In the case of Windsor Food Quality Company, Ltd. v. The Underwriters of Lloyds of London, California’s Court of Appeals was faced with exactly that reality. Westland Hallmark Meat Company was a beef supplier for Windsor. In 2008, it was determined by the USDA that Westland was using “non-ambulatory disabled cattle” in human food — which is prohibited by federal law. The USDA mandated a recall of all Westland beef as a result. The recalled beef included beef that had been incorporated into, among other things, frozen Westland burritos.
Westland thereafter placed a first party insurance claim to Underwriters. The policy provided coverage for “accidental product contamination” or “malicious product tampering” of the Insured’s Products. Westland argued that once the beef was put into its burritos, the beef became part of its insured product and thus Westland was entitled to coverage.
Underwriters disagreed. Underwriters argued that an ingredient (like beef) only qualified for coverage after it was fully incorporated into the insured’s product. If the contamination predated the incorporation, then coverage did not attach. The trial court agreed and found for Underwriters.
An appeal resulted. California’s Appellate Division held that Underwriters and the trial court were right. Specifically, the appellate court held that to meet the policy’s definition of “insured event” and establish coverage, Windsor would have to show that, “there was contamination or tampering with its product during or after manufacture, not before Windsor began the process”. The incorporation of an adulterated ingredient did not trigger coverage unless injury occurred within 120 days of consumption of the product — which did not occur here. In reaching its decision, the trial court noted that “Accidental Product Contamination coverage…is not a recall insurance policy.”
The decision is good news for APC underwriters as it limits the potential universe of claims in a policy that only supplies APC and malicious product tampering coverage. However, the ultimate utility of the decision remains to be seen as most modern policies also contain government recall coverage — coverage that seemingly would have been triggered here by a Class II recall.
Special thanks to Tiffany Davis for her contributions to this post. For more information, please e-mail Bob Cosgrove .