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An Ace Ltd. unit was not obligated to provide coverage or defend Petco Animal Supplies Stores Inc. under terms of its product liability insurance policy for a fire caused by an aquarium heater it sold because the heater did not meet safety standards, an appellate court ruled Thursday.
Taiwan-based Meiko Pet Corp. had purchased a product liability insurance policy from Ace unit Insurance Co. of North America that was effective from September 2006 to September 2007 and extended coverage to its products' vendors, including San Diego-based Petco,, according to the ruling in Petco Animal Supplies Stores Inc., International Pet Supplies and Distribution Inc. v. Insurance Co. of North America by the 8th U.S. Circuit Court of Appeals in St. Louis.
The policy required the insurer to defend and indemnify any insured party in the event of a covered occurrence causing property damage, according to the ruling.
In May 2007, an aquarium heater malfunctioned at a plant owned by Minneapolis-based Medtronic Inc. and caused a fire. Medtronic sued Petco, from which it had purchased the heater, seeking about $1.8 million in damages. Petco tendered the action's defense to Insurance Co. of North America, Meiko's insurer, which denied the claim, and Petco subsequently sued the insurer. The underlying action was later settled, with an agreement that Petco would assign its claims against the insurer to Medtronic.
A U.S. District Court in Minneapolis granted Insurance Co. of North America summary judgment dismissing the case, concluding Petco had failed to prove the policy covered the damaged caused by the heater, and Petco appealed.
A three-judge appellate panel unanimously agreed with the lower court.
“This appeal turns on whether the aquarium heater satisfied a condition precedent to coverage under the policy,” said the ruling. The portion of the policy entitled products warranty says that the product must comply with “mandatory and/or voluntary safety standards of importing companies.”
“Petco contends that the phrase ‘voluntary safety standards’ is ambiguous and thus should be construed in favor of coverage,” says the ruling. However, “Read naturally, and in a manner that gives the condition meaning, the products warranty unambiguously requires that the heater comply with an external standard. Petco has not identified any voluntary standard with which the heater complied, so its claim for coverage on that basis must fail.”
Petco also argued that U.S. customs authorities would have seized the heater if it did not comply with the government’s mandatory safety standards, says the ruling. However, said the appellate court, “Although Customs authorities did not seize the heater, it does not follow that the heater necessarily complied with mandatory safety standards of the United States.”
Petco was obligated under the policy “to identify a mandatory safety standard with which the heater complied, and it has failed to do so,” said the appellate court in affirming the district court’s ruling.