Hunton Insurance attorneys Syed Ahmad and Geoffrey Fehling provided several updates on recent recall insurance disputes in the most recent edition of the Recall Roundup, posted on the Hunton Retail Law Resource Blog.

An insurer providing contaminated products insurance to an international food distributor has filed a declaratory judgment lawsuit in New York state court seeking to bar coverage for a claim arising from a recall of defective cookie butter jars. In Berkley Assurance Company v. Acme Food Sales, Inc., Berkley alleges that a contaminated products insurance policy purchased by food importer, distributor, and marketer Acme Food Sales provides no coverage for losses Acme incurred in recalling the defective cookie butter jars. The dispute began when one of Acme’s customers informed Acme that it had discovered certain jars of cookie butter contained defective inner foil seals. Acme notified its supplier of the inner seal issue and was able to trace the affected products to two lots that had been shipped to the customer. Berkley alleges, however, that the manufacturer told Acme that the defect did not present a food safety hazard.

Berkley also alleges that the cookie butter products were not contaminated; the use of the products did not result in any bodily injury, property damage, or adverse publicity; and the jars were withdrawn from store shelves less than a week after Acme became aware of the issue. As a result, Berkley argues that Acme failed to satisfy any of the three requirements to trigger the policy’s accidental contamination coverage where: (i) there was no inadvertent or unintentional contamination of the products; (ii) even if there was contamination, there is no evidence that it was during or as a direct result of the products’ manufacturing, packaging, or distribution; and (iii)  the products did not result and would not result in any bodily injury, property damage, or adverse publicity.

Berkley also asserts that the policy’s government recall coverage does not apply because neither Acme, nor its supplier, nor the customer had notified or communicated with a government food safety regulatory agency about the affected products. And even if they had been in touch with a government agency about the recall, Berkley states it was not advised that the recall of the cookie butter arose directly from an agency’s determination that the consumption of the products posed an unreasonable risk of serious injury or death, which is required to trigger coverage. Acme’s “voluntary” recall, Berkley argues, precludes coverage under the policy.

We will continue to monitor this dispute for further updates, including Acme’s response to Berkley’s coverage arguments.

The parties in the Kormondy product recall coverage dispute, previously reported in the Recall Roundup, have reached a settlement, and the pending litigation will be dismissed within the next 30 days. Beef and poultry cooking facility Kormondy Enterprises (formerly National Steak Processors, Inc.) had sued its excess insurer in Oklahoma federal district court for denying its insurance claim arising from several lawsuits relating to a product recall of ready-to-eat chicken products.

The insurer, Great American, filed a motion for summary judgment, arguing that the excess policy’s “organic pathogens” endorsement excluded coverage because the recalls were initiated because of possible undercooking and bacterial pathogens. Great American also argued that coverage for the product recalls and resulting state court litigation was excluded under various so-called “business risk” exclusions, including an exclusion for property damage arising out of the insured’s “product,” an exclusion for “impaired property,” and a “recalled product” or “sistership” exclusion, all of which the insurer argued barred coverage for the undercooked, adulterated chicken products. Finally, even if the exclusions did not apply, Great American asserted that the policy did not provide coverage for the underlying breach of warranty claims and was never triggered because Kormondy’s primary insurance has not yet been exhausted.

Shortly after the summary judgment motion was filed, the court entered an order stating that the parties reached a settlement and that the dismissal documents would be filed by March 11, 2020. The Kormondy dispute highlights a number of common exclusions in general liability and excess policies related to products and pathogens that insurers often rely on to deny coverage for any recall-related claims. But as the coverage lawsuit and subsequent settlement show, policyholders frequently have numerous arguments for coverage that can result in recovery for defense and indemnity losses under traditional policies.