Can products packaged defectively for consumer sale really be usable? According to a recent case adjudicating commercial general liabilty ("CGL") and commercial umbrella insurance policies, products packaged in defective cans are not necessarily unusable.
In Silgan v. National Union Fire Insurance Co., Judge Hamilton from the U.S. District Court for the Northern District of California, recently ruled against Silgan, a can manufacturer, seeking insurance coverage for a $6.5 million customer claim arising from a large-scale food packaging failure. Del Monte made a claim against Silgan for $6.5 million because of a failure of four-ounce pull-tab cans of fruit. Del Monte consumers increasingly complained in 2005 that the pull-tabs broke.
The case is notable for a variety of reasons, as the court granted summary judgment against Silgan on several bases, including that the loss of fruit constitutes neither “physical injury to tangible property” nor “loss of use of tangible property that is not physically injured.” Joseph A. Arnold at Cozen O’Connor has an article discussing the ruling in full.
Judge Hamilton ruled that there was no "loss of use" coverage because there was no proof that the fruit inside the defective cans was “unusable.” The judge ruled that
without proof that the fruit itself was unusable, rather than proof that Del Monte made a business decision not to expend money on re-packaging the cans, plaintiff has not satisfactorily discharged its burden to establish that Del Monte lost use of its tangible property, such that qualifying “Property Damage” under the National Union Policy
But how can product canned for consumer sale not be unusable if the container fails? Implicit is a finding by the court that the fruit could have been repackaged for sale. But is it ever feasible to re-can fruit for sale? To answer this question I consulted nationally renowned food safety expert Gale Prince. As I suspected, Mr. Prince’s response was not consistent with the court’s ruling on usability:
If you open the containers you would have to reprocess the fruit. This would require heat. I would question the saleability of the reprocessed product after the addition[al] processing that would be required to achieve safety. The product would be expected to be mushy and discolored. You would expect a problem with organoleptic qualities. The economic cost of opening effective cans and processing [may] exceed the economic value of the resulting reprocessed fruit product.
Insureds can expect to see their carriers deny coverage coverage more frequently using National Union’s "loss of use" argument. Though it may seem obvious how flawed the argument is, insureds cannot assume that either their insurers or the courts will see it that way. Retaining experts such as Mr. Prince and marshalling the case for unusability will be critical in securing coverage.