March 21, 2014 Articles

Coverage Issues Arising from Food Contamination Claims

With food contamination or suspected contamination claims frequently resulting in disputes under commercial general liability policies and under property policies, here is a look at the recent case law

by Virginia L. White-Mahaffey

Food-borne illness affects about 48 million people in the United States—1 in 6—each year.[1] The Centers for Disease Control and Prevention (CDC) estimates that each year in this country 128,000 people are hospitalized and 3,000 die of food-borne diseases.[2] FoodNet, the CDC’s network that tracks the incidence and sources of infections transmitted through food, concluded in its recent “report card” that its 2012 data showed “a lack of recent progress in reducing foodborne infections.”[3] Food-borne diseases have turned campylobacter, listeria, salmonella, E. coli, cyclospora, botulism, norovirus, and bovine spongiform encephalopathy (or “mad cow disease”) into household words.

No food seems safe: Lettuce, spinach, cantaloupe, onions, peppers, pistachios, peanut butter, beef, ham, turkey—the list of food products causing or alleged to have caused illness is lengthy and broad. Although produce accounts for 46 percent of food-borne illnesses, more deaths are attributed to poultry than any other food.[4] With the passage of the Food Safety Modernization Act in 2011, the Food and Drug Administration (FDA) will be required to expand its focus on preventing food contamination.[5] Mandatory minimum standards for the safe growing and harvesting of produce will be required.[6] The costs of food recalls, treatment for food-borne illness, and attendant publicity are enormous.

Food catastrophes inevitably lead to questions as to who will bear those costs; growers, manufacturers, shippers, grocers, and restaurants may seek coverage from their insurers. Claims for coverage arising from food contamination or suspected contamination have frequently resulted in coverage disputes under commercial general liability (CGL) policies and under property policies. Recently, as more policyholders have procured accidental product contamination policies, claims submitted under those policies have also required evaluation and, where necessary, judicial resolution. This article addresses the key provisions and exclusions pertinent to coverage for food contamination claims under property policies, general liability policies, and accidental product contamination policies, respectively emphasizing the rulings in more recent coverage disputes.[7]

General Liability Policies

A typical CGL policy provides as follows:

The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of . . . bodily injury or . . . property damage to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent. . . .[8]

Thus, the insured must establish that an occurrence took place and that it resulted in bodily injury or property damage (during the policy period in most instances). Even if the insured satisfies these threshold requirements, an exclusion can prevent coverage of the claim.

Existence of “occurrence.” A traditional CGL policy typically defines “occurrence” as “an accident, including continuous or repeated exposure to the same general conditions, which results during the policy period in bodily injury or property damage neither expected nor intended from the standpoint of the insured.”[9] More recent policies may alternatively define “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”[10]

Faced with food contamination claims, courts are divided; some have resolved the occurrence requirement in the insurer’s favor, others in the policyholder’s favor. A court’s conclusion depends on whether the particular facts leading to or causing the contamination constitute an “accident.”[11]

Property damage. CGL policies typically define “property damage” as

a. Physical injury to tangible property, including resulting loss of use of that property . . . ; or
b. Loss of use of tangible property that is not physically injured. . . .”[12]

Recurring issues surrounding the property damage requirement include whether the economic loss caused by the inability to sell a product—whether due to suspected contamination, reputational damage, or federal regulations—fulfills the “physical injury” or “loss of use” required by the definition of “property damage” and whether the costs flowing from a particular contaminating event, such as a decline in restaurant patronage, constitute damages “because of property damage.”[13]

Bodily injury. The typical CGL policy defines “bodily injury” as “bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time.” The “bodily injury” definition has resulted in fewer coverage disputes, as the consumption of contaminated food that results in illness usually presents a clearer claim. Disputes do arise, however, particularly when no actual illness results.[14]

Number of occurrences. If coverage is afforded under a liability policy for the results of food contamination, the insurer and policyholder may still disagree as to the calculation of the amount of available coverage. The number of occurrences determines the amount of “per occurrence” limits available and the number of deductibles or self-insured retentions the policyholder must absorb. Thus, a finding of multiple occurrences can be beneficial to the insurer in some circumstances and advantageous for the insured in other situations.

Although most courts determine the number of occurrences on the basis of the cause, rather than the effects, of the loss, judicial decisions can still appear inconsistent. For example, in Republic Underwriters Insurance Co. v. Moore,[15] hundreds of people were infected with E. coli after eating contaminated food prepared at a restaurant and at a church event, and served at both places, by the insured. The Court of Appeals for the Tenth Circuit reversed the summary judgment ruling of the district court, which held that there were two occurrences. The appeals court declared:

Applying the causation rule here leads to the inescapable conclusion that there was only one occurrence. All the injuries were caused by the restaurant’s ongoing preparation of contaminated food. That the contaminated food was prepared and served at another location is irrelevant.[16]

By contrast, in International Flavors & Fragrances, Inc. v. Royal Insurance Co. of America,[17] a state appellate court held that claims of diacetyl exposure attributable to the butter flavoring in microwave popcorn involved multiple occurrences. The court held that the claims of employees of a packaging plant against the flavor manufacturer for injury from exposure to butter-flavoring toxins constituted 30 separate occurrences, requiring satisfaction by the insured of multiple self-insured retentions. The court reasoned that the individual claimants were exposed on different occasions, extending over different periods of time, and the policy’s definition of “occurrence” did not support aggregating the claims.[18]

In yet another case, Golden Eagle Insurance Co. v. Moon Marine (U.S.A.) Corp.,[19] a federal district court denied an insurer’s motion for summary judgment in which it argued that the claims of all 425 individuals infected with salmonella from tuna arose from one occurrence. The insurer argued that “the importation and placing into distribution of the contaminated tuna from a single supplier in India” constituted one occurrence and triggered one set of policy limits.[20] The court identified multiple potential sources of the contamination at issue, citing the FDA inspection report.[21] The court then analyzed prior California authority for determining the number of occurrences in a product distributor case. It concluded:

In order to decide what the occurrence is in this action we need to trace the accused products back to the original source to determine the nature of the specific defect, recognizing that according to the FDA multiple strains of salmonella might have been at work.[22]

Pollution exclusion. Liability policies typically contain multiple exclusions potentially applicable to a contaminated food occurrence. The pollution exclusion bars coverage for bodily injury or property damage “arising out of the actual, alleged, or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants’ . . . .”[23] The policy usually defines “pollutant” in a detailed and broad manner—“any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste”—and includes a further definition of “waste.”[24] Courts are divided as to whether a pollution exclusion bars coverage for claims alleging property damage or bodily injury resulting from contaminated food or water.

For example, in Keggi v. Northbrook Property & Casualty Insurance Co.,[25] the court held that the absolute pollution exclusion did not apply to a claim for bodily injury from coliform bacteria found in tap water. The court adopted the view that “[t]he water-borne bacteria . . . do not fit neatly” within the pollution exclusion definition.[26] It distinguished bacteria, which are “living, organic irritants or contaminants,” from “solid, liquid, gaseous, or thermal” irritants or contaminants.[27] Moreover, the court held, the exclusion’s context confirmed that it was intended to be applied to “traditional ‘environmental pollution’ situations and substances.”[28]

By contrast, in Cincinnati Insurance Co. v. Becker Warehouse, Inc.,[29] the court held that the absolute pollution exclusion was unambiguous and barred coverage when xylene fumes contaminated food products stored in a warehouse. The court held that xylene was a “pollutant” and expressly declined to limit the exclusion’s applicability to “traditional environmental” pollution claims.[30]

Business risk exclusions. A group of exclusions typically contained in a CGL policy excludes coverage for the risks commonly assumed by one simply engaged in business, and these exclusions are thus referred to as “business risk exclusions.” These provisions include the exclusion for property damage to the insured’s own work or product, the impaired property exclusion, and the product recall exclusion.

1. “Your work” and “your product” exclusions. CGL policies usually exclude coverage for property damage to the insured’s work or the insured’s product. The “damage to your product” exclusion, frequently at issue in food contamination claims, typically excludes “‘property damage’ to ‘your product’ arising out of it or any part of it.”[31] If the manufacturer or grower contributes one ingredient to a larger product, however, coverage for property damage or bodily injury resulting from the larger product likely will not be excluded.[32] By contrast, courts will generally uphold application of the “your product” exclusion if the relevant product that must be replaced or that caused illness is the insured’s own.[33] The “damage to your work” exclusion operates similarly.[34]

2. Impaired property exclusion. The impaired property exclusion precludes coverage for “‘impaired property’ or property that has not been physically injured, arising out of . . . a defect, deficiency, inadequacy or dangerous condition in” the insured’s product or work.[35] “Impaired property” is generally defined as “tangible property, other than ‘your product’ or ‘your work’ that cannot be used or is less useful because . . . it incorporates ‘your product’ or ‘your work’ that is known or thought to be defective, deficient, inadequate, or dangerous . . . if such property can be restored to use by . . . [t]he repair; replacement, adjustment or removal of ‘your product’ or ‘your work’. . . .”[36]

3. Product recall exclusion. The final business risk exclusion is the product recall exclusion. It bars coverage for damages for any costs “incurred by you or others for the loss of use, withdrawal, recall, inspection, repair, replacement, adjustment, removal or disposal of

(1)  your product;
(2)  your work;
(3) impaired property;

if such product, work or property is withdrawn or recalled. . . .”[37]

Other policies state that the insurance does not apply

to damages claimed for the withdrawal, inspection, repair, replacement, or loss of use of the named insured’s products or work completed by or for the named insured or of any property of which such products or work form a part, if such products, work or property are withdrawn from the market or from use because of any known or suspected defect or deficiency therein.[38]

A central issue for application of the product recall exclusion in the context of food claims, as for other types of liability claims, concerns whether the recall is limited to the insured’s product or extends to a product into which the insured’s product is incorporated. For example, in Security National Insurance Co. v. GloryBee Foods, Inc.,[39] a district court found coverage for claims arising from a recall necessitated by the discovery of salmonella in peanuts. The court held that where both the insured’s product and the product into which it was incorporated were recalled, coverage existed; peanuts were incorporated into another company’s products, and that company alleged damages due to the recall of product “irrevocably impaired by the insured’s product.” [40]

By contrast, a state appellate court found that the same exclusion barred coverage for a recall by the insured’s customers of drinks contaminated with ammonia by the insured. The court in Atlantic Mutual Insurance Co. v. Hillside Bottling Co.[41] emphasized that no coverage is provided for the costs of a general recall that is not limited to those products actually contaminated.

Property Policies

Physical loss or damage. Policyholders submitting food contamination claims for coverage under property policies bear the initial burden of demonstrating “physical loss or damage.” A seminal decision addressing this issue in the food contamination context, Source Food Technology, Inc. v. United States Fidelity & Guaranty Co.,[42] held that the business interruption coverage afforded by a property policy provided no coverage due to the absence of any “direct physical loss.” The insured sold cooking oil and shortening containing beef tallow from which the cholesterol had been removed. After a cow in Canada tested positive for bovine spongiform encephalopathy, or “mad cow disease,” the insured was unable to obtain an alternate source for the beef tallow it needed. It failed to fulfill its contracts with customers and lost business. Under the business interruption coverage, the insurer committed to “pay the actual loss of ‘business income’ you sustain due to the necessary suspension of your ‘operations’ during the ‘period of restoration.’ The suspension must be caused by direct physical loss to Property . . . and result from any Covered Cause of Loss.”[43] Although mad cow disease prompted the embargo on Canadian beef products, the supplier’s beef tallow was not itself “physically contaminated or damaged in any manner.”[44] Thus, the Court of Appeals for the Eighth Circuit affirmed summary judgment for the insurer on the ground that to do otherwise would render the word “physical” meaningless.[45]

Many courts do, however, find the “physical loss or damage” requirement fulfilled by food contamination claims under property policies.[46]

Contamination exclusion. The principal exclusions potentially applicable to food contamination claims under property policies include the contamination exclusion, the pollution exclusion, the governmental action exclusion, the faulty workmanship exclusion, and the recently introduced virus and bacteria exclusion. Litigation frequently focuses on the contamination exclusion, the pollution exclusion, or both.

The contamination exclusion typically provides that the policy “does not insure against loss or damages caused by [contamination, including but not limited to pollution]; however, if direct physical loss or damage insured by this policy results, then that resulting physical loss or damage is covered.”[47] Application of the contamination exclusion often turns on whether the exception for resulting physical damage (or sometimes “other physical damage”) applies.[48]

Pollution exclusion. Insurers also rely on the pollution exclusion found in some property policies to deny coverage of food contamination claims under certain circumstances. Some courts have upheld such disclaimers, while others have limited application of the pollution exclusion to what have been characterized as “environmental” losses. For example, the Supreme Court of Virginia held in PBM Nutritionals, LLC v. Lexington Insurance Co. that pollution exclusions barred coverage for claims arising from melamine in infant formula.[49] The court ruled that the exclusions were unambiguous.[50] The court noted that none of the pollution exclusions contained language restricting their application to “traditional environmental pollution.”[51] Similarly, the Wisconsin Court of Appeals held in Landshire Fast Foods of Milwaukee, Inc. v. Employers Mutual Casualty Co. that claims for loss or damage due to listeria found in sandwiches were excluded by the pollution exclusion because bacteria in food meets the “ordinary, unambiguous” definition of “contaminant.”[52]

By contrast, in Pepsico, Inc. v. Winterthur International America Insurance Co.,[53] interpreting New York law and employing what it described as a “common-sense approach over a literal approach,” a state intermediate appellate court held that the pollution exclusion did not apply to losses it characterized as “non-environmental in nature.”[54] In that case, the insured’s use of faulty raw ingredients from a third-party supplier had resulted in an “off-taste” in soda, necessitating destruction of the beverages.[55]

Accidental Product Contamination Policy
With more companies purchasing accidental product contamination policy coverage, recent coverage disputes have centered on interpretation of the language contained in these policies. Judicial decisions are fairly fact-driven, but several key issues have emerged.

Accidental product contamination. The policy’s core is the definition of “accidental product contamination,” which typically requires:

(1) any accidental or unintentional contamination, impairment or mislabeling (including mislabeling of instructions for use) during the manufacture, blending, mixing, compounding, packaging, labeling, preparation, production or processing (or storage on the premises of the Named Insured), of the Named Insured’s PRODUCTS (including their ingredients or components) or PUBLICITY implying such, or
(2) fault in design specification or performance of the Named Insured’s PRODUCT(S) provided always that the consumption or use of the Named Insured’s CONTAMINATED PRODUCT(S) has, within 120 days of such consumption or use, either resulted, or may likely result, in: (1) physical symptoms of bodily injury, sickness or disease or death of any person(s) and/or (2) physical damage to (or destruction of) tangible property, including animals and/or livestock—other than PRODUCT(S) of the Named Insured.[56]

A number of recent judicial decisions have upheld disclaimers of coverage by insurers due to the failure of the claim of issue to meet the definition of “accidental product contamination.”[57] The recent decision in Wornick Co. v. Houston Casualty Co.[58] illustrates the reasoning reflected by these decisions. In that case, a federal district court held that a recall of dairy shake packets for suspected contaminated from the dairy component of the shake did not constitute “contamination.”[59] The insured supplied military rations to the U.S. government. When salmonella was discovered in one of the lots of dairy shake packets, it was traced to manufacturing equipment at facilities of a company that supplied an entity that supplied another company that provided the insured with the instant dried milk used in the packets.[60] After the government issued a “Do Not Consume” order and demanded that the insured remove and replace the packets from the meals ready to eat (MREs), the insured recalled 700,000 cases of MREs and replaced the packets. It was ultimately determined that no contaminated product had been sent to the insured.

The court concluded that the insured did not demonstrate “contamination” or “impairment” but denied both parties’ motions for summary of judgment due to material issues of fact as to whether the MREs satisfied a “fault in design specification or performance” under the policy.[61] In determining whether the contamination portion of the policy provided coverage, the court first analyzed multiple dictionary definitions and concluded that “contamination” required actual contact with a substance that would render it impure.[62] It explained that “the term ‘contamination’ requires that the insured’s product be soiled, stained, corrupted, infected, or otherwise made impure by contact or mixture” with the subject contaminant.[63] Second, the court reasoned that the product must carry a risk of illness to fulfill the “resulted, or may likely result in . . . physical symptoms of bodily injury, sickness or disease or death” element.[64] As there was no evidence that any of the insured’s products came into contact with salmonella, the court found no “contamination.”[65]

Similarly, in Little Lady Foods v. Houston Casualty Co.,[66] a federal district court found no coverage when the insured recalled burritos that were suspected of listeria contamination but not actually contaminated. The insured produced burritos for convenience stores. A new manufacturing process left the product partially uncooked, prompting a required testing of its product and equipment for bacteria.[67] Seven strains of listeria bacteria were discovered. The insured placed its product on hold, as required by the U.S. Department of Agriculture. Later, when testing revealed none of the deadly strain of listeria was present, some product was destroyed and some sold on the secondary market.[68] The court began its analysis by stating that “the case turns on the reasonable interpretation of the phrase ‘may likely result’” within the definition of “accidental product contamination.”[69] It concluded that “harm to consumers was neither probable nor possible in this situation.”[70] The insured’s “temporary belief” that its product contained the harmful strain of bacteria was “irrelevant.”[71]

Addressing another food contamination claim, a state appellate court also found no coverage, this time for losses due to a spinach recall following an E. coli outbreak. The insured in Fresh Express Inc. v. Beazley Syndicate 2623/ 623 at Lloyd’s,[72] a marketer of bagged fresh spinach, obtained a “Total Recall & Brand Protection” policy that defined “Accidental Contamination” as follows:

Error by [Fresh Express] in the manufacture, production, processing, preparation, assembly, blending, mixing compounding, packaging or labeling (including instructions for use) of any Insured Products or error by [Fresh Express] in the storage or the distribution of any Insured Products whilst in the care or custody of [Fresh Express] which causes [Fresh Express] to have reasonable cause to believe that the use or consumption of such Insured Products has led or would lead to

 i) bodily injury, sickness, disease or death of any person(s) or animal(s) physically manifesting itself by way of clear, obvious or visible symptoms within 120 days of use or consumption or

ii) physical damage to or destruction of tangible property (other than the Insured Products themselves).[73]

 “Insured Event” was defined by the policy as “Malicious Contamination, Products Extortion or Accidental Contamination.”[74] The insured was the country’s largest bagged spinach producer but did not own any farms. It principally relied on one supplier, but it occasionally made spot purchases from other farms.[75] After the FDA issued a “no consumption advisory” for bagged spinach and recommended that the insured recall its spinach, the insured submitted a claim to its insurers. The CDC and FDA then determined that the insured was not implicated in the E. coli contamination; none of its spinach contained the bacteria.

After a bench trial resulted in a verdict in the spinach marketer’s favor on the coverage question, the appellate court reversed. The court noted that both parties agreed that the policy equated “Insured Event” with “Accidental Contamination.” The court reasoned that because no actual “error” by the policyholder led it to reasonably believe its products would cause injury, there was no “accidental contamination” and thus no “insured event.”[76] While spot purchases in violation of its own corporate practices were “errors,” those errors bore “no connection to the E. coli outbreak or to the FDA advisory.”[77]

Impairment. Particularly when contamination of the insured’s products was suspected but did not in fact exist, policyholders may attempt to rely on the “impairment” reference in the definition of accidental product contamination to support a claim for coverage. Courts have been reluctant to expand coverage in this manner. Ruiz Food Products, Inc. v. Catlin Underwriting United States, Inc.,[78] for example, involved a recall of a product based on presumed contamination from salmonella that was not actually present. The insured produced “ready to eat” burritos called Tornados; one of the ingredients was a spice mix made by a supplier who obtained hydrolyzed vegetable protein (HVP) for the spice mix from another supplier. When the HVP supplier’s equipment tested positive for salmonella, it issued a recall of its HVP. Although tests proved no HVP infected with salmonella reached the burrito manufacturer, the Food Safety Investigation Services insisted that the Tornados be recalled.[79]

The federal district court first found that a recall based on a mistaken belief that a product is contaminated does not qualify as “contamination” under an accidental product contamination policy.[80] “To substantiate a finding of contamination under the Policy, objectively verifiable evidence that a product was actually contaminated is required.”[81] The court then analyzed the requirements for coverage on the basis of “impairment.” It held that “impairment must be to the product itself, and not as a result of the collateral circumstances surrounding the product.”[82] The court applied the Black’s Law Dictionary definition of “impairment” and adopted the reasoning of Little Lady Foods (discussed above) to conclude that the absence of salmonella in the burritos meant that “there was no defect, flaw, or impairment. . . . Thus, the FDA’s imposition of a recall does not create a defect in the product itself.”[83] The court concluded: “Any interpretation of ‘impairment’ to incorporate a ‘recall,’ without a concomitant taint in the product, is a strained and unreasonable interpretation.” [84]

Mislabeling. The accidental product contamination definition also presents a potential issue regarding “mislabeling” claims. A dispute over coverage is particularly likely to arise when the unidentified potentially injurious substance—such as peanuts, shellfish, or monosodium glutamate (MSG)—poses a serious danger to certain parts of the population but does not create a product inherently unfit for consumption. For example, in Hot Stuff Foods, LLC v. Houston Casualty Co.,[85] the court held that coverage was provided for a recall due to improper labeling of sausage breakfast sandwiches containing MSG. The court reasoned that the policy requirement of injury due to mislabeling was fulfilled if injury “may likely result” in injury of “any person,” including a person sensitive to MSG.[86] The court alternatively held that the “may likely” language was ambiguous and must be construed in favor of the insured.[87]

Number of losses. Policies specifically covering losses arising from contaminated products present an issue analogous to the number of occurrences issues under CGL policies. “Loss,” like “occurrence,” is typically a defined policy term, but insurers and policyholders can disagree about the number of  losses resulting from a recall event.

The Court of Appeals for the Second Circuit addressed the issue of number of  losses in a coverage dispute that arose from glass shards discovered in beverages bottled at a plant that had been acquired by the insured, a brewery holding company, and added to the acquirer’s policy.[88] In National Union Fire Insurance Co. of Pittsburgh, PA. v. Stroh Cos., Inc., the insurer had issued a Contaminated Products Insurance policy. Glass shards in beverages, attributed to thermal shock caused by a defect in the bottle filling procedure, prompted a recall by the insured.[89] The district court granted summary judgment to the insured, and the appellate court affirmed.

The Second Circuit extensively discussed the issues arising from the timing of the discovery of the problem, including the “inception date” definition, the known loss and fortuity doctrines, the due diligence clause, the duty to cooperate, and the obligation to disclose. The court affirmed that the policy provided coverage under the circumstances of the claim.[90] It then analyzed the number of losses that the contamination involved and, thus, the number of deductibles that would apply. “Loss” was defined as the recall costs attributable to a specific accidental contamination. The appellate court agreed with the district court that the relevant accidental contamination was not each contaminated bottle but “a single proximate, uninterrupted, and continuous cause of damages.” [91] It determined that “all of the instances of glass inclusion that led to the recall were attributable to a single cause: the production line flaw.”[92] Thus, the entire costs of the recall were subject to one deductible.

As demonstrated by courts determining the number of occurrences under CGL policy language, the number of “Losses” under an accidental product contamination policy can be calculated in different ways, depending on one’s initial characterization of the contamination and analytical framework. More litigation regarding this term seems probable.

Conclusion

Given the prevalence of food-borne illness and increased attention by the FDA and CDC to preventing food contamination, more insurance claims arising from actual or suspected food contamination—and more coverage disputes—should be anticipated. The policy terms and exclusions discussed above represent the most frequently litigated issues, but additional areas of dispute are likely.

Keywords: litigation, insurance, coverage, food-borne illness, contamination, bodily injury, product recall

Virginia L. White-Mahaffey is a partner with Steptoe & Johnson LLP, Washington, D.C.


 

[1] CDC, Estimates of Foodborne Illnesses in the United States (last visited Sept. 30, 2013).
[2] CDC, Estimates of Foodborne Illnesses in the United States (last visited Sept. 30, 2013).
[3] CDC, Trends in Foodborne Illness in the United States, 2012 (last visited Sept. 30, 2013).
[4] John A. Painter, Robert M. Hoekstra, Tracey Ayers, Robert V. Tauxe, Christopher R. Braden, Frederick J. Angulo & Patricia M. Griffin, “Attribution of Foodborne Illnesses, Hospitalizations, and Deaths to Food Commodities by Using Outbreak Data, United States, 1998–2008,” 19 Emerging Infectious Diseases 407, 407 (Mar. 2013).
[5] FDA, FDA Food Safety Modernization Act (FSMA) (last visited Sept. 30, 2013).
[6] FDA,Safer Fruits and Vegetables: FDA Aims to Set Production Standards (July 11, 2011).
[7] Other policies potentially providing coverage for food contamination claims include directors’ and officers’ policies, product withdrawal expense policies, food-borne illness policies, and malicious product tampering policies.
[8] ISO Properties, Inc., CGL Form No. CG 00 02 01 73 (1973 ed.). Cf. ISO Properties, Inc., CGL Form No. CG 00 01 01 96 (1996 ed.) and ISO Properties, Inc., CGL Form No. CG 00 01 10 01 (2001 ed.).
[9] ISO Properties, Inc., CGL Form No. CG 00 02 01 73 (1973 ed.).
[10] ISO Properties, Inc., CGL Form No. CG 00 01 10 01 (2001 ed.).
[11] Compare Nationwide Mut. Ins. Co. v. CPB Int’l, Inc., 562 F.3d 591, 596–97 (3d Cir. 2009) (improper composition in chondroitin for nutritional tablets) (no occurrence because faulty workmanship is not sufficiently fortuitous to constitute “accident”), and United Nat’l Ins. Co. v. St. Paul Reins. Co., Civil No. 1:CV-07-2092, 2008 U.S. Dist. LEXIS 828634, at *9–11 (M.D. Pa. Oct. 17, 2008) (antibiotics in milk) (no occurrence when milk improperly containing antibiotics was relabeled and redelivered, thus contaminating other milk, because intentional act is not an “accident”), with Netherlands Ins. Co. v. Main Street Ingredients, LLC, Civil No. 11-533 (DSD/FLN), 2013 U.S. Dist. LEXIS 2685, at *9–10 (D. Minn. Jan. 8, 2013) (suspected salmonella in instant milk incorporated in oatmeal) (occurrence found due to lack of specific intent to injure), Naumes, Inc. v. Chubb Custom Ins. Co., Civil No. 05-1327-HA, 2007 U.S. Dist. LEXIS 1292, at *2–4, *12–15 (D. Or. Jan. 5, 2007) (synthetic vitamin E and biotin in diet drink) (occurrence, finding “accident” where insured erroneously introduced a premix containing substances banned in market for which final product was designed), and Zurich Am. Ins. Co. v. Cutrale Citrus Juices USA, Inc., No. 5:00-cv-149-OC-10GRJ, 2002 WL 1433728, at *2–3, 8–11 (M.D. Fla. Feb. 11, 2002) (propylene glycol refrigerant in orange juice) (rejecting argument that contract-based liability for defective juice could not be an occurrence).
[12] See, e.g., Naumes, 2007 U.S. Dist. LEXIS 1292, at *10.
[13] Compare Sokol & Co. v. Atl. Mut. Ins. Co., 430 F.3d 417, 422 (7th Cir. 2005) (no property damage was suffered by third party, although peanut butter was unfit for consumption, because peanut butter paste had not harmed other contents of cookie mix boxes), Nat’l Union Fire Ins. Co. of Pittsburgh, PA v. Ready Pac Foods, Inc., 782 F. Supp. 2d 1047, 1056 (C.D. Cal. 2011) (despite the existence of covered property damage when lettuce infected with E. coli appeared at Taco Bell restaurants, lost profits due to decline in patronage were not damages “because of property damage”), and Silgan Containers Corp. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, No. C 08-2246 PJH, 2010 U.S. Dist. LEXIS 30100, at *16–21 (N.D. Cal. Mar. 29, 2010) (no coverage because canned fruit was edible although not conveniently accessible due to defective pull tabs so neither “physical injury” nor “loss of use” requirement was satisfied), aff’d, 434 F. App’x 709 (9th Cir. 2011), with Nat’l Union Fire Ins. Co. of Pittsburgh, PA v. Terra Indus., 346 F.3d 1160, 1164–65 (8th Cir. 2003) (incorporation of carbon dioxide contaminated with benzene into beverages manufactured by third party resulted in property damage), aff’g 216 F. Supp. 2d 899 (N.D. Iowa 2002), Main Street Ingredients, LLC, 201 U.S. Dist. LEXIS 2685, at *10–15 (when instant milk suspected of containing salmonella was incorporated in oatmeal, the inability due to FDA regulations to lawfully distribute the product into which the policyholder’s product was incorporated supported a finding of physical damage), Cutrale Citrus Juices USA, 2002 U.S. Dist. LEXIS 26829, at *5–13 (introduction of an adulterant, propylene glycol refrigerant, into orange juice is a physical event causing injury or damage), Shade Foods, Inc. v. Innovative Prods. Sales & Mktg., Inc.,93 Cal. Rptr. 2d 364, 376–77 (Cal. Ct. App. 2000) (presence of wood splinters in diced almonds intended for nut clusters in cereal products caused property damage), United Sugars Corp. v. St. Paul Fire & Marine Ins. Co., No. A06-1933, 2007 Minn. App. Unpub. LEXIS 660, at *6–11 (Minn. Ct. App. June 26, 2007) (when bee parts and cigarette butts were discovered in sugar intended for cookie dough, insurer had a duty to defend and insured had right to a new trial; appellate court applied holding from a decision construing a property policy’s definition of property damage, and concluded that contact of cookie dough with contaminated sugar made it unsaleable, thus constituting property damage), and  I.J. White Corp. v. Columbia Cas. Co., 964 N.Y.S.2d 21, 23 (N.Y. App. Div. 2013) (cakes ruined during cutting process because freezer did not reach correct temperature, and loss of use of facility constituted property damage).
[14] See, e.g., Lavoi Corp. v. Nat’l Fire Ins. of Hartford, 666 S.E.2d 387, 393–95 (Ga. Ct. App. 2009) (although bread for sandwiches was contaminated, the court found no bodily injury because the sandwiches were discarded and no customers fell ill).
[15] 493 F. App’x 907 (10th Cir. 2012).
[16] Moore, 493 F. App’x at 913.
[17] 844 N.Y.S.2d 257 (N.Y. App. Div. 2007).
[18] Int’l Flavors & Fragrances, 844 N.Y.S.2d at 263. See also ConAgra Foods, Inc. v. Lexington Ins. Co., 21 A.3d 62, 68–77 (Del. 2011) (when salmonella found in peanut butter resulted in 20,000 likely claims, the court held that the lot or batch provision was ambiguous; insurer ordered to defend and matter remanded for court to consider extrinsic evidence of parties’ intent).
[19] No. 3-12-CV-05438-WHA (N.D. Cal. Nov. 15, 2013).
[20] Moon Marine, slip op. at 7.
[21] Moon Marine, slip op. at 3.
[22] Moon Marine, slip op. at 9.
[23] ISO Properties, Inc., CGL Form No. CG 00 01 10 01 (2001 ed.).
[24] ISO Properties, Inc., CGL Form No. CG 00 01 10 01 (2001 ed.).
[25] 13 P.3d 785 (Ariz. Ct. App. 2000).
[26] Keggi, 13 P.3d at 789.
[27] Keggi, 13 P.3d at 789 (internal quotation marks and citation omitted).
[28] Keggi, 13 P.3d at 790–91.
[29] 635 N.W.2d 112 (Neb. 2001).
[30] Becker Warehouse, 635 N.W.2d at 120–22.
[31] See ISO Properties, Inc., CGL Form No. CG 00 01 01 96 (2006 ed.) and ISO Properties, Inc., CGL Form No. CG 00 01 10 01 (2001 ed.). The policy typically defines “your product” to include “[a]ny goods or products . . . manufactured, sold, handled, distributed or disposed of by” the insured. ISO Properties, Inc., CGL Form No. CG 00 01 01 96 (2006 ed.) and ISO Properties, Inc., CGL Form No. CG 00 01 10 01 (2001 ed.).
[32] See, e.g., Netherlands Ins. Co. v. Main Street Ingredients, LLC, Civil No. 11-533 (DSD/FLN), 2013 U.S. Dist. LEXIS 2685, at *15–16 (D. Minn. Jan. 8, 2013) (court held that “your product” exclusion did not apply to claims resulting from recall of instant milk incorporated into oatmeal due to suspected salmonella because claim was for damage to oatmeal, not to insured’s milk).
[33] Tradin Organics USA, Inc. v. Md. Cas. Co., 325 F. App’x at 11 (2d Cir. 2007) (although plastic, pits, and glass in raspberry crumble originally came from another source, the “your product” exclusion precluded coverage for losses caused by contaminated product sold by the insured), aff’g No. 06 Civ. 5494 (WHP), 2008 U.S. Dist. LEXIS 5820, at *1–9 (S.D.N.Y. Jan. 2, 2008); Hartog Rahal P’ship v. Am. Motorists Ins. Co., 359 F. Supp. 2d 331, 331–33 (S.D.N.Y. 2005) (court approved insurer’s 20 percent reduction in settlement amounts provided to insured, a seller of apple juice concentrate containing artificial sweetener, and thus not “100% pure juice,” on basis of “your product” exclusion); Atlantic Mut. Ins. Co. v. Hillside Bottling Co., Inc., 903 A.2d 513, 519–21 (N.J. Super. Ct. App. Div. 2006) (“your product” exclusion prevented coverage for claims arising from ammonia in carbonated beverages due to bottling company’s own faulty mixing of beverages); Nu-Pak Inc. v. Wine Specialties Int’l, Ltd., 643 N.W.2d 848, 853–55 (Wis. Ct. App. 2002) (“your product” exclusion barred coverage where negligence of the insured, which mixed and packaged product with ingredients provided by the company that planned to sell the product, resulted in beverage contaminated with bacteria).
[34] The “damage to your work” exclusion bars coverage for property damage to “‘your product’ arising out of it or any part of it and included in the ‘products-completed operations hazard.’” ISO Properties, Inc., CGL Form No. CG 00 01 10 01 (2001 ed.). See also Express Packaging of Ohio, Inc. v. Am. States Ins. Co., 486 F. App’x 562 (6th Cir. 2012), aff’g 800 F. Supp. 2d 886 (N.D. Ohio 2011) (“your work” exclusion barred coverage for losses when the insured’s equipment inadvertently punctured dog food cans, causing food to spoil).
[35] ISO Properties, Inc., CGL Form No. CG 00 01 10 01 (2001 ed.).
[36] ISO Properties, Inc., CGL Form No. CG 00 01 10 01 (2001 ed.). Compare Sokol & Co. v. Atl. Mut. Ins., 430 F.3d 417, 423 (7th Cir. 2005) (exclusion applied because cookie mix boxes could be (and were) restored by removal of spoiled peanut butter), and Lavoi Corp. v. Nat’l Fire Ins. of Hartford, 666 S.E.2d 387, 395 (Ga. Ct. App. 2009) (if sandwiches were discarded due to incorporation of insured’s contaminated bread, then exclusion would apply), with Naumes, Inc. v. Chubb Custom Ins. Co., Civil No. 05-1327-HA, 2007 U.S. Dist. LEXIS 1292, at *12–15 (D. Or. Jan. 5, 2007) (when vitamin E acetate and biotin were mixed into diet drink, and no evidence was introduced that the damaged drink could have been restored to use by any repair, replacement, or removal of the insured’s premix containing the banned substances, the impaired property exclusion did not apply), Mullins’ Whey, Inc. v. McShares, Inc., No. 04-C-0130, 2005 U.S. Dist. LEXIS 39289, at *9–12 (E.D. Wis. May 10, 2005) (exclusion did not apply when benzene contaminated whey protein concentrate; third party’s product that was ruined and unusable as a result of incorporation of contaminated product could not be restored to use), and Shade Foods, Inc. v. Innovative Prods. Sales & Mktg., Inc.,93 Cal. Rptr. 2d 364, 377–78 (Cal. Ct. App. 2000) (impaired property exclusion did not apply when wood splinters were found in almonds intended for nut clusters in cereal because neither nut clusters nor cereal containing them could be deconstructed to remove splinters and restore the contaminated products to use).
[37] ISO Properties, Inc., CGL Form No. CG 00 01 10 01 (2001 ed.); see also Mullins’ Whey, 2005 U.S. Dist. LEXIS 39289, at *10–11 (finding recall exclusion could not apply without rendering superfluous the impaired property reference in the exclusion).
[38] See U.S. Fire Ins. Co. v. Good Humor Corp., 496 N.W.2d 730, 737 (Wis. Ct. App. 1993).
[39] Civ. No. 09-1388-HO, 2011 U.S. Dist. LEXIS 27267 (D. Or. Mar. 15, 2011).
[40] GloryBee Foods, 2011 U.S. Dist. LEXIS 27267, at *8–9. See also Good Humor, 496 N.W.2d at 738 (“sistership” exclusion applies only to recalls initiated by insured).
[41] 903 A.2d 513, 521–23 (N.J. Super. Ct. App. Div. 2006).
[42] 465 F.3d 834 (8th Cir. 2006).
[43] Source Food Tech., 465 F.3d at 835.
[44] Source Food Tech., 465 F.3d at 838.
[45] Source Food Tech.,465 F.3d at 838. Business interruption coverage for food contamination claims presents an independent issue as well: the duration of the “necessary suspension.” See, e.g., Brand Mgmt., Inc. v. Md. Cas. Co., Civ. A. No. 05-cv-02293-REB-MEH, 2007 U.S. Dist. LEXIS 43998, at *5–11 (D. Colo. June 18, 2007) (total cessation of business activity was required for coverage; cessation occurred when listeria was discovered in sushi, but once the insured was able to resume operations, no business interruption coverage was provided for subsequent consequences of cessation).
[46] See, e.g., S. Wallace Edwards & Sons, Inc. v. Cincinnati Ins. Co., 353 F.3d 367, 374–75 (4th Cir. 2003) (affirming summary judgment for policyholder; meat exposed to ammonia, causing odor and color change, fulfilled the requirement of “direct physical loss of or damage to [c]overed [p]roperty”); Gerawan Farming Partners, Inc. v. Westchester Surplus Lines Ins. Co.,No. CIV F 05-1186 AWI DLB, 2008 U.S. Dist. LEXIS 4511, at *34–41 (E.D. Cal. Jan. 4, 2008) (holding that pitting in nectarines constituted direct physical loss because it is a cosmetic condition causing indentations on surface of fruit); Gen. Mills, Inc. v. Gold Medal Ins. Co., 622 N.W.2d 147, 151–52 (Minn. 2001) (finding physical injury requirement was fulfilled because pesticide-treated oats violated FDA regulations for human consumption even though pesticide presented no health hazard).
[47] See, e.g., HoneyBaked Foods, Inc. v. Affiliated FM Ins. Co., 757 F. Supp. 2d 738, 745–46 (N.D. Ohio 2010).
[48] See, e.g., Leprino Foods Co. v. Factory Mut. Ins. Co., 453 F.3d 1281, 1287–89 (10th Cir. 2006) (summary judgment for insurer reversed and remanded for jury to determine whether exception to exclusion for “other physical damage” applied to claim arising from limonene contamination in cheese); Fed. Ins. Co. v. Hartford Steam Boiler Inspection & Ins. Co., 415 F.3d 487, 495–96, 500 (6th Cir. 2005) (ammonia contamination exclusion barred coverage for claims for contamination of frozen foods; reversed and remanded to determine whether damage was caused by contamination or by fire or explosion); HoneyBaked Foods, Inc., 757 F. Supp. 2d at 747–48 (listeria presence in ham and turkey products met “the ordinary, unambiguous definition” of “contamination,” and exception to exclusion for resulting direct physical loss or damage did not apply); Allianz Ins. Co. v. RJR Nabisco Holdings Corp., 96 F. Supp. 2d 253, 254–55 (S.D.N.Y. 2000) (summary judgment granted to insured for claims resulting from odor and taste issues due to trimethyl benzene; because a third party’s failure to contain a chemical used to seal a warehouse floor was the sole cause of contamination of food products, exception to exclusion for loss from “peril not otherwise excluded” applied). See also Bruce Oakley, Inc. v. Farmland Mut. Ins. Co., 245 F.3d 1027, 1029 (8th Cir. 2001) (“ensuing fire” exception permitted coverage despite mold exclusion when mold formed on soybeans in storage bin, leading to auto-oxidation and ultimately excessive heat).
[49] 724 S.E.2d 707 (Va. 2012).
[50] PBM Nutritionals,724 S.E.2d at 714–15.
[51] PBM Nutritionals, 724 S.E.2d at 714.
[52] 676 N.W.2d 528, 532 (Wis. Ct. App. 2004).
[53] 788 N.Y.S.2d 142 (N.Y. App. Div. 2004).
[54] Pepsico,788 N.Y.S.2d at 144.
[55] Pepsico, 788 N.Y.S.2d at 143.
[56] See, e.g., Hot Stuff Foods, LLC v. Houston Cas. Co., No. CIV. 11-4055-KES, 2012 U.S. Dist. LEXIS 92900, at *4–5 (D.S.D. July 5, 2012).
[57] See, e.g., Wornick Co. v. Houston Cas. Co., No. 1:11-CV-00391, 2013 U.S. Dist. LEXIS 62465 (S.D. Ohio May 1, 2013) (suspected salmonella/military MREs); Ruiz Food Prods., Inc. v. Catlin Underwriting U.S., Inc., No. 1:11-cv-00889-BAM, 2012 U.S. Dist. LEXIS 131031 (E.D. Cal. Sept. 13, 2012) (suspected salmonella/burritos); Little Lady Foods, Inc. v. Houston Cas. Co., 819 F. Supp. 2d 759 (N.D. Ill. 2011) (suspected listeria/burritos); Caudill Seed & Warehouse Co. v. Houston Cas. Co., 835 F. Supp. 2d 329 (W.D. Ky. 2011) (salmonella/peanut butter); Fresh Express Inc. v. Beazley Syndicate 2623/ 623 at Lloyd’s, 131 Cal. Rptr. 3d 129 (Cal. Ct. App. 2011) (E. coli/spinach).
[58] No. 1:11-CV-00391, 2013 U.S. Dist. LEXIS 62465 (S.D. Ohio May 1, 2013).
[59] Wornick, 2013 U.S. Dist. LEXIS 62465.
[60] Wornick, 2013 U.S. Dist. LEXIS 62465, at *1–5.
[61] Wornick, 2013 U.S. Dist. LEXIS 62465, at *22–26.
[62] Wornick, 2013 U.S. Dist. LEXIS 62465, at *13–18.
[63] Wornick, 2013 U.S. Dist. LEXIS 62465, at *18.
[64] Wornick, 2013 U.S. Dist. LEXIS 62465, at *13–18.
[65] Wornick, 2013 U.S. Dist. LEXIS 62465, at *18. The court found no “impairment” for similar reasons. Wornick, 2013 U.S. Dist. LEXIS 62465, at *23.
[66] 819 F. Supp. 2d 759 (N.D. Ill. 2011).
[67] Little Lady Foods, 819 F. Supp. 2d at 761.
[68] Little Lady Foods, 819 F. Supp. 2d at 761–62.
[69] Little Lady Foods, 819 F. Supp. 2d at 762.
[70] Little Lady Foods, 819 F. Supp. 2d at 763.
[71] Little Lady Foods, 819 F. Supp. 2d at 762–63.
[72] 131 Cal. Rptr. 3d 129 (Cal. Ct. App. 2011).
[73] Fresh Express,131 Cal. Rptr. 3d at 132 (alteration in original) (internal quotations and citation omitted).
[74] Fresh Express, 131 Cal. Rptr. 3d at 132.
[75] Fresh Express, 131 Cal. Rptr. 3d at 133–34.
[76] Fresh Express, 131 Cal. Rptr. 3d at 143.
[77] Fresh Express,131 Cal. Rptr. 3dat 144.
[78] No. 1:11-cv-00889-BAM, 2012 U.S. Dist. LEXIS 131031 (E.D. Cal. Sept. 13, 2012).
[79] Ruiz Food Prods., 2012 U.S. Dist. LEXIS 131031, at *3–6.
[80] Ruiz Food Prods., 2012 U.S. Dist. LEXIS 131031, at *16–18.
[81] Ruiz Food Prods., 2012 U.S. Dist. LEXIS 131031, at *18.
[82] Ruiz Food Prods., 2012 U.S. Dist. LEXIS 131031, at *28.
[83] Ruiz Food Prods., 2012 U.S. Dist. LEXIS 131031, at *27.
[84] Ruiz Food Prods., 2012 U.S. Dist. LEXIS 131031, at *28. Accord Wornick, 2013 U.S. Dist. LEXIS 62465, at *19–23 (no coverage because impairment must occur during the manufacturing or processing by the insured and must have “resulted or may likely result in . . . physical symptoms or bodily injury, sickness, or disease or death”) (omissions in original; internal quotation marks and citation omitted). See also Caudill Seed & Warehouse Co. v. Houston Cas. Co., 835 F. Supp. 2d 329, 335–36 (W.D. Ky. 2011) (no coverage for losses due to recall of peanut products because peanuts were contaminated or impaired at time of purchase, not during the manufacturing process).
[85] No. CIV. 11-4055-KES, 2012 U.S. Dist. LEXIS 92900, at *20–23 (D.S.D. July 5, 2012).
[86] Hot Stuff Foods, 2012 U.S. Dist. LEXIS 92900, at *22–23.
[87] Hot Stuff Foods, 2012 U.S. Dist. LEXIS 92900, at *23–25.
[88] Nat’l Union Fire Ins. Co. of Pittsburgh, PA. v. Stroh Cos., Inc., 265 F.3d 97 (2d Cir. 2001).
[89] Stroh, 265 F.3d at 101–02.
[90] Stroh, 265 F.3d at 104–15.
[91] Stroh, 265 F.3d at 116–17 (internal quotation marks and citation omitted).
[92] Stroh, 265 F.3d at 116–17 (citing district court opinion in Nat’l Union Fire Ins. Co. of Pittsburgh, PA. v. Stroh Cos., Inc.,No. 98 CIV 8248 (DLC), 2000 U.S. Dist. LEXIS 2581, at *12–14 (S.D.N.Y. Mar. 9, 2000)).

Copyright © 2014, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).