PCA Recall - Insurance Lessons for Food Sellers
Bill Marler posted on his blog recently a complaint for declaratory relief filed by an insurer for Peanut Corporation of America (“PCA”). Mr. Marler comments, “Frankly, I read this suit several times and still do not see what the fight is about.” For those who represent commercial insureds in pursuing coverage from their insurers, the suit is no surprise. The suit is likely a function of the fairly limited insurance limits available to PCA, PCA’s tender of both bodily injury and recall expense related claims, possible exclusion for organic pathogens and/or allegations of intentional acts by PCA.
The complaint filed by PCA’s carrier, Hartford Casualty Insurance Company, alleges that PCA had at the time of the outbreak a $1 million primary liability insurance policy and $10 million umbrella insurance policy. Given the high number of probable personal injury claims (some of which will involve wrongful death) and the broad scope of products affected by the recall, claims will far exceed limits available to PCA under the Hartford policies. This outbreak demonstrates why any food manufacturer or seller should carefully consider whether its insurance limits are sufficient. A $10 million policy might have seemed to PCA like a great deal of coverage prior to the outbreak; today, the prevailing perception is that it is totally inadequate.
The complaint also alleges that the Hartford policies included “terms, conditions, exclusions, and limitations including but not limited to those pertaining to . . . coverage for claims arising out of the presence, suspected presence, or exposure to, among other things, bacteria.” The policies are not attached to the complaint. However, the allegation suggests that the Hartford policy might have included an organic pathogens exclusion. If the policy includes such an exclusion, PCA may be without coverage for any claims related to the Salmonella outbreak. The organic pathogens exclusion may exclude any claim for bacterial contamination of food products. As we’ve discussed previously on this blog, every food manufacturer should review its coverage to ensure that its policy does not include an organic pathogens exclusion.
Finally, the quick filing of a declaratory relief complaint by Hartford illustrates why a food seller needs to engage an experienced insurance coverage counsel immediately. Coverage counsel can assist in developing a strategy to pursue and preserve available insurance. Also, in situations such as PCA’s, all communications with insurers should be managed by coverage counsel. From the outset, communications with insurers are critical because they are likely to become relevant to the inevitable coverage disputes with the carriers.
"Organic Pathogens Exclusion"
Insurers are making efforts to exclude food-borne illness claims from coverage under comprehensive general liability (“CGL”) policies. The "Organic Pathogens Exclusion" is a good example.
While a claim for food-borne illness may normally be covered by a CGL policy, if you have an organic pathogens exclusion, your insurer will not provide a defense and will not cover your losses if your business is sued as a result of a food-borne illness.
Organic pathogens exclusions can take multiple forms. Some policies include an endorsement that excludes any “loss” for “any actual, alleged or threatened exposure to, existence of, presence of, ingestion of, inhalation of or contact with any biological agents.” “Biological agents” are usually defined to include things like bacteria, viruses or other pathogens (whether or not a microorganism).
Other policies simply include an endorsement providing that “this policy does not insure any loss, damage, claim, cost, expense, fine, penalty or other sum either directly or indirectly arising out of, relating to or caused by an “organic pathogen.” These policies generally define “organic pathogen” to mean “any organic irritant or contaminant, including but not limited to fungus, bacteria, virus, or other microorganism of any type, including but not limited to their byproducts such as spores or mycotoxin, or any hazardous substance as classified by the EPA.”
Any business involved in food production should take notice. Insurers are actively marketing policies with organic pathogen exclusions to food businesses whose greatest liability exposure may be food-borne illness. Careful and regular review of insurance policies and coverages is essential.
