The federal Eighth Circuit Court of Appeals recently dealt with interpretation of a Malicious Product Tampering/Accidental Product Contamination policy and its application to a voluntary recall. The insurance coverage issue in Hot Stuff Foods, LLC v. Houston Cas. Co., 771 F.3d 1071, 1081 (8th Cir. 2014), was whether the insured’s voluntary recall of mislabeled Sausage Breakfast Sandwiches was covered under an accidental product contamination policy (which, of course, should never be confused with a product recall policy). The sandwiches contained very small amounts of MSG (monosodium glutamate) — between 0.06 grams and 0.13 grams, but the packages did not disclose the presence of MSG. Mislabeling a product violates federal law and as a result the insured voluntarily recalled the sandwiches at a cost of over $750,000.
The insurer, Houston Casualty Company, denied coverage for the loss because the presence of MSG in the product was not likely to cause injury to consumers. The policy provided coverage where the consumption of Contaminated Product either resulted, or “may likely” result, in physical symptoms of bodily injury within 120 days of consumption. The insured meanwhile contended that the term “may likely” cause injury should be read to require merely the possibility, not the likelihood, of injury.
The insurance dispute went to trial and as expected there was a battle of immunology experts regarding the harm that MSG causes. Although MSG has a nasty reputation, scientists have long since learned that only a small subset of individuals are negatively affected by MSG, and only in amounts larger than those contained in the insured’s sandwiches.
After a South Dakota jury found in favor of the insured (in part because of the trial judge’s rulings), the insurer appealed and the appellate court focused on the definition of “may likely” cause injury. According to the Eighth Circuit, the phrase means more than a possibility of physical injury, but less than a probability. The court remanded the case to the trial court to determine whether there was a “reasonable likelihood” that injury might result from consumption of the product.
But in reaching this decision, the court stressed that the Malicious Product Tampering/Accidental Product Contamination policy was not a Recall policy. An insured’s decision to recall a product — if undertaken merely because it mislabeled a product and the FDA instructed that a recall be conducted — is not covered under such a policy. Otherwise, the Court reasoned, the cost of the insurance would dramatically increase by extending coverage to voluntary actions that should remain part of an insured’s cost of doing business.
This decision is obviously of great significance for accidental product contamination insurers. Many insureds seem to think that accidental product contamination insurance covers any type of recall that they undertake. But, this is neither the intent (nor the pricing model) of the policies. While there may be jury issues involved, insurers should take solitude in the fact that they are not being made guarantors of product quality.
Special thanks to Mendel Simon for his contributions to this post. For more information, please contact Bob Cosgrove at