“Adequately Supply” Means Quantity-Ambiguous, Not Quality-Certain: First Circuit Narrows Failure‑to‑Supply Limitations and Affirms Broad Duty to Defend for Reckless Product Decisions

Introduction

In United States Fire Insurance Company v. Peterson’s Oil Service, Inc., the First Circuit (applying Massachusetts law) affirmed a district court order requiring commercial general liability (CGL) insurers to continue defending a fuel distributor in a customer class action over biodiesel-blended heating oil. The court issued two holdings of practical importance:

• Duty to defend: Allegations that the insured’s blending decision was intentional, or even reckless, do not negate an “occurrence” where the complaint plausibly alleges negligent, accidental damage to tangible property and does not plausibly plead that the insured specifically intended or was substantially certain to cause that harm during the policy periods.
• Failure-to-supply limitations/exclusions: Policy language limiting or excluding coverage for a failure to “adequately supply” gas, oil, water, electricity, or steam is ambiguous as to whether it addresses quantity alone or also product quality. Ambiguity—especially in exclusions—is construed against the insurer. As a result, those provisions did not cap or bar defense coverage for claims alleging the insured supplied substandard fuel that damaged heating systems.

The decision clarifies Massachusetts duty-to-defend principles in the context of intentional business choices and makes a drafting-focused contribution to the meaning of common “failure-to-supply” endorsements and exclusions in utility and energy-adjacent CGL programs.

Background and Key Issues

A putative class of Peterson’s Oil customers sued in Massachusetts state court, alleging that from 2012 to 2019 Peterson’s sold heating fuel with biodiesel percentages that exceeded industry standards for ordinary heating oil (alleged averages of 35% biodiesel from 2015–2018). The customers alleged they paid more than the fuel was worth, experienced heat loss, and suffered permanent damage to their heating systems. The complaint asserted breach of contract, fraud, and negligence, among other theories.

United States Fire Insurance Company (primary) and The North River Insurance Company (umbrella) initially defended under reservation. They then sought a federal declaratory judgment of no duty to defend or indemnify, arguing that: (1) no covered “occurrence” existed because Peterson’s intentionally altered the fuel blend with awareness of risks; and, alternatively, (2) any potential coverage was limited or barred by “Failure to Supply” provisions, including a $250,000 sublimit under the primary policies and a categorical exclusion in the umbrella policies.

The district court denied the insurers’ summary judgment and held the failure-to-supply provisions inapplicable; it also concluded the insurers must continue the defense. On appeal, the First Circuit assumed (without deciding) appellate jurisdiction and affirmed on the merits.

Summary of the Opinion

• Duty to defend preserved. The negligence count alleges accidental property damage to tangible property (customers’ heating systems). Under Massachusetts law, reckless conduct remains “accidental” unless the insured specifically intended or was substantially certain to cause the injury type alleged—a threshold not met by the pleadings here.
• Timing matters. The earliest damage-awareness allegations appear in 2018, after the 2011–2016 policy periods, and do not establish that Peterson’s knew with substantial certainty during those policy years that its blending would damage heating systems.
• Failure-to-supply clauses are ambiguous. The phrase “adequately supply” (primary policies) and “provide an adequate supply” (umbrella policies) can plausibly refer to quantity alone, not necessarily product quality. Given that ambiguity—especially in exclusions—the court construed the provisions narrowly and against the insurers. The clauses therefore did not limit or bar defense coverage for quality-based allegations.
• Result. The insurers must continue defending Peterson’s in the underlying class action; whether there is a duty to indemnify is not ripe and will depend on the outcome and facts proven in the underlying case.

Analysis

Precedents and Authorities Cited

• Duty to defend basics
  • Boston Symphony Orchestra v. Commercial Union (Mass. 1989) and Doe v. Liberty Mutual (Mass. 1996): Massachusetts duty to defend is triggered by the nature of the claims, not ultimate liability; it is broader than the duty to indemnify.
  • Billings v. Commerce (Mass. 2010): The analysis turns on the complaint and facts known or readily knowable to the insurer; uncertainty is resolved in favor of defense.
  • Metropolitan Property & Casualty v. Morrison (Mass. 2011) and Sterilite v. Continental Casualty (Mass. App. Ct. 1983): Two narrow exceptions permit insurers to defeat the duty to defend via undisputed extrinsic facts, but these are tightly circumscribed.
  • Deutsche Bank v. First American Title (Mass. 2013): “In for one, in for all”—a duty to defend any count triggers a duty to defend the entire suit.
• Occurrence/accident and “expected or intended” injury
  • Quincy Mutual v. Abernathy (Mass. 1984): “Accident” is read broadly; volitional acts can still be accidents if the insured did not specifically intend or expect the resulting harm.
  • Worcester Ins. v. Fells Acres Day School (Mass. 1990) and Vappi & Co. v. Aetna (Mass. 1965): Recklessness generally remains accidental; nonaccidental harms are those actually intended (more than recklessness).
  • Terra Nova v. Fray-Witzer (Mass. 2007): The key question is whether the insured intended or expected the injury in question.
  • City of Newton v. Krasnigor (Mass. 1989): Intent must be as to the type of harm, not merely that “some” harm might occur.
  • Smartfoods, Inc. v. Northbrook (Mass. App. Ct. 1993): Knowing breach suggests expectation of some intangible harm, but that does not automatically equate to intending the specific, tangible property damage alleged here.
• Construing exclusions and ambiguous terms
  • AIG Prop. & Cas. v. Cosby (1st Cir. 2018); Valley Forge v. Field (1st Cir. 2012); U.S. Liability v. Benchmark (1st Cir. 2015); Performance Trans. v. General Star (1st Cir. 2020): Ambiguities are construed against the insurer, with special force for exclusions; courts adopt the narrowest plausible reading of exclusionary text.
  • Dorchester Mutual v. Miville (Mass. 2023): Term placement and context within the policy inform meaning.
  • Grammar canons: Nielsen v. Preap (U.S. 2019) (adverbs do not modify nouns); United States v. Jones (4th Cir. 2006) (adverbs generally modify verbs). The court leveraged ordinary grammar to read “adequately” as modifying “supply,” supporting a focus on supply adequacy (quantity), not product quality.

Legal Reasoning

1) Duty to Defend: Occurrence and “Accident”

The policies cover “property damage” caused by an “occurrence,” defined as an “accident,” including continuous or repeated exposure to harmful conditions. Massachusetts reads “accident” broadly: a volitional choice (here, a business decision to blend biodiesel) does not defeat “accident” unless the insured specifically intended—or was substantially certain—to cause the injury type alleged (damage to heating equipment).

The complaint’s negligence count “roughly sketches” covered claims: it alleges Peterson’s “knew or should have known” the biodiesel content “could harm” furnaces and delivered fuel that damaged tangible property. Recklessness does not remove the claim from “accident” coverage. Crucially, the pleadings do not tie specific-intent-to-harm or substantial certainty of equipment damage to the relevant policy years (2011–2016). The earliest detailed allegations of damage-awareness arise in 2018, after those policy periods, and the complaint does not pinpoint earlier repeated damage knowledge. Under Massachusetts precedent, that is insufficient to infer the requisite intent or certainty during the policy periods.

As a result, at least one count (negligence) triggers a duty to defend, which under Massachusetts’ “in for one, in for all” rule requires the insurers to defend the entire action.

2) Failure-to-Supply Limitations and Exclusions

The primary policies capped coverage for “property damage arising out of the failure of any insured to adequately supply gas, oil, water, electricity or steam” at $250,000 per policy year, and the umbrella policies included parallel exclusions/limitations. The dispute turned on whether “adequately supply” addresses only the adequacy of the amount supplied (quantity) or also the adequacy of the product attributes (quality).

The court held the phrases “adequately supply” / “provide an adequate supply” are at best ambiguous in this context. Several interpretive anchors drive this conclusion:

• Plain language and grammar: “Adequately” (an adverb) modifies the verb “supply,” not the nouns “gas, oil, water, electricity, steam.” This focuses the clause on the act of supplying (e.g., providing enough) rather than the inherent quality of the product.
• Dictionary and usage: While “adequate” can denote both quality and quantity, it can also be read to denote only quantity. With multiple reasonable meanings and no clear contextual tie to product-quality metrics, the term is ambiguous.
• Drafting choices: If insurers meant to reach product quality, they could have written “supply adequate gas, oil, …” or expressly included “adequate in quantity or quality.” The absence of such precision supports insured-favorable construction.
• Exclusionary rules: Ambiguities—particularly in exclusions/limitations—are resolved against the drafter. Courts favor the narrowest plausible exclusion.

Accordingly, the failure-to-supply provisions did not cap or bar coverage for claims premised on the alleged substandard quality of the fuel. Because those provisions were the insurers’ principal alternative basis to limit or avoid defense, summary judgment for the insurers was properly denied and the district court’s insured-favorable ruling on those counts was affirmed.

Impact and Implications

A. For Insurers and Policy Drafters

• Draft with specificity. If the intent is to limit or exclude losses arising from product quality (not just quantity shortages), failure-to-supply wording must say so expressly—for example, “failure to supply adequate gas, oil, electricity, or water in quantity or quality” or “failure to provide gas, oil, electricity, or water of adequate quality or in adequate quantity.”
• Expect narrow readings of exclusions. Massachusetts law’s strong contra proferentem stance—applied with “particular force” to exclusions—means ambiguous limitation language will not carry the day at the duty-to-defend stage.
• Reassess related umbrella linkages. Where umbrella forms exclude losses “subject to a sublimit” in the primary, those structures will not help if the sublimit itself does not apply. Clean alignment and clarity across layers are critical.
• Extrinsic evidence is not a panacea. Massachusetts recognizes only narrow exceptions allowing extrinsic facts to defeat the duty to defend. Even evidence of intentional business decisions will not negate “occurrence” absent proof of intent or substantial certainty of the injury type alleged.

B. For Policyholders and Coverage Counsel

• Plead and tender early. A well-pled negligence count alleging accidental damage to tangible property typically suffices to trigger defense, even when intentional business choices are also alleged.
• Push back on failure-to-supply caps for quality claims. Under this decision, quantity-focused failure-to-supply wordings do not clearly reach quality defects. Where exclusions are ambiguous, argue for the narrowest plausible reading.
• Leverage “in for one, in for all.” One covered count obligates a defense for the entire lawsuit under Massachusetts law, even if other counts (e.g., contract or fraud) might not independently be covered.
• Mind the timing of knowledge. To defeat “occurrence,” insurers must show specific intent or substantial certainty of the type of harm during the policy period. Later-developed knowledge typically will not retroactively eliminate a defense obligation for earlier policy years.

C. Industry Effects

• Energy and utilities. Fuel distributors, water suppliers, and power providers frequently carry failure-to-supply endorsements. This opinion signals that, at least under Massachusetts law, generic “adequately supply” language will be read narrowly and may not capture product contamination or quality deficiencies.
• Claims strategy. Plaintiffs’ counsel alleging property damage from substandard commodity delivery can expect insurers to owe a defense where complaints sound in negligence and tangible property injury—even if the defendant’s product formulation was deliberate.
• Future drafting trend. Expect to see refined endorsements explicitly referencing both quantity and quality, and perhaps separate “product quality/defect” limitations designed to avoid the ambiguity spotlighted here.

Complex Concepts Simplified

• Duty to defend vs. duty to indemnify
  • Defend: Broad, triggered by allegations that plausibly fall within coverage. If one claim is potentially covered, the insurer must defend the whole suit (“in for one, in for all”).
  • Indemnify: Narrower, decided after facts are proven. Whether the insurer ultimately pays depends on what actually happened.
• Occurrence/accident
  • An accident includes volitional acts unless the insured specifically intended or was substantially certain to cause the injury type at issue.
  • Recklessness is generally still “accidental” under Massachusetts insurance law.
• Failure-to-supply endorsements/exclusions
  • Typical purpose: Limit or exclude coverage for not delivering enough essential commodities (e.g., gas, oil, water, electricity, steam).
  • Key ambiguity here: Whether “adequate(ly) supply” includes product quality or just quantity. The court found ambiguity and construed it against the insurer.
  • Example: If a supplier delivers 50 units when 100 were required, a failure-to-supply clause likely applies. But if the supplier delivers 100 units that are contaminated or substandard, generic “adequately supply” wording may not clearly apply—unless the clause explicitly addresses quality.
• Contra proferentem (construing against the drafter)
  • Ambiguous policy language—especially exclusions—is construed in favor of the insured. Courts adopt the narrowest plausible reading of exclusions.
• Type of harm vs. extent of harm
  • To negate “accident,” the insured must have intended or been substantially certain as to the type of harm (e.g., damaging heating systems), not merely that “some” harm could occur (e.g., economic disappointment).

Conclusion

The First Circuit’s decision offers two salient takeaways. First, Massachusetts’ broad duty-to-defend framework remains robust: negligence-based allegations of tangible property damage can constitute an “occurrence” even when the insured’s underlying business decision was intentional or arguably reckless, absent well-pled facts showing specific intent or substantial certainty of the type of harm during the policy period. Second, common “failure-to-supply” provisions using the phrase “adequately supply” are ambiguous as to product quality and, as exclusionary language, will be construed narrowly and against insurers.

For insurers, the opinion underscores the need for clear, precise drafting if the goal is to limit quality-based losses. For policyholders, it reaffirms powerful defense protections: ambiguity favors coverage, and one potentially covered claim obligates a defense of the entire suit. The indemnity question remains for another day, but at the defense stage, this decision strengthens insureds’ positions in disputes involving alleged quality defects in essential commodities.