A Product Recall Is Not (Always) the Same Thing as an Accidental Product Contamination.

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 .

What Triggers Accidental Property Contamination Coverage in a Product Recall Policy? The 8th Circuit Lays Out One Definition.

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 rcosgrove@wcmlaw.com

The More Things Change, the More They Stay the Same with the FSMA.

Deadlines come and deadlines go and yet the new FSMA regulations (notwithstanding court orders) fail to materialize. Now, as the result of a new consent order — 2014-2-20-dkt-82-1–joint–consent-decree_26503 — (arising out of the prior litigation), new deadlines have been set. The new deadlines are:

a. Preventive Controls for Human Food (FSMA Section 103(a) and 103(c))
Final rule: August 30, 2015
b. Preventive Controls for Animal Food (FSMA Section 103(a) and 103(c))
Final rule: August 30, 2015
c. Foreign Supplier Verification Program (FSMA Section 301(a))
Final rule: October 31, 2015
d. Produce Safety Standards (FSMA Section 105(a))
Final rule: October 31, 2015
e. Accreditation of Third Party Auditors (FSMA Section 307)
Final rule: October 31, 2015
f. Sanitary Transport of Food and Feed (FSMA Section 111)
Final rule: March 31, 2016
g. Intentional Contamination (FSMA Section 106(b))
Final rule: May 31, 2016

We’ll have to see if these deadlines actually stick, but the bottom line is that, even if they do, there’s still a long way to go until the 2011 Congressional intent is realized. And, of course, there’s still that nagging issue of funding…

For more information about this post, please contact Bob Cosgrove at rcosgrove@wcmlaw.com.

Absence of Meat Inspectors Limits FSMA Impact.

The implementation of the Food Safety Modernization Act continues to proceed in drips and drabs — a reality that is directly correlated to the absence of sufficient funding. Apparently the latest problem in this regard is the absence of a sufficient number of meat inspectors. In the absence of sufficient inspections, the potential for contaminated meat to hit the market and ultimately result in a recall is only likely to increase.

For more information about this post, please contact Bob Cosgrove at rcosgrove@wcmlaw.com.

US Government Shutdown = More Contaminated Food?

Having spent some of the last week in London (between deposition prep sessions) talking to people about the US (and, yes, with apologies to my partner and friend Mike Bono I did use apocalyptic political language), one question that has come up is — what effect does the shutdown (we’ll leave the debt ceiling discussion for a later post) have on the business I underwrite? Well, at least for the product recall market, it appears that the answer is — “significant.” A chicken related salmonella outbreak has arisen in California and, it appears that, even if the release of contaminated product is not the result of a lack of government funding, the government’s inability to respond may be.

For more information about this post, please contact Bob Cosgrove at rcosgrove@wcmlaw.com.

Judge to FDA: Get Your FSMA Regulations Done Already.

As we have long reported, the FDA has been quite derelict in getting the new Food Safety Modernization Act regulations in place. Deadlines have come and deadlines have gone and still no guidelines. This delay has resulted in the case of Center for Food Safety, et al. v. Margaret Hamburg, et al., USDC, NDCA. There’s a history of decisions in the case that make clear the Court’s frustration with the FDA and that frustration has now boiled over. In a recent decision, the Court has ordered the FDA to publish all proposed regulations by November 30, 2013, with the comment period to end by March 31, 2014, and the final regulations to be published by June 30, 2015. We’ll see if a court order compels action where bureaucratic momentum did not.

If you have any questions about this post, please contact Bob Cosgrove at rcosgrove@wcmlaw.com.

Will Sequester Mean No More Meat?

The US political community remains fixated on the potential sequester that would result in across the board budget cuts. If those budget cuts actually occur, the US meat industry might be unable to sell meat. Why? Because if the USDA loses funding, it will not be able to inspect meat. If the meat can’t be inspected, it can’t be sold. Of course, if uninspected meat were sold, the potential for product recall claims would be significant.
For more information about this post, please contact Bob Cosgrove at rcosgrove@wcmlaw.com.

New FSMA Rules Finally Issued!

At long last, the first two new FSMA rules have been issued.

The first rule requires manufacturers of processed foods sold in the United States to come up with ways to reduce the risk of contamination. The second rule targets E. coli in fruits and vegetables by targeting the “four Ws” — water, waste, workers and wildlife.

The only question now is – will Congress actually provide the funding necessary to implement the rules?

For more information about this post, please contact Bob Cosgrove at rcosgrove@wcmlaw.com.

No FSMA Regulations? Then Sue.

The long awaited Food Safety Modernization Act Regulations have still yet to arrive.  In an attempt to force the FDA’s hand, a lawsuit has been filed.  The lawsuit, filed by a consumer watchdog group, is attempting to force the FDA to issue the long awaited regulations and otherwise enforce the FSMA.  At first blush, the lawsuit seems unlikely to succeed (because of a whole range of legal problems, e.g. standing and sovereign immunity), but perhaps it might finally spur the FDA to act.

Continue to stay tuned.

For more information about this post, please contact Bob Cosgrove at rcosgrove@wcmlaw.com.

Imagine That! Scarce Funding Behind the Lack of FSMA Rules.

We have commented at length about the lack of new FSMA regulations.   According to FDA chief Margaret Hamburg, the FDA is getting ready to issue the new regulations “soon.”  The problem is a lack of funding.  With the elections but six weeks away, I wouldn’t expect anything meaningful to happen before November.

For more information about this post, please contact Bob Cosgrove at rcosgrove@wcmlaw.com.