Former executives of a whey protein supplier accused by Land O’Lakes of selling product tainted with urine byproduct received a favorable judgment that also saw a declaration of no coverage for the supplier’s insurers.

In November 2014, Land O’Lakes filed suit in the U.S. District Court for the Eastern District of Wisconsin, alleging that Packerland Whey Products Inc. secretly spiked its whey with urea, a nitrogen-heavy compound found in urine, in order to boost the protein content of the whey.  Land O’Lakes purchased the whey fur use in its animal feed.   Land O’Lakes claimed it paid more than $15 million from 2006 through 2012 for the whey.  The dairy manufacturer averred that it had a variety of problems related to the whey concentrate over the years, but that Packerland’s executives deliberately concealed the urea scheme until December 2012.

In September 2015, the four insurers of the Packerland executives, First Mercury Insurance Co., Rural Mutual Insurance Co., Indian Harbor Insurance Co., and Regent Insurance Co, filed motions for summary judgment, requesting a declaration of no coverage and relieving them of their duty to defend the executives under insurance policies issued for various coverage periods between 2005 and 2013.  The insurers each claimed that no coverage existed because the alleged use of urea was not an accidental “occurrence”, nor did the use of urea result in “property damage”, as defined by the policies.

The Court agreed with both coverage arguments, ruling that no coverage was owed.  The Court reasoned that the Land O’Lakes’ complaint against the executives clearly alleged that they intentionally made false representations to the whey buyer with the hope of trying to sell more product, thus precluding coverage.  Moreover, even if the executives were correct that Land O’Lakes’ complaint alleged a negligent misrepresentation claim, it would still not trigger a duty to defend because under Wisconsin law, negligent misrepresentation does not constitute a covered occurrence.  With respect to the issue of property damage, the Court found that use of urea did not result in “property damage”, and if any damage occurred, it was to Land O’Lakes final animal feed product to which the allegedly tainted whey was added, not the whey product itself.

The Court also agreed with Packerland’s argument that Land O’Lakes lacked standing for its fraud or Racketeer Influenced and Corrupt Organizations Act claims because the company itself acknowledged that it wasn’t seeking damages based on lost or diminished profits, and held that showing of an an actual injury was necessary for Land O’Lakes to sustain those claims.

Thanks to Hillary Ladov for her contribution.  Please email Brian Gibbons with any questions.