Was That Really an “Accident”?: Northern District of California Reiterates What Constitutes an “Accident” Under a Commercial General Liability Policy


In Alco Iron & Metal Co. v. American International Specialty Lines Insurance Co., No. 11-5181 CW, 2012 WL 5878391 (N.D. Cal. Nov. 21, 2012), the U.S. District Court for the Northern District of California granted summary judgment for an insurer by holding, in part, that an insured’s intentional act does not constitute an “accident” within a policy’s definition of “occurrence” even when the insured acted under the mistaken belief that it had the right to take such action.

In Alco, Caicos Investments, Inc. sued Alco Iron & Metal Company, alleging that Alco wrongfully entered Caicos’ property, removed rail spurs, and sold the rail spurs to a third party as scrap metal (the “Caicos action”).  Alco alleged that Caicos’ tenant at the time told Alco that it was authorized to do so.  Alco tendered its defense of the Caicos action to its commercial general liability insurer, American International Specialty Lines Insurance Company (now known as Chartis Specialty Insurance Company (Chartis Specialty)).  Chartis Specialty rejected Alco’s tender because, among other reasons, the Caicos action did not allege an “occurrence,” which was defined in Chartis Specialty’s policy as an “accident.”  Alco subsequently filed an insurance coverage action against Chartis Specialty, and the parties filed cross-motions for summary judgment.

In its cross-motion, Alco argued that its actions in entering the Caicos property and taking the rail spurs constituted an “accident” because the Caicos’ tenant had specifically authorized Alco to do so.  Specifically, Alco alleged that the tenant’s false representations constituted “an independent and unforeseen happening” that rendered Alco’s actions accidental in nature.  Chartis Specialty responded to this argument by noting that “Alco intended to take each step that lead [sic] to the harm,” and by pointing out that Alco’s “mistaken, but sincere, belief that it had permission to remove the rail did not make those purposeful acts accidental, even if Alco never intended to cause Caicos any harm.”

The court granted Chartis Specialty’s cross-motion for summary judgment and denied Alco’s cross-motion for summary judgment.  Siding with Chartis Specialty’s line of reasoning, the court noted that an “accident” signifies “an unexpected, unforeseen, or undesigned happening or consequence from either a known or an unknown cause.”  The court further stated that, under California law, the term “accident” refers to the insured’s intent to commit the “act” giving rise to liability as opposed to the insured’s intent to cause the “consequences” of that act.  The court emphasized that California courts had rejected Alco’s argument that an act constitutes an “accident” whenever an insured mistakenly believes that it has the permission to act in a particular way.  Additionally, the court noted that the tenant’s false representations did not constitute an “additional, unexpected, independent and unforeseen happening” that rendered Alco’s actions accidental, because the tenant made these representations prior to Alco’s volitional acts.  In short, the court concluded that Alco was not entitled to coverage for the Caicos action because there was nothing “accidental” about its entering Caicos’ property and taking its rail spurs.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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