Declaring that something was rotten in the state of Denmark, a Massachusetts appeals court on Wednesday reversed a lower court ruling and restored a seafood processing company’s bid for insurance coverage over a shipment of spoiled scallops.

The three-judge panel of the Appeals Court of Massachusetts in Boston found that a Massachusetts Superior Court judge had erred when ruling in favor of Worcester-based Hanover Insurance Group Inc. over Fall River-based Raw Seafoods Inc. 

According to the ruling in The Hanover Insurance Group Inc. v. Raw Seafoods Inc., RSI had processed a shipment of scallops in July 2011 for one of its customers, Atlantic Capes Fisheries Inc., which sells scallops and other types of seafood around the world. 

Atlantic purchases fresh scallops from fishing vessels, then transports the scallops to RSI for processing, portioning, packaging and freezing, the ruling said. RSI's staff inspects the scallops for quality upon arrival, reports the results to Atlantic, and receives processing instructions from Atlantic.

The shipment was making its way through customs in Denmark when an inspection found that 37,102 pounds of scallops had decomposed, exhibited a strong ammonia smell and were deemed unacceptable for human consumption.

“By all accounts, something was rotten in the state of Denmark,” Judge Eric Neyman wrote for the panel.

Representatives from Atlantic and RSI inspected another batch of scallops, processed by RSI for Atlantic around the same time as the rejected batch, and discovered about 20,000 additional pounds of damaged product.

Atlantic sued RSI in 2012, and Hanover, RSI’s insurer, agreed to defend the company while reserving its right to deny coverage under the policy. During the discovery phase, RSI's president, Jason Hutchens, acknowledged that the scallops were delivered to RSI in good condition, but that “somewhere in (RSI's) system, the product got messed up,” the ruling stated.

Mr. Hutchens also said “we've never seen anything like this before . . . we beat our heads against the wall for, it seemed like months, trying to figure this out. We've never seen anything like it and haven't seen anything after this problem."

Additionally, Atlantic brought an action against RSI in United States District Court for the District of Massachusetts in Boston and in 2014, the presiding judge issued a judgment against RSI for roughly $600,000 with post-judgment interest.

RSI appealed after the Superior Court judge ruled that the company could not meet its burden of proving that its claimed loss was caused by an "occurrence."
 
Hanover sought a ruling that either the damage to the scallops was not caused by an “occurrence” within the meaning of the policy, or the damage to the scallops fell under one or more exclusions to the policy. The company maintained that RSI has produced no evidence as to precisely how the scallops were damaged, leaving the actual cause of the damage to speculation and conjecture. 

The Appeals Court said "damaging scallops was not part of the ordinary work process" and that "RSI did not intend to cause the resulting harm."

“We conclude that Massachusetts law favors RSI’s position,” the Appeals Court wrote. “While the precise cause or mechanics of the damage to the scallops is unknown, the summary judgment record supports the conclusion that the damage resulted from an unanticipated mishap during RSI's processing operation.”

The appeals court panel remanded the case to the trial court.

Hanover did not respond to a request for comment.