Foster Poultry Farms, Inc. v. XL Insurance et al
Filing
117
AMENDED MEMORANDUM AND ORDER signed by Senior Judge William B. Shubb on 1/20/2016 Amending 59 Memorandum and Order filed 10/9/2015: IT IS ORDERED that: 1) 46 Foster's Motion for Partial Summary Judgment on its declaratory relief cla im be, and the same hereby is, GRANTED; 2) Insurers' 47 Motion for Summary Judgment on both of Foster's claims be, and the same hereby is, DENIED; and 3) Foster's 54 Motion to Strike be, and the same hereby is, DENIED as moot as to summary judgment and DENIED without prejudice as to trial. This Order supersedes and replaces the 59 Court's previous Order of October 9, 2015, 2015 WL 5920289, nunc pro tunc.. (Kirksey Smith, K)
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UNITED STATES DISTRICT COURT
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EASTERN DISTRICT OF CALIFORNIA
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FOSTER POULTRY FARMS, INC.,
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Plaintiff,
v.
CIV. No. 1:14-953 WBS SAB
AMENDED MEMORANDUM AND ORDER RE:
MOTIONS FOR SUMMARY JUDGMENT;
MOTION TO STRIKE
CERTAIN UNDERWRITERS AT
LLOYD’S, LONDON,
Defendants.
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Plaintiff Foster Poultry Farms, Inc. (“Foster”) brought
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this action for declaratory relief and breach of contract against
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defendants Certain Underwriters at Lloyd’s, London (“Insurers”).
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Presently before the court are Foster’s motion for partial
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summary judgment on its declaratory relief claim and Insurers’
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motion for summary judgment under Federal Rule of Civil Procedure
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56, and Foster’s motion to strike the deposition testimony and
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opinions of Thomas James Hoffman and Dr. William James under
Rules 30(d)(2) and 37(c)(1), respectively.
I.
Factual and Procedural Background
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Foster is a poultry producer with its largest chicken
processing plant in Livingston, California (the “Facility”).
(O’Connor Decl. ¶ 4 (Docket No. 46-3); Lavella Decl. (Docket Nos.
46-4 to 46-6) Ex. 24 at 36:7-22.)
two processing areas called “Plant 1” and “Plant 2,” which share
a common packaging floor.
O’Connor Decl. ¶ 5.)
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(Lavella Decl. Ex. 24 at 38:20-40:3;
Insurers, a group of Lloyd’s underwriters
organized into three syndicates,1 issued a product contamination
insurance policy to Foster, effective May 25, 2013 to May 25,
2014 (the “Policy”).
(Lavella Decl. Ex. 1 (“Policy”); Topp Decl.
(Docket Nos. 50-2 to 50-4) Ex. U at 12:17-13:3.)
governed by a New York choice of law provision.
The Policy is
(Id. at 8.)
The
Policy provides coverage for all “Loss” arising out of “Insured
Events” during the policy period.
(Id. at 10.)
Two types of
Insured Events under the Policy, which are at issue here, are
“Accidental Contamination” and “Government Recall.”
(Id. at 10,
23.)
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The Facility is comprised of
On October 7, 2013, the United States Department of
Agriculture Food Safety and Inspection Service (“FSIS”) issued a
Notice of Intended Enforcement (“NOIE”) to suspend the assignment
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“Lloyd’s operates as a marketplace for the placement of
insurance. Syndicates made up of individual underwriters insure
risks on behalf of their members. Normally, several syndicates
will provide insurance for a given risk by agreeing to cover a
percentage of that risk.” Alexander & Alexander Servs., Inc. v.
These Certain Underwriters at Lloyd’s, London, England, 136 F.3d
82, 84 n.2 (2d Cir. 1998).
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of inspectors at the Facility and withhold marks of inspection
for products produced there, which are required for the products
to be eligible for sale.
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its implication in a salmonella illness outbreak, and its
noncompliance with federal sanitation regulations.
(Id.)
proffered corrective actions in response to the NOIE.
Decl. Ex. 9).
Foster
(Lavella
As a result, FSIS placed the NOIE in deferral to
allow Foster an opportunity to implement those corrective actions
and to achieve compliance.
(Lavella Decl. Ex. 2 (“LOC”) at 1-2.)
On December 6, 2013, FSIS issued Foster a Letter of
Concern that noted Foster’s continued failure to remedy the high
incidence of salmonella at the Facility, and informed Foster of
live cockroach sightings at the Facility.
(See id.)
On January
8, 2014, based on Foster’s continued noncompliance and a German
cockroach infestation at the Facility, FSIS issued Foster a
Notice of Suspension (“NOS”) suspending the assignment of
inspectors at the Facility and withholding marks of inspection
for the chicken produced there.
(Lavella Decl. Ex. 3 (“NOS”).)
As a result, the Facility ceased production from January 8, 2014
to January 21, 2014.
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FSIS
based its notice on the Facility’s high prevalence of salmonella,
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(Lavella Decl. Ex. 8 (“NOIE”).)2
(O’Connor Decl. ¶¶ 9, 21.)
Five days after the issuance, FSIS held the NOS in
abeyance pending Foster’s implementation of a comprehensive
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Under FSIS regulations, a “‘withholding action’ is the
refusal to allow the marks of inspection to be applied to
products. A withholding action may affect all product in the
establishment or product produced by a particular process.” 9
C.F.R. § 500.1(b). “A ‘suspension’ is an interruption in the
assignment of program employees to all or part of an
establishment.” Id. § 500.1(c).
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action plan that included fumigating the Facility.
Decl. Ex. 5.)
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Subsequently, Foster requested FSIS to apply marks
of inspection to its chicken product that was produced on January
7 and 8, 2014.
(Lavella Decl. Ex. 7.)
FSIS granted Foster’s
request as to chicken produced exclusively in Plant 2 on January
8, but denied its request as to all remaining chicken produced at
the Facility on January 7 and 8.
(Id.; O’Connor Decl. ¶¶ 16-18.)
Under FSIS supervision, Foster thus destroyed 1.3 million pounds
of the denied chicken, which was ineligible for sale.
(O’Connor
Decl. ¶ 18-20; see Lavella Decl. Exs. 6, 7; O’Connor Tr. at
206:23-208:11, 209:25-211:8; Wolff Decl. (Docket Nos. 47-4 to 4724) Ex. R at 7 ¶ 7.)
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(Lavella
Foster submitted a coverage claim with Insurers for
over $12 million in expenses that it claimed to have incurred as
a result of the NOS.
R at 4 ¶ 1.)
(Lavella Decl. Ex. 11 at 3; Wolff Decl. Ex.
Foster claimed coverage under the Policy’s
Accidental Contamination and Government Recall provisions, but
Insurers denied Foster coverage under both.
(Id. Exs. 12-14.)3
Foster then instituted this action for declaratory relief and
breach of the insurance contract.
(Docket No. 1.)
Foster now
moves for partial summary judgment on its declaratory relief
claim and Insurers move for summary judgment on both of Foster’s
claims.
(Docket Nos. 46, 47.)
Foster also moves to strike the
deposition testimony and opinions offered by two of Insurers’
expert witnesses, Thomas James Hoffman and Dr. William James.
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Insurers admit that Foster satisfied the conditions
precedent to coverage in Sections 6(A), 7(B), and 7(G)(i) of the
Policy. (Docket No. 50-1 ¶ 19.)
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(Docket No. 54.)
II.
Analysis
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Summary judgment is proper “if the movant shows that
there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.”
P. 56(a).
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A material fact is one that could affect the outcome
of the suit, and a genuine issue is one that could permit a
reasonable trier of fact to enter a verdict in the non-moving
party’s favor.
248 (1986).
Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
The party moving for summary judgment bears the
initial burden of establishing the absence of a genuine issue of
material fact and can satisfy this burden by presenting evidence
that negates an essential element of the non-moving party’s case.
Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).
Alternatively, the moving party can demonstrate that the nonmovant cannot produce evidence to support an essential element
upon which it will bear the burden of proof at trial.
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Fed. R. Civ.
Id.
Once the moving party meets its initial burden, the
burden shifts to the non-moving party to “designate specific
facts showing that there is a genuine issue for trial.”
324.
Id. at
To carry this burden, the non-moving party must “do more
than simply show that there is some metaphysical doubt as to the
material facts.”
Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 586 (1986).
“The mere existence of a
scintilla of evidence . . . will be insufficient; there must be
evidence on which the jury could reasonably find for the [nonmoving party].”
Anderson, 477 U.S. at 252.
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In deciding a summary judgment motion, the court must
view the evidence in the light most favorable to the non-moving
party and draw all justifiable inferences in its favor.
255.
“Credibility determinations, the weighing of the evidence,
and the drawing of legitimate inferences from the facts are jury
functions, not those of a judge” ruling on a motion for summary
judgment.
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Id.
When parties submit cross-motions for summary
judgment, the court must consider each motion separately to
determine whether either party has met its burden, “giving the
nonmoving party in each instance the benefit of all reasonable
inferences.”
ACLU of Nev. v. City of Las Vegas, 333 F.3d 1092,
1097 (9th Cir. 2003); see also Fair Hous. Council v. Riverside
Two, 249 F.3d 1132, 1136 (9th Cir. 2001) (when parties submit
cross-motions for summary judgment, “each motion must be
considered on its own merits” and “the court must review the
evidence submitted in support of each cross-motion”).
A.
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Id. at
Principles of Interpretation for Insurance Policies
Under New York law, the threshold question of law for
the court to determine is whether a policy’s terms are ambiguous.
Duane Reade Inc. v. St. Paul Fire and Marine Ins. Co., 411 F.3d
384, 390 (2d Cir. 2005).
An insurance “contract is unambiguous
if the language it uses has a definite and precise meaning” such
that it is reasonably susceptible to one interpretation.
Greenfield v. Philles Records, Inc., 780 N.E.2d 166, 170–71 (N.Y.
2002).
An unambiguous contract provision is enforced according
to the plain meaning of its terms, id., and courts commonly refer
to the dictionary to ascertain a provision’s plain and ordinary
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meaning, Ellicott Square Court Corp. v. Mountain Valley Indem.
Co., 634 F.3d 112, 119 (2d Cir. 2011).
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“Ambiguity is determined by looking within the four
corners of the document, not to outside sources.”
Planning Corp. v. CRP/Extell Riverside, L.P., 920 N.E.2d 359, 363
(N.Y. 2009).
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An insurance policy is ambiguous if “its terms are
subject to more than one reasonable interpretation.”
Universal
Am. Corp. v. Nat’l Union Fire Ins. Co. of Pittsburgh, 37 N.E.3d
78, 80 (N.Y. 2015).
To determine whether an insurance contract
is ambiguous, the court must interpret its terms “according to
common speech and consistent with the reasonable expectations of
the average insured.”
500, 500 (2011).
Cragg v. Allstate Indem. Corp., 950 N.E.2d
In a case involving a policy issued to a
business, the court must also examine the “reasonable expectation
and purpose of the ordinary business [person] when making an
ordinary business contract.”
Michaels v. City of Buffalo, 651
N.E.2d 1272, 1273 (N.Y. 1995) (citation omitted).
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Riverside S.
The court must take into account not only the policy’s
literal language, but whatever may be reasonably implied from
that language, including “any promises which a reasonable person
in the position of the promisee would be justified in
understanding.”
Sutton v. E. River Sav. Bank, 435 N.E.2d 1075,
1078 (N.Y. 1982) (citation omitted).
In construing policy terms
according to these standards, the court should strive to give
meaning and effect to every sentence, clause, and word of the
contract.
Northville Indus. Corp. v. Nat’l Union Fire Ins. Co.
of Pittsburgh, 679 N.E.2d 1044, 1048 (N.Y. 1997).
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If the policy’s language is susceptible to more than
one reasonable interpretation, the language is “deemed to be
ambiguous and thus interpreted in favor of the insured.”
Ins. Co. v. Int’l Bus. Machines Corp., 965 N.E.2d 934, 936 (N.Y.
2012); see also Handelsman v. Sea Ins. Co., 647 N.E.2d 1258, 1260
(N.Y. 1994) (“Where there is ambiguity as to the existence of
coverage, doubt is to be resolved in favor of the insured and
against the insurer.”).4
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When “an insurer wishes to exclude
certain coverage from its policy obligations, it must do so ‘in
clear and unmistakable’ language.”
938 (citation omitted).
Fed. Ins. Co., 965 N.E.2d at
Any such exclusions or exceptions must
be specific and clear to be enforced: “[t]hey are not to be
extended by interpretation or implication, but are to be accorded
a strict and narrow construction.”
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Id. (citation omitted).
“[B]efore an insurance company is permitted to avoid
policy coverage, it must satisfy the burden which it bears of
establishing that the exclusions or exemptions apply in the
particular case, and that they are subject to no other reasonable
interpretation.”
Dean v. Tower Ins. Co. of N.Y., 979 N.E.2d
1143, 1145 (N.Y. 2012) (citation omitted).
If an “insurance
carrier drafts an ambiguously worded provision and attempts to
limit its liability by relying on it,” the court must construe
the language against the carrier.
Metro. Prop. & Cas. Ins. Co.
v. Mancuso, 715 N.E.2d 107, 112 (N.Y. 1999).
This “exceptionally
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New York follows the “well-settled maxim of contra
proferentem” under which courts resolve ambiguities against the
party who drafted the contract. Graff v. Billet, 477 N.E.2d 212,
213 (N.Y. 1985); 151 W. Assocs. v. Printsiples Fabric Corp., 460
N.E.2d 1344, 1345 (N.Y. 1984).
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strong principle” is particularly enforced where the contract
includes non-negotiable, form policy language that was not chosen
by the insured.
Co., 393 N.E.2d 974, 975 (N.Y. 1979).
B.
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Mount Vernon Fire Ins. Co. v. Travelers Indem.
“Accidental Contamination” Provision
Plaintiff contends that the January 8, 2014 NOS and the
conditions described in it constitute an Insured Event under the
Policy because they satisfy the Policy’s definition of
“Accidental Contamination.”
The Policy defines “Accidental
Contamination” as an “error” in the production, processing, or
preparation of any Insured Products “provided that” their use or
consumption “has led to or would lead to bodily injury, sickness,
disease or death.”
(Policy at 11.)5
It is undisputed that
Foster’s chicken products are “Insured Products” under the
Policy.
(Id. at 12.)
The plain meaning of this provision thus
requires that Foster show (1) an error in the production of its
chicken product (2) the consumption of which “would lead to”
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The court examines only the relevant part of the
definition applicable to the facts here. The full definition
under the Policy provides: “Error in the manufacture, production,
processing, preparation, assembly, blending, mixing, compounding,
packaging or labelling (including instructions for use) of any
Insured Products, or the introduction into an Insured Product of
an ingredient or component that is, unknown to the Insured,
contaminated or unfit for its intended purpose, or error by the
Insured in the storage or distribution of any Insured Products
whilst in the care or custody of the Insured[;] provided that the
use or consumption of such Insured Products has led to or would
lead to: (i) bodily injury, sickness, disease or death of any
person(s) or animal(s) physically manifesting itself within 365
days of use or consumption, or (ii) physical damage to or
destruction of tangible property (other than the Insured Products
themselves).” (Policy at 11.)
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bodily injury or sickness.
In the NOS, the FSIS suspended assignment of its
inspectors at the Facility because of the “egregious insanitary
conditions observed . . . whereby products produced at [the]
facility may have been rendered adulterated in violation of the
Poultry Products Inspection Act . . . .”
(NOS at 1.)
This
decision was based on the FSIS’s finding “of an infestation of
live cockroaches in and around [the] production areas, that
created insanitary conditions, and demonstrate that [Foster]
failed to maintain an effective pest control program and other
sanitary controls to assure that wholesome, unadulterated meat
and poultry products are produced at [the] facility.”
(Id.)
Defendant appears to concede that Foster’s failure to
comply with the federally mandated pest control and sanitation
standards constituted an “error” under the Policy.
at 4:8-10.)
This court agrees.
(Defs.’ Opp’n
An “error” means “a mistake” or
“[s]omething incorrectly done through ignorance or inadvertence.”
Error, Black’s Law Dictionary (10th ed. 2014); Oxford English
Dictionary Online,
http://www.oed.com/viewdictionaryentry/Entry/64126 (last visited
Oct. 8, 2015); accord
Merriam–Webster Online Dictionary,
http://www.merriam-webster.com/dictionary/error (last visited
Oct. 8, 2015) (defining “error” as “an act or condition of
ignorant or imprudent deviation from a code of behavior”).
In
addition to the USDA’s finding in the NOS that Foster failed to
maintain an adequate pest control program and other sanitary
controls, the evidence confirms that the Facility’s new pest
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control operator, Orkin Pest Services, was employing ineffective
pest control procedures during that time, which allowed pests to
multiply.
89:21-25, 96:23-97:19, 98:1-99:13.)
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The second element for Accidental Contamination
coverage requires a showing that Foster’s erroneously produced
chicken product “would lead to bodily injury, sickness, disease
or death.”
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(Policy at 11.)
The Policy does not articulate the
standard under which to assess whether the Insured Products
“would lead to” bodily injury, sickness, disease, or death.
Insurers contend that the words “would lead to” require
conclusive evidence that Foster’s chicken product would have
necessarily caused harm if consumed.
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(Lavella Decl. Ex. 21 at 109:25-110:17, Ex. 24 at
One could never know with certainty, however, whether a
product would lead to bodily injury or sickness if consumed
unless and until that person consumed the product and waited for
any adverse effects.
It would not be a reasonable interpretation
of the policy to require that a product must first be put into
commerce and injure somebody before triggering coverage.
Indeed,
a Policy requiring the insured to subject the public to the
consumption of potentially contaminated products would probably
be against public policy.
It is accordingly not a reasonable
interpretation to require an insured to send questionable
products into the market for public consumption in order to
confirm whether the products “would lead to” bodily injury or
sickness.
The parties could not have reasonably interpreted the
Policy to encourage a producer to sell goods that have been
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deemed unfit for consumption, risking the public welfare and
subjecting the insured to civil liability and criminal
prosecution.
The Policy must therefore be interpreted to require a
showing of something less than an absolute certainty of bodily
injury or sickness from eating the erroneously produced chicken.
The court finds a reasonable interpretation to be the standard
which the government relies upon when deciding whether a risk of
contamination is significant enough to preclude public
consumption of the product.
As this case demonstrates, the
government tolerates some risk of contamination and bodily injury
or sickness as it regularly approved the sale of chicken after
finding significant levels of salmonella at the Facility over the
several months preceding its issuance of the NOS.
In the NOS, however, the FSIS found that the “egregious
insanitary conditions” resulted in the production of chicken that
was “prepared, packaged, or held under insanitary conditions
whereby it may have become contaminated with filth, or whereby it
may have been rendered injurious to health.”
(emphasis omitted).)
(NOS at 1, 3
Interpreting “would lead to” under the
Policy consistent with the standard the FSIS applies to determine
whether food is safe for human consumption is an entirely
reasonable interpretation of the Policy.
It would also be reasonable to interpret “would lead
to” as “likely to cause” as the court did in Ruiz Food Products,
Inc. v. Catlin Underwriting U.S., Inc., Civ. No. 1:11-889 BAM,
2012 WL 4050001, at *7-8 (E.D. Cal. Sept. 13, 2012).
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reasonable interpretation of “would lead to” is the Policy’s
“reasonable probability” requirement from the Government Recall
provision.
Accidental Contamination are congruent throughout much of the
Policy, it is logical that the parties intended the words “would
lead to” bodily injury or sickness to have a comparable meaning.
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Since the benefits under Government Recall and
Taking into account not just the provision’s literal
language, but the inferences that a reasonable insured may draw
from it and the practical consequences of the Insurers’ proposed
interpretation, it would be unreasonable for the parties to have
intended that Foster prove with absolute certainty that its
erroneously produced chicken “would lead to” bodily injury or
sickness.
Even if Insurers’ interpretation was reasonable, the
words at issue are subject to more than one reasonable
interpretation, and this ambiguity must be interpreted against
the Insurers.
See Fed. Ins. Co. v. Int’l Bus. Machines Corp.,
965 N.E.2d at 936; Handelsman, 647 N.E.2d at 1260.
The court
therefore finds that erroneously produced chicken “would lead to”
bodily injury or sickness if the government determines the
chicken cannot be sold because it may cause bodily injury or
sickness or the plaintiff shows that bodily injury or sickness is
likely or reasonably probable as a result of consumption.
Insurers also argue that Foster must prove actual
contamination in that some harmful matter must have been
introduced into the chicken product.
Insurers cite three cases
to support this argument, all of which are distinguishable from
the facts here.
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In Ruiz Food Products, Inc., the policy at issue
provided coverage for “any accidental or unintentional
contamination . . . provided that the use or consumption of
Insured product(s)” had resulted in or would result in bodily
injury.
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There, a downstream
manufacturer of hydrolyzed vegetable protein (“HVP”) issued a
recall after a finished lot of its HVP product tested positive
for salmonella.
Id. at *1.
A different lot of HVP subject to
the recall was sent to a company that used it to produce a beef
spice mix, which the plaintiff Ruiz incorporated into its food
products.
Id. at *2.
food product.
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2012 WL 4050001, at *7.
The HVP constituted only .0007% of Ruiz’s
Id.
All three companies conducted sample testing on the HPV
that was sent to Ruiz’s supplier but the results were all
negative for salmonella.
Id.
“Only one lot of [the
manufacturer’s] HPV tested positive for Salmonella, and that
particular lot was not sent to [Ruiz’s beef spice mix supplier],
and thus, did not reach Ruiz.”
Id.
Despite this, the FDA
imposed a recall of Ruiz’s food product and Ruiz claimed coverage
under the policy.
Id.
The court held that the policy required
objectively verifiable evidence of actual contamination: because
all the samples tested by the three companies were negative for
salmonella, there was no evidence that Ruiz’s product was in fact
contaminated with salmonella.
Id. at *7.
On that basis, Ruiz’s
product would not result in bodily injury and therefore was not
covered.
Id.
In Wornick Co. v. Houston Casualty Co., Civ. No. 1:11-
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391, 2013 WL 1832671 (S.D. Ohio May 1, 2013), a company that
manufactured dairy shake packets, which Wornick incorporated into
its food products, issued a voluntary recall after salmonella was
found in a finished lot of its packets, causing Wornick to recall
and replace 700,000 cases of its own food product.
Id. at *1-2.
It was later determined that the tainted lot had not been sent to
Wornick and that none of its food products contained salmonella.
Id. at *2.
Wornick’s insurer denied a claim under a product
contamination policy similar to the one in Ruiz.
Id.
The court
held that the term “contamination” in that policy required “that
the insured’s product be soiled, stained, corrupted, infected, or
otherwise made impure by contact or mixture.”
multiple dictionaries).
Id. at *6 (citing
Because there was no evidence that
Wornick’s products came into contact with salmonella, they were
not “contaminated” under the policy.
Id.
Lastly, in Little Lady Foods, Inc. v. Houston Casualty
Co., 819 F. Supp. 2d 759 (N.D. Ill. 2011), Little Lady’s testing
revealed that its food products may be contaminated with harmful
impurities.
Id. at 761.
Little Lady put its products on hold
pending further analysis but tests ultimately concluded that the
product contained a harmless bacteria.
Id.
The court held that
Little Lady was not covered under a contamination policy similar
to the one in Ruiz because none of its products were ever
contaminated with harmful bacteria.
Id. at 762-63.
Unlike the policies in those cases, which required
“contamination” but did not define the term, the Policy in this
case specifically defines “actual contamination” simply as an
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error in production that would lead to bodily injury or sickness.
Because none of the products in those three other cases were
contaminated, in the sense of actually being infected with
harmful bacteria, the courts in each of those cases found no
coverage.
different definition of contamination, and for the reasons
discussed above, the product here was in fact contaminated within
the meaning of that definition.
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Accordingly, because Foster has shown that the NOS and
the conditions described in it constitute Accidental
Contamination under the Policy as a matter of law, the court must
grant Foster’s motion for partial summary judgment and deny
Insurers’ motion for summary judgment as to Foster’s claim for
Accidental Contamination coverage.
C.
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In this case, however, the court is dealing with a
“Government Recall” Provision
The Policy defines Government Recall as (1) a voluntary
or compulsory recall of Insured Products arising directly from a
Regulatory Body’s6 determination that there is a reasonable
probability that Insured Products will cause “serious adverse
health consequences or death,” or (2) a voluntary or compulsory
recall of Insured Products arising directly from a Regulatory
Body’s determination that Insured Products at Foster’s facilities
“have a reasonable probability of causing serious adverse health
consequences or death” and an order suspending the registration
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“Regulatory Bodies” are defined as “the Food and Drug
Administration, the United States Department of Agriculture [or
any other U.S.] regulatory body with similar authority with
regard to food safety.” (Policy at 23.)
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of those facilities issued in conjunction with or following the
recall.
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(Policy at 23.)7
The Policy does not define the term “recall.”
But it
defines a type of Loss called “Recall Expenses” as “costs and
expenses reasonably and necessarily incurred by [Foster] arising
solely and directly out of an Insured Event for the purpose of or
in connection with recalling, withdrawing, reworking, destroying
or replacing Contaminated Products.”
(Id. at 14, 23.)
“Contaminated Products” are defined as “Insured Products which
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The court examines only the relevant part of the
definition applicable to the facts here. The full definition
under the Policy provides: “(1) The recall of Insured Products
which has been initiated (a) voluntarily by the Insured, or (b)
as a result of an order by the Food and Drug Administration, the
United States Department of Agriculture, the Canadian Food
Inspection Agency or any other US or Canadian state or regulatory
body with similar authority with regard to food safety
(Regulatory Bodies), and where either of (a) and (b) above arise
directly from a determination by the Regulatory Bodies that there
is a reasonable probability of Insured Products causing serious
adverse health consequences or death to humans or animals, or
have otherwise been classified as Class I or Class II by the
Regulatory Bodies, or
(2) any order of suspension of registration of any of
the Insured’s facilities or operations, only in conjunction with
or following the recall of Insured Products per Item 1. above,
which arises directly from a determination by the Regulatory
Bodies, that Insured Products which have been manufactured,
processed, packed, received or held by the Insured at the same
suspended facilities or operations have a reasonable probability
of causing serious adverse health consequences or death to humans
or animals, or have otherwise been classified as Class I or Class
II by the Regulatory Bodies, or
(3) outside the USA or Canada, the recall of Insured
Products which has been ordered by any country’s regularly
constituted national, federal, state, provincial or local
regulatory agency or judicial body pursuant to regulations on
food safety but only in respect to the actual or likely threat of
Insured Products causing physical bodily injury or death to
humans or animals.” (Policy at 23.)
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have been subject to Accidental Contamination [or Government
Recall].”
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destruction of its product did not constitute a “recall” because,
they argue, a recall applies only to products that had first left
Foster’s control.
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(Lavella Decl. Exs. 12, 14.)
Foster voluntarily destroyed the product produced on
January 7 and 8.
Because the NOS was issued before Foster’s
alleged “recall,” and not in conjunction with or following it,
Foster may claim coverage only under Item (1) of the provision.
Foster’s “recall” arose directly from FSIS’s determination that
there was a reasonable probability that Foster’s chicken product
at the Facility could cause serious adverse health consequences.
Aside from product that was produced exclusively in Plant 2 on
January 8, FSIS rejected Foster’s request for marks of inspection
on all remaining product produced at the Facility on January 7
and 8, on the ground that Foster did not provide substantial
evidence the product was unadulterated.
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Insurers denied coverage under the
Government Recall provision on the ground that Foster’s
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(Id. at 12, 24.)
(Id. Ex. 7 at 1.)
Foster argues that because the term “recall” should be
interpreted as “cancel” or “revoke,” the term encompasses the
voluntary destruction of Insured Product that did not leave
Foster’s possession.
Insurers contend that the term “recall” is
unambiguous and applies only to product that has left Foster’s
control.
They argue that no “recall” occurred because the
destroyed product never left Foster’s possession or entered
commerce.8
Both parties contend that their definitions comport
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Insurers rely on the definition used in FSIS Directive
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with the plain and ordinary meaning of the term “recall.”
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Foster’s broader interpretation of “recall” is logical
when read in the context of the Policy’s other provisions.
The
word “Recall” in “Recall Expenses” appears to be defined as
“recalling, withdrawing, reworking, destroying or replacing”
Contaminated Products, i.e., products subject to Accidental
Contamination or Government Recall.
14, 24.)
(Lavella Decl. Ex. 1 at 12,
Foster could thus get coverage for Recall Expenses if
it voluntarily (1) destroys product that would lead to “bodily
injury, sickness, disease or death,” regardless whether they were
still in Foster’s possession, or (2) destroys product because
FSIS determined that it has a reasonable probability of causing
serious adverse health consequences.
If the product is in
Foster’s possession at the time it is destroyed, Insurers’
interpretation would allow for coverage under the first fact
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8080.1 and incorporated in Foster’s federally-mandated Recall
Program. (O’Connor Dep. at 185:7-186:1, 186:24-187:10; Wolff
Decl. Ex. J (“Recall Program”); Ex. K.) The definition states
that a “recall” is the voluntary removal of product from commerce
when there is reason to believe that it is adulterated under the
PPIA. (Recall Program at 630 (emphasis added).) The definition
also states that it does not include a “stock recovery,” which is
“the removal or correction of product that has not been marketed
or that has not left the direct control of the firm.” (Id.)
The court is not bound, however, to apply a regulatory
definition to construe a policy term. See Mostow v. State Farm
Ins. Cos., 668 N.E.2d 392, 394-95 (N.Y. 1996); City of Albany v.
Standard Acc. Ins. Co., 165 N.E.2d 869, 874 (N.Y. 1960); Ins. Co.
of N. Am. v. Godwin, 361 N.Y.S.2d 461 (App. Div. 1974). In
addition, a multifaceted term that is undefined in an insurance
contract “is not given a narrow, technical definition by the
law.” Michaels, 651 N.E.2d at 1273 (citation). “It is
construed, rather, in accordance with its understanding by the
average person who . . . relates it to the factual context in
which it is used.” Michaels, 651 N.E.2d at 1273 (citation and
alterations omitted).
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pattern, but deny it under the second.
appear inconsistent in the context of the entire Policy because
the benefits under Accidental Contamination and Government Recall
are otherwise congruent throughout much of the Policy.
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Foster’s
interpretation is thus a reasonable one.
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This construction would
An interpretation is also reasonable if it gives effect
and meaning to the terms in a contract.
115.
Mellon Bank, 31 F.3d at
Several Loss categories appear to contemplate coverage if
Foster destroys product that is still in its possession.
“Gross
Profit” considers variable costs that are saved from not selling
the destroyed product.
“Recall Expenses” anticipate the costs of
destroying “packaging and labeling material that cannot be
reused,” which reasonably applies to product not yet sold.
at (Q)(viii).)
(Id.
“Pre-Recall Expenses” are defined as the costs of
ascertaining whether Foster’s product is contaminated and the
potential effects of such contamination.
It is reasonable that
Foster would conduct this inquiry on product that is still in its
control.
And because Pre-Recall Expenses focus only on the act
of ascertaining, one could reasonably infer that any action
Foster takes after that, including destroying the product if it
is contaminated, constitutes a “recall.”
Insurers’ more restrictive construction could also be
supported by the Policy’s language.
Recall Expenses subpart
(Q)(ii) suggests that recalling a product may be synonymous with
withdrawing it--an action likely taken when the product has
already left Foster’s possession.
Subpart (Q)(vii) covers costs
incurred by retailers, wholesalers, and distributors acting on
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behalf of Foster.
products that have already entered commerce.
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Subpart (Q)(x)
governs Foster’s costs for replacing or reimbursing the value of
Contaminated Products already in customers’ possession.
From the
Policy’s language, a reasonably intelligent person could infer
that “recall” applies only to product that has been sold and left
the Facility.
Insurers’ interpretation is thus also not
unreasonable.
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Thus, it refers to costs associated with
Although Insurers could have expressly done so, they
did not limit the definition of “recall” to products that left
Foster’s possession.
“Where the risk is well known and there are
terms reasonably apt and precise to describe it, the use of
substantially less certain phraseology, upon which dictionaries
and common understanding may fairly differ, is likely to result
in interpretations favoring coverage rather than exclusion.”
Vargas v. Ins. Co. of N. Am., 651 F.2d 838, 841 (2d Cir. 1981)
(citation omitted).
Because the term “recall” is reasonably
subject to more than one interpretation, it is “deemed to be
ambiguous and thus interpreted in favor of the insured.”
Ins. Co., 965 N.E.2d at 936.
Fed.
As a result, the court concludes
that Foster’s destruction of its chicken product constituted a
recall under the terms of the Government Recall provision.
Accordingly, the court must grant Foster’s motion for summary
judgment and deny Insurers’ motion for summary judgment as to
Foster’s claim for coverage under the Government Recall
provision.
D. Foster’s Motion to Strike
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Foster moves to strike the deposition testimony and
opinions offered by two of Insurers’ expert witnesses, Thomas
James Hoffman and Dr. William James.
the court exclude these witnesses’ trial testimony.
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Because the
court did not rely on the witnesses’ testimony or opinions in
this Order, the court denies Foster’s motion to strike as moot
for purposes of summary judgment.
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Foster also requests that
As to trial, Foster’s request is a premature motion in
limine.
It is the court’s practice to provide a schedule for all
matters relating to the trial in the Final Pretrial Order.
With
regard to the propriety of motions in limine, counsel are advised
that such motions are to be reserved only for those matters that
cannot be resolved during the course of trial and for which the
bell truly cannot be “un-rung.”
All other legal points can be sufficiently addressed in
the trial briefs, and the court generally hears Daubert motions
during the trial while the expert is on the stand and can be
questioned about considerations relevant to the court’s ruling.
See, e.g., Betts v. City of Chicago, 784 F. Supp. 2d 1020, 1023
(N.D. Ill. 2011) (“[E]videntiary rulings should [ordinarily] be
deferred until trial so that questions of foundation, relevancy
and potential prejudice may be resolved in proper context.”)
(citation and alterations omitted).
The court will therefore
deny Foster’s request to exclude the witnesses’ trial testimony
without prejudice to the matter being addressed in the parties’
trial briefs and any necessary motions in limine being refiled
after the Final Pretrial Conference.
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IT IS THEREFORE ORDERED that:
(1) Foster’s motion for partial summary judgment on its
declaratory relief claim (Docket No. 46) be, and the same hereby
is, GRANTED;
(2) Insurers’ motion for summary judgment on both of
Foster’s claims (Docket No. 47) be, and the same hereby is,
DENIED; and
(3) Foster’s motion to strike (Docket No. 54) be, and the
same hereby is, DENIED as moot as to summary judgment and DENIED
without prejudice as to trial.
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This Order supersedes and replaces the court’s previous
Order of October 9, 2015 (Docket No. 59), 2015 WL 5920289, nunc
pro tunc.
Dated:
January 20, 2016
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