Fourth Circuit’s Flawed ‘Occurrence’ and ‘Common Sense’ Analysis

First, USFIC argues that there can be no “occurrence” because the negligence count of the underlying case is accompanied by an accusation that Peterson’s knew of the risks posed by its products. Setting aside the fact that this was not raised in the lower court and should be ignored, this would only be an issue if the court was asked to adjudicate indemnity. The present case, however, is addressing USFIC’s duty to defend. Numerous courts have observed that accusations of knowledge cannot overcome an insurer’s duty to defend where liability could attach without knowledge and the knowledge remains unproven. See, e.g., Norfolk & Dedham Mut. Fire Ins., 958 N.E.2d 853, 855 (Mass. App. Ct. 2011) (highlighting distinction between proven and alleged knowledge in analyzing an analogous limitation on coverage).  

Second, USFIC’s “common sense” standard for interpreting the contract fails to accurately reflect the minimal burden on policyholders advocating for a particular construction. Courts are not meant to judge the two competing constructions and determine which is more reasonable. Instead, proper practice is to focus solely on the construction offered by the policyholder. If it is a reasonable construction (even if it is not the most reasonable one), it is accepted, and the insurer’s alternative is ignored. See, e.g., MacKinnon v. Truck Ins. Exch., 31 Cal. 4th 635, 655 (2003) (“[E]ven if [the insurer’s] interpretation is considered reasonable, it would still . . . have to establish that its interpretation is the only reasonable one. ‘[W]e are not required, in deciding the case at bar, to select one “correct” interpretation from the variety of suggested readings.’”); Genesett Corp. as Tr. of Genesett Tr. Dated 10/23/01 v. Sun Life Assurance Co. of Canada, No. 23-CV-12276-AK, 2025 WL 662198, at *2 (D. Mass. Feb. 28, 2025) (applying Massachusetts law and citing MacKinnon with approval).