An international technology service provider named EDS was insured under a CGL from ACE Property and Casualty Insurance Company (Ace) and under an excess professional liability policy from Federal Insurance Company (Federal). Ace was sued by Federal after it refused to respond to lawsuits filed against EDS by its clients. Federal sought to exercise subrogation rights to repayment from Ace for the money it spent to settle EDS' suits.

EDS had arranged for millions of dollars of electronics equipment from two different companies to be shipped to a party that claimed to be accepting bids for a major military project. The equipment was sent to the party because the equipment was to undergo extensive testing, resulting in the equipment's possible destruction. The equipment suppliers were willing to send the goods as their value was equal to a small portion of the value of the prospective contract. The equipment shipments occurred over a period of several years. However, it was discovered that the party that contracted for the "bid" was not a representative for a military project. The party was actually a scam artist. The equipment, once received, was sold to others and also used for other commercial purposes.

The equipment suppliers sued EDS, alleging that it was negligent in involving them in a fraudulent deal. EDS requested coverage from Ace, but Ace refused to even defend against the lawsuits, stating that the fraudulent deal did not represent a covered occurrence. Federal did settle the cases and then subrogated against Ace, seeking repayment exceeding five million dollars. Both carriers filed for summary judgment and a trial court found in favor of Ace. Federal appealed.

In the appeal, the higher court revisited Federal's argument that EDS was guilty of negligent misrepresentation and their negligence resulted in the two suppliers providing property that was lost to a fraudulent party. The court viewed the facts of the transactions as well as several cases offered as relevant to the matter. The court ruled that, while EDS did fail to take steps to determine that another party was legitimate, the property loss was the result of the suppliers' voluntary shipments. Therefore, the situation did not involve an accident or occurrence as defined by the Ace CGL policy.

The higher court ruled that, since the property loss did not qualify as an occurrence, Ace had no responsibility to respond to the property loss or to provide a legal defense. The lower court’s grant of summary judgment in favor of Ace was affirmed.

Federal Insurance Co., Plaintiff-Appellant, ACE Property and Casualty Company, Defendant-Apellee. U.S. Court of Appeals , Fifth Circuit. No. 04-41473. Filed October 21, 2005. Affirmed CCH Personal and Commercial Liability Cases. Paragraph 8147