Insurance Coverage Issues Arising from Large Exposure Contaminated Food Claims: Complex Issues of Fact and Insurance Law Come into Play When Food Goes Bad, and Claims for Contamination and Recall Arise on Several Fronts
Browning, Charles W., Defense Counsel Journal
TRY THESE cases on for insurance coverage:
* 15 million pounds of processed chicken breasts shipped to various food processors and allegedly contaminated with Listeria.
* Two million pounds of ground beef allegedly contaminated with E-coli bacteria shipped and sitting on the shelves of supermarkets.
* Thousands of cases of bottled iced tea distributed and ready for sale but allegedly contaminated with glass particles.
* Wood splinters discovered in thousands of boxes of cereal.
Insurance coverage issues arising from these high-exposure contaminated food claims differ markedly depending on the role of the policyholder involved, the type of insurance policy under which coverage is sought and, of course, the specific terms and exclusions of the policies at issue. Sorting out the covered aspects of claims, if any, and then ascertaining their value, as opposed to the non-covered aspects, is a complex and time-consuming process. As a further complication, there is surprisingly little guidance from appellate case law on coverage issues in the context of contaminated food claims. Reference to insurance case law in general is necessary.
Let's focus on the coverage issues that may arise from contaminated food claims by third parties under commercial liability policies, with specific reference to the ISO form CGL 00 01 01 96, and highlight the insurance products in the marketplace that are specifically related to contaminated food claims.
The insuring agreement in the ISO standard CGL policy provides that the carrier "will pay those sums that the insured becomes legally obligated to pay as damages because of `bodily injury' or `property damage' to which this insurance applies." The policy defines property damage as:
(1) Physical injury to tangible property including all resulting loss of use of that property; or
(2) Loss of use of tangible property that is not physically injured.
A. Property Damage
American courts have adopted the argument that food products have suffered "physical injury" when they are in technical violation of U.S. Food and Dug Administration (FDA) regulations, but are still fit for human consumption. (1) Thus, it is likely (and logical) that in most situations the specific contaminated food item has sustained some form of "physical injury." That usually is not material, however, because a claim for damage to a policyholder's own product, standing alone, is excluded from coverage under third-party liability policies.
More important, contaminated food claims often are alleged against the original food processor or food company by entities further down the product chain that incurred economic loss because of the contaminated food. Those entities include others that further processed the allegedly contaminated food, packagers of the contaminated food, and the retailers that purchased and perhaps sold the contaminated food.
When those types of entities make a claim for damages against the policyholder who was the original food processor, one should determine whether the claim was "because of property damage" as required by the policy. This is especially so because pure economic loss--a loss of value--generally is not physical injury to tangible property or loss of use. (2)
An interesting coverage case involving a contaminated food claim addressed this point. In United States Fire Insurance Co. v. Good Humor Corp., (3) the policyholder recalled ice cream pursuant to a recommendation of the FDA. The recall caused significant expense to the policyholder's customers, who brought suit for reimbursement. The carrier contested coverage, asserting that no property damage resulted.
By only the thinnest of threads, the Wisconsin Court of Appeals concluded that there was property damage sustained by the customers. Under a duty to defend standard, the court determined that the "loss of use of storage space" from storing the recalled ice cream was a loss of use of tangible property and not an economic loss. …