Sowing a lawsuit: a top court rules that when a farmer collects patented seeds, it goes beyond the terms of his liability policy.
Monsanto manufactured an herbicide known as Roundup. Since the herbicide was highly effective, Monsanto also developed seeds that were resistant to Roundup, so-called "Roundup Ready" seeds. Using Roundup with Roundup Ready seeds resulted in a good harvest; plants grew and weeds died.
While creating Roundup Ready seeds was a complicated process, collecting the seeds is simple. Once seeds are planted and crops are harvested, farmers can collect any seeds, including Roundup Ready seeds. The opportunity to collect the seeds meant selling the seeds would not be terribly profitable. A farmer could buy the first bag of seeds and then endlessly collect more seeds.
To protect its commercial interests, Monsanto took several steps. First, it patented the Roundup Ready seed. Then, rather than sell this seed, Monsanto licensed it. A farmer would buy a license to use the Roundup Ready seed. The license was limited to one season and the farmer agreed not to collect seeds from its harvest. These restrictions were critical to Monsanto's commercial interest in Roundup Ready seeds. The restrictions required farmers to purchase the Roundup Ready seeds over and over again.
The Scruggs insurance case arose because Monsanto claimed that Scruggs, a farmer, violated the seed license. Monsanto sued Scruggs, bringing claims of patent infringement, conversion and unjust enrichment; importantly, all intentional torts. Scruggs claimed that Monsanto's suit was covered under a liability insurance policy.
The Mississippi Supreme Court found that the farmer's insurance claim implicated many insurance issues, some unusual, if not novel.
The court's primary focus was the requirement of an "accident." The policy was limited to injuries caused by an "accident." The term "accident" was defined, within the policy, to mean "a sudden unforeseen or unintended event." The court noted that when a farmer collects seeds he is committing an intentional act. It is not an accident. Therefore, the court found that collecting Roundup Ready seeds was beyond the terms of the policy.
Taking the intent concept from the specific terms of the policy to general principles of insurance law, the court then found that intentional conduct is simply not insurable. The court looked at the nature of the claims against the insured. All were intentional torts. The court found that intentional torts are not covered.
Finally, the court applied public policy, ruling that to the extent that Scruggs intentionally violated a patent, Scruggs committed an illegal act. The court held that "as a matter of public policy, people and businesses cannot purchase insurance coverage for illegal activities." Patent infringement, being illegal, was found to be uninsurable.
Importantly, the court also went beyond the above three rulings to recognize other principles limiting insurance coverage.
In cases concerning whether an "accident" has occurred, disputes often arise as to the controlling perspective. Exactly what is it that must be unintended, the act or the effect? The Scruggs court seemed to reject the policyholder's effort to distinguish intentional acts from intentional effects. The court barred coverage for intentional acts.
But even if the policyholder had led the court to distinguish effects from acts for purposes of intent, the policyholder's argument would have remained seriously flawed because the effect of Scruggs's act was surely intentional. When you engage in the intentional act of collecting seeds you surely intend the effect of getting seeds. Here, evaluating the intent of the effect separately from the intent of the act would not have helped the policyholder because both the acts and the effects were intentional.
The decision involved another interesting issue. The insurance policy expressly excluded claims arising out of "the production, distribution, delivery or sale of genetically altered or genetically engineered seed if such injury or damage arises out of such genetic engineering or genetic alteration." I must admit--practicing in more urban areas--I had been unaware of an exclusion for genetically engineered seed. In fact, since reading the Scruggs case I have searched for other cases involving genetic seed exclusions. I found none. Although the genetic seed exclusion was not the primary basis for the court's ruling, it is an interesting point. Scruggs may be the first case to address this exclusion.
While the seeds in Scruggs were designed only to grow cotton and soybeans, they ultimately grew a crop of legal issues.
Alan S. Rutkin, a Best's Review columnist, is a partner in Rivkin Radler LLP, Uniondale, N.Y. He may be reached at firstname.lastname@example.org.
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|Author:||Rutkin, Alan S.|
|Date:||Mar 1, 2005|
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