for it.

The Superior Court had granted summary judgment to Eastern, holding that there would have been no coverage under the policy that Eastern would have obtained for CSS.  On appeal, the Massachusetts Appeals Court examined three policy provisions.  It held that there was a factual dispute as to coverage under one of the provisions, and remanded the case to the Superior Court.

 EXCEPTION TO SPOILAGE EXCLUSION DOES NOT APPLY; “RESULTS IN” MEANS “CAUSES” NOT “RESULTS FROM”

The policy was an all risks policy.  It contained an exclusion for “loss to perishable stock caused by spoilage.”

The spoilage exclusion had an exception providing that “if spoilage results in a specified peril, we do cover the loss or damage caused by that specified peril.”  Specified perils as defined by the policy means explosion, falling objects, hail, fire, etc. 

Eastern argued that the phrase “results in” in the exception means “causes.”  Whitecap argued that it means “results from.”

The Appeals Court agreed with Eastern.  It held that because the temperature fluctuation to the crab did not cause a specified peril the exception did not apply.

COURT REJECTS CHAIN OF CAUSATION ARGUMENT

The policy included supplemental coverage for cold storage, if spoilage “is caused by . . . a sudden or accidental breakdown or malfunction of refrigeration equipment” or by “the incorrect usage of the refrigeration equipment.”  The court held that that coverage did not apply because those causes were not the immediate cause of the damage to the crab.  Rather, the damage was caused by the decision of CSS to leave the crab in the loading area for five to six hours. 

Whitecap made a chain of causation (sometimes called train of events) argument, under which “if the efficient proximate cause is an insured risk, there will be coverage even though the final form of  property damage, produced by a series of related events, appears to take the loss outside the terms of the policy.”

Chain of causation arguments are among my least favorite to make or oppose in the entire realm of insurance coverage, because when fully analyzed under the case law interpreting it the theory is confusing and slippery and usually requires me to make a chart with arrows.

The court did not dive into the weeds of the argument.  It dismissed the theory on the ground that chain of causation applies only to first-party claims.

Alas, that was a fake out.  The court proceeded to a chain of causation analysis before again concluding that the doctrine did not apply. 

The court held that a chain of causation analysis distinguishes between “an excluded event which causes a loss and a covered event which causes a loss in the form of an excluded event.  An insured may recover under a policy only in the event of the latter.”

The court held that the chain of causation theory did not apply because the decision to leave the crab in the loading area for five to six hours was an intervening force and efficient proximate cause of the damage.  

COURT FINDS DISPUTED ISSUE OF FACT

Finally, the policy included a coverage extension for “any direct physical loss to covered property while it is being moved . . . to prevent a loss caused by a covered peril.”  The court held that the word “any” means that any type of direct physical loss is covered unless excluded.

Whitecap argued that there were genuine issues of material fact as to whether the crab was moved to prevent a loss caused by additional freezer racks collapsing and whether the loss occurred within the ten day time period from when the crab was first moved, as required by the coverage extension.  The court agreed, and vacated the trial court’s grant of summary judgment to Eastern.