Insurance only protects against events that are contingent or unknown at the time the policy is acquired. A Mississippi farmer named Mitchell Scruggs learned this lesson the hard way, after several years in court in multiple cases.
Monsanto Co. develops, manufactures, licenses and sells agricultural biotechnology and products, including genetically modified seeds.
Because Scruggs had replanted its seeds, Monsanto filed suit against him in the U.S. District Court for the Northern District of Mississippi on Sept. 7, 2000. It alleged that Scruggs “knowingly, intentionally and willfully planted unlicensed seed without authorization from Monsanto and used such seed in violation of Monsanto's patent rights.”
Scruggs denied Monsanto's allegations and brought numerous counterclaims against it. Scruggs also asked his insurer, Farmland Mutual Insurance Co., to represent him in the case. The insurer refused because the wrongful acts Scruggs was accused of were intentional and not covered by insurance. During the federal court case, Scruggs appealed the denial of coverage to the Mississippi Supreme Court, which agreed with Farmland that there was no coverage and no duty to defend.
After litigation on the patent infringement claim, the jury found that Scruggs had willfully infringed Monsanto's patents and awarded the company $8.9 million in damages.
Failure to Advise?
Beginning in the 1990s, Scruggs purchased a General Liability policy and an umbrella policy for all of his farming activities from his agent, Greg Bost, who found coverage through Farmland. After losing the patent infringement case and the appeal on the denial of coverage claim (Farmland Mut. Ins. Co. v. Scruggs), Scruggs sued Bost and his employer, the Nowell Insurance Agency, in Mississippi state court, arguing that Bost and Nowell negligently failed to advise him that he needed to purchase patent infringement insurance.
The state circuit court judge found that no duty to do so arose, “because neither Defendants nor Plaintiff even mentioned patent infringement coverage.” Finally, the circuit judge found that Bost and Nowell couldn't be held liable for not realizing the potential for the patent infringement suit.
The Mississippi Supreme Court found that Scruggs' actions were both intentional and illegal, and therefore uninsurable. The Supreme Court also held that Bost and Nowell couldn't be liable for any form of negligence, and said even if Bost and Nowell did have some duty to recognize Scruggs's need for patent-infringement insurance and failed to inform him that he needed it, they couldn't be liable for that omission.
According to the Supreme Court's opinion, in general, it's against public policy for an insurance contract to provide coverage for the intentional or willful misconduct of an insured. From the face of Monsanto's complaint, only intentional torts (wrongful acts) were alleged, and Scruggs' pattern of conduct was one of intentional acts.
Want to continue reading?
Become a Free PropertyCasualty360 Digital Reader
Your access to unlimited PropertyCasualty360 content isn’t changing.
Once you are an ALM digital member, you’ll receive:
- Breaking insurance news and analysis, on-site and via our newsletters and custom alerts
- Weekly Insurance Speak podcast featuring exclusive interviews with industry leaders
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical converage of the employee benefits and financial advisory markets on our other ALM sites, BenefitsPRO and ThinkAdvisor
Already have an account? Sign In Now
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
