A recent First Circuit ruling underscores that a well-negotiated insurance policy can cover claims for which state law has no remedy. In Starr Surplus Lines Ins. Co. v. Mountaire Farms Inc., Starr Surplus Lines Insurance Company insured AdvancePierre Foods Inc., a maker of ready-to-eat lunches and sandwiches. In 2015, a string of salmonella outbreaks were linked to chicken in AdvancePierre’s products, prompting AdvancePierre to recall more than 1.7 million pounds of chicken. The recall cost AdvancePierre over $10 million, which Starr covered under AdvancePierre’s product-contamination policy.
Invoking its subrogation rights, Starr sued AdvancePierre’s chicken supplier, Mountaire Farms Inc., for breach of warranty and strict product liability in Maine state court. After Mountaire removed the case and moved to dismiss, the district court dismissed Starr’s complaint, holding that Starr failed to plausibly allege that the raw chicken at issue was “defective” under Maine law.
On appeal, the First Circuit affirmed. The court reasoned that under Maine law, Starr’s breach-of-warranty and products-liability claims hinged on whether the recalled chicken was “defective.” Turning to Maine law, the court recognized that “raw chicken that contains salmonella that can be eliminated by proper cooking cannot be considered ‘defective.’” Since the recalled chicken contained a strand of salmonella that could in fact be eliminated through proper cooking, and since the complaint failed to allege any special reasons why proper cooking would not have eliminated the strand, the First Circuit held that the chicken was not defective. As a result, Starr could not state a claim and could not recover in subrogation for the amounts paid under its insurance policy.
This decision bears an important reminder for policyholders: Commercial policies can and typically should cover claims, even when those claims find no shelter in state law. As a corollary, it should be no defense to an insurer that the facts giving rise to the insurance claim do not give rise to an actionable claim at law or in equity. When negotiating policies, insureds should strive to obtain the broadest possible coverage. And when faced with a loss, policyholders should be guided by the terms of their coverage and not by the contours of state law, which often may be narrower or contain more onerous elements of proof.