(Article from Insurance Law Alert, September 2018)
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The Supreme Court of Kentucky ruled that a mining company’s unauthorized removal of minerals from an adjacent farm based on its mistaken beliefs regarding property lines was not a covered occurrence under a liability policy. Am. Mining Ins. Co. v. Peters Farms, LLC, No. 2018 WL 3913781 (Ky. Aug. 16, 2018).
Ikerd Mining removed more than 20,000 tons of coal from land owned by Peters Farms. The vast majority of that coal was wrongfully mined based on Ikerd’s mistaken belief as to the location of Peters’ property line. Peters sued Ikerd and Ikerd’s insurer, American Mining, for trespass and conversion. American Mining argued that there was no occurrence under its policy because Ikerd’s mining was intentional. A Kentucky trial court ruled that the damage to Peters’ property was caused by accident, and thus constituted a covered occurrence. The trial court further held that coverage was available under a products-completed operations hazard (“PCOH”) clause. An intermediate appellate court affirmed.
The Kentucky Supreme Court reversed, holding that Ikerd’s conduct could not be deemed accidental in light of Ikerd’s intent and control. As to intent, the court explained that while it may not have been Ikerd’s intent to mine Peters’ coal specifically, Ikerd did intend to mine and sell the coal it extracted. In other words, although Ikerd’s trespass might have been innocent rather than willful, the relevant inquiry for coverage purposes is whether Ikerd intended to act. With respect to control, the court concluded that Ikerd had complete control over its employees who extracted the coal and, indeed, directed them to excavate coal from Peters’ property for several months. Thus, the court ruled that Peters’ property damage was not caused by a covered occurrence. Additionally, the court reversed the PCOH ruling, explaining that because the PCOH clause creates an exception to a policy exclusion, it cannot be invoked where, as here, there was no initial grant of coverage in the first place.