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Coverage of Progressive Damage to Property Determined by Point Where Initial Property Damage Occurs
Insurance Law Update
August 2009
Eighth Circuit Court of Appeals
The Eighth Circuit Court of Appeals, in Michigan Millers Mutual Ins. Co. v. DG &G Co., Inc., 569 F.3d 807 (8th Cir. (Mo.) July 1, 2009), affirmed that coverage for property damage was excluded if the damage occurred while the product was in the "care, custody, or control" of the insured.
The insured, a cotton gin operator, ginned and delivered bales of cotton to third-party warehouses for later purchase. After cotton purchasers asserted claims against the insured for losses caused by mold, mildew and hard spots in the bales, the insured sought coverage from its insurer. At issue was whether the commercial general liability, umbrella or agribusiness property and income policies covered losses arising from the damaged cotton. The district court found no duty to defend or indemnify the insured under any policy and granted summary judgment in favor of all three insurers. The Eighth Circuit Court of Appeals affirmed. The court noted that the policies excluded coverage if damage occurred while the product was in the "care, custody, or control" of the insured. Although the insured argued that the property damage occurred at the warehouses, the court found that the cotton was not merchantable when it left the gin. The court determined that, if the purchasers suffered any physical injury to their property when it was in the insured's care, custody, and control at the gin, the entire loss was excluded, even if the damage was aggravated when the cotton bales sat in warehouses while mold and mildew developed. Accordingly, the Eighth Circuit affirmed that the insurers were entitled to a summary judgment as a matter of law.
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