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(Article from Insurance Law Alert, February 2018)

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The Eighth Circuit affirmed an Iowa federal district court decision holding that contamination of landscaping materials caused by defective plastic storage bags does not constitute physical injury to tangible property under a liability policy.  Decker Plastics Corp. v. West Bend Mutual Ins. Co., 880 F.3d 1017 (8^th Cir. 2018)

Decker, a manufacturer of plastic storage bags, was sued by a landscape supplier after it discovered that the bags were defective and deteriorated in sunlight.  The deterioration caused small pieces of plastic to commingle with landscaping materials.  Decker settled the lawsuit with the landscape supplier and sought coverage from West Bend.  The insurer denied coverage, arguing that there was no “occurrence” under the policy.  The district court agreed and granted West Bend’s summary judgment motion.  The Eighth Circuit reversed, ruling that deterioration of the bags was a covered occurrence and that covered property damage (if any) was to property other than the bags.  See Sept. 2016 Alert.  On remand, the district court ruled that there was no covered property damage and that, in any event, coverage was barred by policy exclusions.  The Eighth Circuit affirmed.

The court held that existence of covered property damage turned on whether there was “physical injury” to “tangible property.”  Noting that “the question is not free from doubt,” the court concluded that the landscaping materials did not suffer physical injury.  Although the landscaping materials were no longer saleable because they were contaminated with shreds of plastic from the deteriorated bags, the rock and sand were not “physically altered or destroyed.”  Rather, the contamination diminished only the value of the materials and thus did not trigger coverage under the policies.