Multiple Occurrences in a Single E.Coli Outbreak: Double-Edged Sword for Insureds?
Marler Clark clients and the owners of the restaurant that sold MarlerClark's clients food they claim was contaminated with E.coli O111 joined forces against the restaurant's insurer. In the end, the peronsal injury plaintiffs and the restaurant insured convinced the United States District Court for the Northern District of Oklahoma on a Rule 56 summary judgment motion that a single E.coli outbreak constituted at least two separate "occurrences" under a commercial general liability insurance policy ("CGL") issued to the restaurant. The result was another $1 million in coverage available to pay claims. A copy of the court's opinion can be linked here.
The primary policy at issue limited the amount of insurance available to $1 million per occurrence ($2 million products-completed operations aggregrate). According to the court, the policy defined an "occurrence" as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” According to court's summary of the state health department's findings, the outbreak at issue included 341 persons, 60 confirmed, and 94 probable. The "point source outbreak" was from the Country Cottage restaurant. Though 21 persons did not dine at the restaurant, they were believed to be exposed at a church tea catered by the restaurant.
The court concluded that under Oklahoma law there are "two distinct places of injury and thus, two separate occurrences." The court explained that:
Looking for “the same temporal and spatial parameters” of an occurrence, the Court finds that the undisputed facts at least establish two separate occurrences of E. coli-induced illness covered under the policies: that resulting from the negligent contamination of food prepared and served at the Country Cottage restaurant and that resulting from the negligent contamination of food prepared and served at the Church Tea. Regardless of any temporal overlap between these two occurrences, the geographical distinction between the physical location of Country Cottage restaurant in Locust Grove, Oklahoma, and that of the Free Will Baptist Church in Broken Arrow, Oklahoma where the Church Tea took place is appreciable and, appreciatively, concrete.
For MarlerClark clients and the injured plaintiffs, the end result is another $1 million available to settle their claims. But is this a good result for the restaurant owners? The answer is maybe. Insureds should understand that the result may be a double-edged sword. On the one hand, another $1 million in indemnity is available to protect the owners' personal assets. On the other hand, if the insured had a large deductible or self-insured retention ("SIR"), two occurrences could mean two deductibles or two SIRs that need to be paid by the insured.
So why would an insured ever have a high deductible or SIR? The answer is that many food manufacturers and retailers maintain a high deductible or SIR in order to control the defense and settlement of the case and not hand over control to the insurer at the outset. Often, the insured's objective is to resolve the case in a way that best protects the client’s business and brand going forward. A conflict with the insurer arises because the insurer's objective is to resolve the case for the fewest dollars possible (combined payment of defense costs plus indemnity paid to the allegedly injured consumer).
Before the Outbreak, Preapprove Defense Counsel with Insurer
When a food-borne illness outbreak happens, few food companies (especially those whose brand is at stake) want an unfamiliar defense lawyer who has little knowledge about food-borne illness responding to claims asserted against them. Unless a food company maintains a high, self-insured retention or has the lawyer of its choosing preselected, its insurer might appoint on the food company’s behalf low-cost defense counsel ill-equipped to respond to the claims and protect the brand.
Commercial General Liability insurance and Products liability insurance commonly maintained by food companies to protect them from the risks of food-borne illness outbreak usually will not cover the damage an outbreak can have on a company’s brand, stock value or sales. Lawyers appointed by insurers may have little understanding of the insured’s business or the impact the outbreak can have on its brand. Unlike in other areas, such as securities litigation, insurers are not as likely to have a panel or preapproved list of experienced food liability lawyers ready to deploy.
What a food company should consider before a food-borne illness outbreak happens:
1. Identify lawyers who are:
A. Familiar with (or will pledge on their dime to learn) the food company's business and brands;
B. Experienced in responding to consumer claims and food-borne illness; and
C. Knowledgeable about potential expert witnesses (about both those that the company will hire and those that plaintiffs will hire).
For companies with active crisis management plans , these lawyers likely have already been identified and included on the crisis management team.
2. Work with your broker, insurance coverage lawyer and preselected defense lawyer(s) to get preapproval of your chosen lawyers and agreement on their fees
For the sake of the business relationship (and self-interest), many insurers may agree to preapproval. Consider seeking preapproval at the time of renewal when a commercial insured may have the most leverage with an insurer.
For those with preapproved defense counsel, please consider sharing your experiences and insights. Comment or email.
Preparation for Melamine Issues- Updating Crisis Management Plans and Insurance Coverage
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While largely under the radar in the American press due to the compelling election cycle and historical meltdown in the financial markets, the news out of China concerning melamine has gone from bad to worse. Concern about Chinese dairies has morphed into a global crisis affecting what seems like an infinite number of products tainted with melamine.
Melamine has been intentionally introduced into animal feed, dairy products, pet food and other products because it can make diluted or poor-quality products appear to be higher in protein by elevating the total nitrogen content detected by some simple protein tests. Already, the FDA has identified a wide variety of products affected in the first wave of concerns about Chinese dairy products.
How should a food manufacturer or retailer prepare for a melamine issue? Any food company that imports any food ingredient or product from Asian markets should be concerned, and its first steps should be to update its crisis management plan and rehearse a melamine recall.
Food companies should also review with coverage counsel and their brokers whether they have—or can obtain—insurance coverage for financial exposure from melamine tainted products. Financially, a food company will be affected by a melamine issue in at least three ways: recall costs, loss of business and personal injury/consumer fraud claims. Standard comprehensive general liability (“CGL”) insurance may not cover any of these exposures. Most CGL policies do not cover recall costs. While recall and property insurance policies are available, the coverages offered by these policies also may be problematic.
Even personal injury or consumer fraud claims might be denied by CGL insurers. For example, many CGL policies will only provide coverage for occurances that arise out of events that are “accidental.” “Accident” is commonly defined as “a sudden, unforeseen or unintended event.” Even though a food company may have no knowledge of an upstream supplier’s fraudulent acts, some insurers are sure to argue that claims arising from products intentionally tainted by melamine are not covered.
The insurer's argument denying coverage is not a slam dunk and may not prevail. But, the key is to avoid (or minimize) the dispute with the insurer. To the extent possible, when placing insurance, a food company should obtain a representation or endorsement from its insurer that coverage will be extended to claims arising from melamine-tainted food.
