Another Reminder Why Indemnification and Insurance Requirements Are Important
Last month, a state judge in Minnesota awarded summary judgment to a lettuce supplier of restaurants associated with an E. coli outbreak in 2006. The restaurant supplier brought suit against its suppliers. The suit appears to have been based at least in part on an indemnification agreement between Vistar (which delivered lettuce to restaurants) and Bix (which supplied lettuce to Vistar). According to the court, the agreement required Bix to “indemnify and hold harmless the Buyer and its customers from any claim, demand, loss, damage, liability, cost and expense, directly or indirectly, arising out of, or in connection with, or resulting from, the willful or negligent acts or omissions of the seller . . . sold by the Seller . . . to the buyer.”
Vistar, according to the court, “delivered sealed packages” of lettuce to the restaurants and did not process the product. Bix “both processed the lettuce (chopped it up) and packaged the lettuce.”
The court granted summary judgment to Vistar for two reasons:
(1) Vistar was the “classic passive seller in the chain of distribution” and therefore was not a manufacturer under Minnesota law; and
(2) The language of the indemnity “is clear, inclusive, and unequivocal,” and “Vistar’s tender of the claims against it to Bix should be honored.”
As to the latter reason, the court found relevant that “Bix has $2,000,000 in direct coverage and $10,000,000 in excess coverage insurance that would cover the claims made against it.”
A couple of observations:
1. Importance of Being Named an Additional Insured – Surprisingly, it does not appear from the judge’s decision that Bix was required to name Vistar as an additional insured. Had Bix’s carrier named Vistar as an additional insured, Vistar could have recovered against Bix’s insurer directly. Requiring a supplier to provide insurance (and verifying that the supplier has named you as an additional insured without unacceptable conditions) is a relatively easy, yet important step to protect your business.
2. Liberal Reading of Indemnity Clause – The court says that the indemnity obligation, which requires “willful or negligent acts or omissions,” is “clear, inclusive and unequivocal.” Yet the court found no “willful or negligent act or omissions” on the part of Bix. In fact, commenting on Bix’s own motion for summary judgment requesting that the court rule it too is not liable as a matter of law, the court said that Bix’s “argument is not without merit.” Not all courts may interpret this indemnification clause so favorably in the absence of a supplier’s negligence. This is yet another reason to ensure that your supplier has provided adequate insurance.
Some In The Plaintiffs' Bar Favor Irradiation
As previously discussed on this blog, the FDA recently approved irradiation for iceberg lettuce and spinach. We pointed out that "irradiation may provide an added level of protection from food-borne illnesses such as salmonella and E. coli. When used in combination with other state-of-the-art food handling practices, irradiation should dramatically reduce the chances of transmitting food-borne illnesses to consumers."
Now, it appears that at least some in the plaintiffs' community agree that irradiation of fresh produce may be a good thing. Bill Marler, one of the leading plaintiffs' attorneys in the food liability area, is running a series of in-depth pieces on his blog on irradiation.
Mr. Marler's conclusion in part II of his series echoes what we've posted in this blog :"In summary, food irradiation is not a 'silver bullet' for food safety. However, the increasing problem of illnesses and deaths associated with consumption of fresh produce, including lettuce and spinach, emphasizes the need for an intervention."
Irradiation - Evaluating the Investment
With a fair amount of fanfare , last week the FDA approved irradiation of iceburg lettuce and spinach. For restaurant owners, the question is whether they should invest in this process.
Like pasteurization, irradiation may provide an added level of protection from food-borne illnesses such as salmonella and E. coli. When used in combination with other state-of-the-art food handling practices, irradiation should dramatically reduce the chances of transmitting food-borne illnesses to consumers.
The FDA estimates that irradiated fruits and vegetables will cost two to three cents more per pound than nonirradiated products. Irradiation does not substitute for any other food safety practices or investments. Indeed, without added precautions against cross-contamination or field-to-fork regulation of the supply chain, irradiation provides little benefit.
Perhaps more significant than cost is the question of consumer acceptance. The good news is that the FDA does not require labeling of irradiated foods by restaurants (as it currently does for supermarket products). Yet some organic foods advocates are passionate about what they believe to be harmful effects of irradiation and are already lobbying restaurants and consumers to steer clear of irradiated foods.
At this point, arguments against irradiated foods are similar to those against pasteurization and appear to be grounded more in emotion than in science. In weighing issues of consumer acceptance and lowered risk to human health, businesses should understand that unlike economics and politics, in food safety, perception is not reality. Failure to irradiate will likely result in more personal injury claims and a significant threat to the business and the brand.
