Exclusion of Coverage for Intentional or Expected Injuries under General Commercial Liability Policy
The insurer issued a general commercial liability policy to the insured, which was in the business of warehousing, relabeling, and shipping chemical products for their customers. While the policy was in effect, the insured was sued by a customer company, who alleged negligence by the insured for mislabeling its products. The insurer sought a declaration that it had no duty to defend or indemnify. The issue was whether the underlying actions of the insured were “accidents” to fall into the definition of an “occurrence,” as defined by the policy, and whether the underlying complaint alleged “property damage.”
The court first held that because the determination of whether an occurrence is an accident is focused on whether the injury, and not the acts, was expected or intended; and since the complaint alleged only negligence, it made an allegation of an “accident” and therefore “occurrence” under the policy.
The court next found that the underlying claim alleging damages based on the insured’s improper labeling of the chemicals would fall into the definition of “property damage” under “[l]oss of use of tangible property that is not physically injured” due to the inclusion of the mislabeled chemical product in the formulation of the adhesive product, which caused them not to perform as intended.
The court finally held that the provision, which excludes coverage if a product is recalled from the market because of a known or suspected defect, did not apply because that exclusion is limited to products which are withdrawn to prevent the failure of other products which have not yet failed but are suspected of containing the same defect. Since the mislabeled chemicals had already caused damage to a third party, the exclusion did not apply.
United Nat. Ins. Co. v. Faure Bros. Corp., 409 Ill.App.3d 711, 949 N.E.2d 1185 (Ill.App. 1 Dist., 2011).
