Reversing the district court, the Eighth Circuit predicted that under Iowa law, damage to property other than the insured's work product was covered. Decker Plastics Inc. v. West Bend Mut. Ins. Co., 2016 U.S. App. LEXIS 15235 (8th Cir. Aug. 19, 2016).
A 1's, Inc. packaged and sold landscaping materials. Decker Plastics Corporation sold plastic bags to A 1's. The plastic bags were filled with sand and rock, and stored outdoors for sale to customers. Because Decker failed to manufacture the bags with an ultraviolet inhibitor, the bags deteriorated in the sunlight. This caused small shreds of plastic to commingle with A 1's landscaping materials. The plastic was a contaminant that could not be inexpensively separated form A 1's products. A 1's had to clean spilled materials from customer sites, purchase replacement bags from another supplier, and pay to clean up its own property.
A 1's sued Decker to recover its losses. Decker and A 1's settled, and Decker filed a claim with its CGL carrier, West Bend. The claim was denied. Decker sued, but the district court granted summary judgment to West Bend because there was no "occurrence" under Iowa law. Under Pursell Constr., Inc. v. Hawkeye-Sec. Ins. Co., 596 N.W. 2d 67 (Iowa 1999), defective workmanship standing alone, resulting in damages only to the work product itself, was not an occurrence under a CGL policy. The district court held that A 1's claimed losses against Decker was foreseeable and the expected consequences of Decker's defective workmanship.
The Eighth Circuit reversed. Decker's defective bags were sold to its customer, A 1's, which then used the bags to store its own property, landscaping materials. The defective bags unexpectedly deteriorated, causing damage to A 1's other property. The deterioration of the bags was the covered occurrence. Under Pursell, the occurrence was "a misfortune with concomitant damage to a victim [A 1's], and not the negligence [of Decker] which eventually result[ed] in that misfortune." The covered property damage was to A 1's property other than the bags.
Therefore, the Eighth Circuit predicted that the Iowa Supreme Court would limit its hold in Pursell to cases where the alleged "occurrence" was defective workmanship standing alone, that is, resulting in damages only to the work product itself.
