Food Protection Trends - January/February 2013 - (Page 50)

LEGAL BRIEF Recent Cases Show Policy Language is Key in Securing Coverage Insurance for Food Contamination Recalls BY JONATHAN M. COHEN In the face of significant financial losses that some food companies have incurred from product recalls, more and more food companies are purchasing specially tailored recall insurance coverage to protect them and their customers. This trend probably will continue in the wake of the 2011 passage of the Food Safety Modernization Act (FSMA), which for the first time puts into the hands of the Food and Drug Administration (FDA) a mandatory recall power. Under recall policies, coverage generally is triggered by an “insured event,” and one of the key “insured events” for food companies is accidental contamination of their product. However, when a recall happens, insurers may assert that recall policies are more limited in scope than some policyholders may have expected. Instead, although policy language and the scope of coverage can vary substantially, insurers often assert that coverage does not apply to a recall event by pointing to the fact that many recall policies limit coverage to those recalls of contaminated products that have caused, or likely will in the near future cause, bodily injury or property damage. This limitation recently has taken on particular significance because insurers have asserted that policies are not triggered absent actual contamination that creates a high probability of bodily injury, even when a reasonable food company would initiate a recall based on initial test results or information that positively identifies a dangerous pathogen or contaminant. Insurers have used this argument, with some success, to evade their coverage obligations for recalls that most food companies would have believed would have been covered by recall policies. Already, a series of cases has addressed insurer arguments about what constitutes “accidental contamination” that triggers recall coverage. These cases have made it clear that companies need to pay attention to the specific language of their food recall policies. Most recently, in Hot Stuff Foods, LLC, v. Houston Casualty Co.(2), a U.S. district judge in South Dakota interpreted a provision of an accidental product contamination insurance policy in favor of the policyholder. The court found that a recall resulting from the failure to include monosodium glutamate (MSG) on a product label constituted “accidental contamination” because MSG “may likely result in physical symptoms of bodily injury, sickness or disease or death of any person.” This ruling marks a major win for policyholders, particularly because of the judge’s careful and convincing analysis of the terms of the policy in question and because the decision contrasts with another recent decision that had rejected coverage in similar circumstances. Hot Stuff, a sausage manufacturer, had an insurance policy with Houston Casualty Company (HCC), covering it for expenses it incurred in connection with product tampering or product contamination. Due to a packaging error by Hot Stuff, sausages containing MSG were labeled as not containing it. Hot Stuff initiated a recall. It designated the recall as a Class III recall, which the FDA defines as involving products that “will not cause adverse health consequences.” Hot Stuff then turned to its insurer for coverage of the recall-related expenses. It contended that MSG was a contaminant under the policy’s terms and that it could cause bodily injury. HCC denied the claim, and at trial it pointed to expert testimony that MSG was not likely to cause bodily injury. Chief Judge Karen E. Schreier of the U.S. District Court for South Dakota rejected the insurer’s argument and ruled in Hot Stuff’s favor. Regardless of the recall’s Class III designation, the court found that the correct inquiry was whether the policy terms providing coverage for a product that “may likely” cause illness would be satisfied if there were any possibility of illness resulting from the ingestion of MSG — or whether illness needed to be “a probability” for the coverage to be triggered. Under the plain reading of the policy, the court found that coverage would exist “if any person could experience physical symptoms of bodily injury, sickness or disease as a result of his or her exposure to the MSG-containing sausage (4).” 50 FOOD PROTECTION TRENDS JANUARY–FEBRUARY 2013

Table of Contents for the Digital Edition of Food Protection Trends - January/February 2013

Food Protection Trends - January/February 2013
Contents
Food for Thought & Commentary
Secretary Election 2013
“Counter Top” Training Program
“...Listeria on Deli Slicers...”
Cooling of Foods in Retail Foodservice
Food Safety Knowledge, Beliefs and Behavior of Persons With Aids: A Multicenter Study
Beyond the Bio
Special Interest Paper
Legal Brief
PDG Highlight
Industry Products
Coming Events

Food Protection Trends - January/February 2013