Why it matters: Rejecting an insurer's arguments that multiple exclusions operated to preclude coverage, a Florida federal court judge ruled that two farms are entitled to a defense for a lawsuit accusing them of spraying pesticide on a neighboring farm. Florida Crystals Corporation and Sugar Farms Co-Op were hit with a lawsuit by Date Palm Wholesalers alleging that their pesticide contractor accidentally sprayed its nurseries, causing damage to the date palm farm's crops. National Union Fire Insurance Company argued that exclusions for an expected or intended injury as well as one for damage to property over which the insured exercises control blocked coverage for the farms. But the court ruled that the alleged spraying error constituted an "accident" under the policy and application of the control provision was unclear. Uncertain if spraying pesticide from the air constituted the exercise of control, the court said it could not apply the exclusion. Having found that the crop dusting was an "occurrence" under the policy, the court ruled the insureds were entitled to judgment and reimbursement for attorneys' fees and costs spent on the underlying litigation.

Detailed discussion: Date Palm Wholesalers, Inc. operates a commercial nursery in Palm Beach County, Florida. Nearby, Florida Crystals Corporation and Sugar Farms Co-Op own and maintain sugar cane growing and processing operations. The sugar cane farmers contract with Roma Air Corp., a company specializing in the aerial application of pesticides.

According to a complaint filed in Florida state court by Date Palm, the sugar cane farms directed Roma to spray a powerful herbicide on a large area of land that included not only the sugar cane operations but Date Palm's nursery as well, damaging many of the palm trees.

When the farms tendered Date Palm's suit to National Union Fire Insurance Company, the insurer filed its own lawsuit, seeking a declaration that the policy at issue imposed no duty to defend or indemnify Florida Crystals and Sugar Farms. U.S. District Court Judge James I. Cohn denied National Union's motion for summary judgment, but National Union renewed the motion.

Proceeding to render judgment on the substance of the pleadings, the court said the insurer could only avoid a duty to defend if all of the allegations in the Date Palm complaint fell within one or more policy exclusions. Because "some allegations in the Date Palm Complaint remain outside of the exclusions identified by [the insurer], thereby triggering [the] duty to defend," the court denied the motion and entered partial judgment on behalf of the insureds.

Judge Cohn first addressed the Expected or Intended Injury Exclusion, which excluded "Property Damage expected or intended from the standpoint of the Insured." The harm to the Date Palm nursery arose from the carelessness of the sugar cane farms in using herbicides, the court said, which came within the policy's meaning of an "accident," or "injuries or damage neither expected nor intended from the standpoint of the insured." Allegations of accidental harm therefore did not fall within the exclusion, the court said.

National Union also pointed to an exclusion for Property Damage to Property Over Which the Insured Exercises Control. Did Roma's alleged spraying of herbicide on Date Palm's plants from the air represent the exercise of control over the property? The question was "arguable," Judge Cohn found, and "'[w]here, as here, the applicability of an exclusion is uncertain, the insurer is not relieved of its duty to defend.'"

Finally, the insurer argued that the Services Performed by or on Behalf of the Insured Exclusion removed the allegations in the Date Palm complaint from the scope of policy coverage. However, an endorsement extending coverage to include the aerial application of chemicals "of benefit to or of direct use in the business of" the insureds appeared to reinstate such coverage.

This explicit addition of coverage for the aerial application of chemicals in the course of the sugar cane farms' business conflicted with the exclusion of claims for damage resulting from services performed on their behalf, the court said. Where an endorsement conflicts with the body of an insurance policy, the endorsement controls and the exclusion did not relieve National Union of a duty to defend.

"Because at least some of the allegations in the Date Palm Complaint fall within the scope of Policy coverage and are not otherwise excluded, the Court finds that [the insurer] has a duty to defend [the sugar cane farms] in the Date Palm Action," Judge Cohn wrote. Accordingly, the sugar cane farms were entitled to judgment on the pleadings on the duty to defend issue and entitled to be reimbursed by National Union for the reasonable attorneys' fees and costs incurred in their defense of the Date Palm action.

The order was not a total victory for the insureds, however, as the court said the duty to indemnify remains unresolved, leaving an award for attorneys' fees and costs incurred in defense of the declaratory action premature. The judge denied the motion for those attorneys' fees and costs without prejudice, allowing the sugar farms to renew their request later in the litigation.

To read the order in National Union Fire Insurance Company v. Florida Crystals Corp., click here.