A federal appeals court has ruled insurers must keep defending Peterson’s Oil Service in a major class action over biodiesel-blended heating oil and policy ambiguity.
On September 9, 2025, the United States Court of Appeals for the First Circuit affirmed that United States Fire Insurance Company and The North River Insurance Company are required to continue defending Peterson’s Oil Service, Inc. in litigation brought by its customers.
The case began when Peterson’s customers filed a class action in Massachusetts, alleging that the company supplied heating fuel with a higher percentage of biodiesel than industry standards allow. According to the complaint, Peterson’s delivered fuel containing more than 5% biodiesel - sometimes averaging 35% - between 2012 and 2019. Customers claimed this led to heating system failures, permanent equipment damage, and that they paid more for fuel than it was worth.
Peterson’s was covered by a series of commercial general liability policies from United States Fire Insurance Company and The North River Insurance Company between 2011 and 2016. These policies covered property damage caused by an “occurrence,” defined as an “accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Each policy included a $1 million per occurrence limit, a $2 million aggregate limit, and a “Failure to Supply” endorsement capping certain losses at $250,000 per year. Umbrella liability policies from The North River Insurance Company provided additional coverage, but excluded property damage from a failure to “adequately supply” oil or other energy.
The insurers initially defended Peterson’s, then sought a federal court ruling that they had no duty to defend or indemnify, arguing Peterson’s intentional fuel blending wasn’t an “occurrence” and that “failure to supply” clauses limited or excluded coverage.
The district court disagreed, finding the complaint included a negligence claim that could be read as accidental property damage. The court also found the “failure to supply” language ambiguous - whether it referred to the amount or quality of fuel supplied. Under Massachusetts law, ambiguous policy terms are interpreted in favor of the insured, especially in exclusions. The court ordered the insurers to keep defending Peterson’s.
On appeal, the First Circuit affirmed the lower court. The appellate panel agreed that the negligence claim could potentially fall within policy coverage, and that the “failure to supply” provisions were ambiguous. The court noted the language could refer to either quantity or quality, and ambiguity must be resolved in favor of coverage.
For insurance professionals, this decision is a clear reminder: ambiguous policy language can expose insurers to ongoing defense obligations. The case highlights the importance of precise drafting in commercial general liability contracts and reinforces the broad duty to defend business clients when policy terms are open to interpretation.
