A federal appeals court has ruled Federated Mutual must defend a client in a class action – clarifying insurers’ duty to defend under CGL policies.
The decision, handed down September 8, 2025, by the First Circuit Court of Appeals, centers on Federated Mutual Insurance Company and Peterson’s Oil Service, Inc., a Massachusetts-based heating oil supplier. Peterson’s was sued in a Massachusetts state class action after customers alleged the company sold heating oil with too much biodiesel, damaging their heating systems. The complaints alleged that, starting in 2012, Peterson’s added biodiesel to home heating oil in proportions exceeding industry standards and that this harmed customer equipment. Peterson’s received a demand letter and complaint in March 2019.
Federated Mutual did not insure Peterson’s at the time the company first received notice of the lawsuit. Federated’s commercial general liability (CGL) and umbrella policies took effect on July 5, 2019. When Peterson’s asked Federated to defend it in the class action, Federated refused, citing policy clauses that exclude coverage for property damage the insured already knew about before the policy began. Federated pointed to the “known loss” and “loss-in-progress” provisions, along with a “deemer” clause that defines when an insured is considered to know about property damage.
Federated filed a declaratory judgment action in federal court, seeking a ruling that it had no duty to defend or indemnify Peterson’s in the state class action. The district court found that Peterson’s was aware of damage suffered by customers who received heating oil before the policy period, so those claims were not covered. However, the court held that Peterson’s could not have known about damage to customers who first received the oil after the policy period began. Because at least some claims were covered, the court ruled that Federated had to defend the entire lawsuit, applying the “in for one, in for all” principle.
Federated appealed, arguing that knowledge of damage to some customers should exclude coverage for all class members. The First Circuit disagreed. In its September 8 decision, the court said each delivery of oil to a new customer counted as a separate “occurrence” under the policy. Knowing about earlier damage did not mean Peterson’s knew about future damage that had not yet occurred. The court also rejected Federated’s argument that receiving the class action complaint before the policy period should bar coverage for all subsequent claims.
The upshot for insurers and brokers: under Massachusetts law and the policy language at issue, “known loss” and “loss-in-progress” clauses cannot be used to avoid defending claims for property damage that occurs after the policy period begins, even if similar damage occurred before. If any part of a class action falls within the policy, the insurer must defend the entire suit.
Whether Federated will ultimately have to pay for damages in the state case remains unresolved and will be addressed after the underlying class action concludes. For now, the First Circuit’s decision provides guidance for insurers and policyholders on the interpretation of key CGL policy clauses in the context of class action litigation.
