Wornick Company v. Houston Casualty Company
Filing
37
ORDER denying 20 Motion for Summary Judgment; denying 22 Motion for Partial Summary Judgment. Signed by Chief Judge Susan J. Dlott. (wam1)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
:
THE WORNICK COMPANY,
Case No. 1:11-CV-00391
Plaintiff,
:
Chief Judge Susan J. Dlott
v.
:
ORDER
HOUSTON CASUALTY COMPANY,
:
Defendant.
:
Plaintiff, the Wornick Company (“Wornick”), filed suit against its insurer, Houston
Casualty Company (“Houston Casualty”), claiming breach of contract and bad faith and seeking
a declaration of coverage for costs associated with a product recall. Houston Casualty moves for
summary judgment on all three counts. Doc. 20. Wornick moves for partial summary judgment
on the breach of contract and declaratory judgment claims. Doc. 22. For the following reasons,
both motions are DENIED.
I.
BACKGROUND
Unless otherwise noted, the following facts are drawn from the parties’ statements of
proposed undisputed facts. See Doc. 20-2 and Doc. 22-1.
A. Wornick’s Business
Wornick is a leading supplier of convenience foods and military rations to the U.S.
Government. Compl. ¶ 1, Doc. 1 at Page ID # 1. Wornick acts as a supply-chain integrator or
assembler of operational rations called meals-ready-to-eat (“MRE”) on behalf of the U.S.
Government and the Department of Defense (collectively, the “Government”). As a supply-
1
chain integrator, Wornick purchases the component items for MREs from manufacturers,
consolidates them into a final MRE package, and sells them to the Government.
Wornick’s MREs include dairy shake packets that are manufactured by Trans-Packers
Services Corp. (“Trans-Packers”). At all relevant times, the dairy shake packets contained
instant non-fat dried milk (“NFDM”) that Trans-Packers purchased from Franklin Farms East,
Inc. (“Franklin Farms”). Franklin Farms, in turn, purchased the NFDM from Plainview Milk
Products Cooperative (“Plainview”).
B. Salmonella Contamination and Recall of Dry Milk Products, Dairy Shakes, and
MREs.
On or about May 28, 2009, salmonella contamination was found in Lot #9133 of dairy
shake packets at Trans-Packers’ facilities in New York. After the finding, the Federal Drug
Administration (“FDA”) began an investigation, testing for salmonella contamination. The FDA
found salmonella in one other place—on manufacturing equipment at Plainview’s facilities in
Minnesota.
On June 23, 2009, Plainview issued a voluntary recall for NFDM products produced at its
facility since June 4, 2007 (the “Plainview recall”). On June 25, 2009, Franklin Farms
transmitted a recall notice to Trans-Packers, which stated that Plainview had issued a recall of
the NFDM products. On June 26, 2009, Trans-Packers transmitted a recall notice to Wornick.
Trans-Packers issued its own recall of the dairy shake packets on July 7, 2009. The recalled
dairy shake packets were shipped to Wornick between October 23, 2007 and December 2, 2008,
and were used in the MREs from November 13, 2007 to May 19, 2009.
2
Beginning June 26, 2009, the Government issued a series of three ALFOODACT “Do
Not Consume” orders with respect to the dairy shake packets.1 See Wornick’s Mot. Summary J.
Ex. E, Doc. 22-6 at Page ID # 278 (issued June 26, 2009); id. Ex. F., Doc. 22-7 at Page ID # 281
(issued July 1, 2009); id. Ex. H, Doc. 22-9 at Page ID # 289 (issued August 12, 2009). The Do
Not Consume orders issued on July 1, 2009 and August 12, 2009 specifically name Wornick’s
MREs. On September 30, 2009, the Defense Logistics Agency (the “DLA”) published an article
entitled “Operational Rations, Dairyshake Powder, Recall Information Page” (hereinafter, the
“DLA report”) which described the circumstances of the contamination incident and specifically
named Wornick and the MREs. Id. Ex. I, Doc. 22-10 at Page ID # 295.
After the Plainview recall, on or about September 2, 2009, the Government notified
Wornick of its intent to invoke a breach of warranty action against Wornick related to the
recalled dairy shake packets. The Government demanded that Wornick bear all costs associated
with reworking the MREs, including recalling the MREs, shipping them back to Wornick’s
1
“ALFOODACT” refers to “All Food & Drugs Act.” The “Do Not Consume” orders are issued
by the Defense Logistics Agency (“DLA”), an agency within the United States Department of
Defense. Wornick’s Mot. Summary J. Ex. V, Doc. 22-22 at Page ID # 555. Regarding the
purpose and distribution of the Do Not Consume orders, the DLA writes:
The [Department of Defense’s] ALFOODACT system is designed to provide worldwide
distribution of [FDA] ... agency recalls and potential recalls of hazardous, tampered or
suspected tampering of foods ... that are, or may be expected to be in military
accounts. The ALFOODACT message contains specific information and
instructions on how to identify and dispose of the product. DLA Troop Support
posts all ALFOODACTs to the DLA Troop Support Food Safety Web Page and
US Army Veterinary Command’s Lotus Notes ALFOODACT database.
Additionally, DLA Troop Support emails these alerts to all
activities/agencies/individuals, which have requested immediate notification.
The ALFOODACTs are also distributed using Defense Messaging Dissemination
System.
Id.
3
facility, removing and replacing the recalled dairy shake packets, and re-shipping the MREs to
the Government. Wornick complied, recalling and reworking approximately 700,000 cases of
MREs. Despite extensive testing, no salmonella was ever found in any of Wornick’s MREs. See
Houston Casualty’s Mot. Summary J. Ex. 8, Doc. 20-3 at Page ID # 226-27. As it turns out, Lot
#9133, which tested positive for salmonella at Trans-Packer’s New York facility, was not sent to
Wornick. There have been no reports of any physical symptoms of bodily injury, sickness,
disease or death from the consumption of Wornick’s MREs.
C. Wornick’s Claim and Subsequent Lawsuit
After recalling and reworking approximately 700,000 cases of MREs, Wornick made a
claim to Houston Casualty under its Malicious Product Tampering/Accidental Product
Contamination Insurance Policy (the “Policy”). Houston Casualty denied Wornick’s claim for
coverage, finding that Wornick’s losses did not directly result from an “Accidental Product
Contamination,” as that term is defined in the Policy.
Following Houston Casualty’s denial of Wornick’s claim under the Policy, Wornick filed
this suit. In its Complaint, Wornick asks the Court to declare that its losses from the recall are
covered under the terms of the Policy. Wornick also alleges that Houston Casualty breached its
contract with Wornick and acted in bad faith when it denied coverage.
On September 24, 2012, Houston Casualty moved for summary judgment on all three
claims. As to the breach of contract and declaratory judgment claims, Houston Casualty argues
there is no coverage under the Policy because there was no Accidental Product Contamination.
As to the bad faith claim, Houston Casualty argues that this claim should fail for the same
reasons that the breach of contract and declaratory judgment claims should fail—namely, that
there is no coverage under the Policy. Additionally, Houston Casualty argues that Wornick has
4
not offered any evidence that Houston Casualty failed to properly investigate the claim or acted
unreasonably in processing it.
On September 25, 2012, Wornick moved for partial summary judgment on the
declaratory judgment claim and the breach of contract claim. Wornick argues that the
Accidental Product Contamination definition was met and, thus, coverage exists, for four
reasons: (1) the Policy’s publicity coverage was triggered by three Government-issued reports
which implied that the MREs were contaminated; (2) the MREs were impaired for purposes of
the Policy because the potential salmonella contamination diminished the MREs’ value and
quality; (3) the MREs failed to meet “product specifications” because they contained dairy shake
packets subject to a recall; and (4) the MREs were contaminated or “corrupted by association”
because they contained dairy shake packets subject to a recall.
II.
SUMMARY JUDGMENT STANDARD
A court must grant “summary judgment 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.” Fed.
R. Civ. P. 56(a). In making this determination, “the court must view the evidence in the light
most favorable to the non-moving party and draw all reasonable inferences in its favor.”
Tysinger v. Police Dep’t of City of Zanesville, 463 F.3d 569, 572 (6th Cir. 2006). The ultimate
inquiry is “whether the evidence presents a sufficient disagreement to require submission to a
jury or whether it is so one-sided that one party must prevail as a matter of law.” Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 251–52 (1986). But “the mere existence of some alleged
factual dispute between the parties will not defeat an otherwise properly supported motion for
summary judgment; the requirement is that there be no genuine issue of material fact.” Id. at
247–48. A genuine issue for trial exists when there is sufficient “evidence on which the jury
5
could reasonably find for the [nonmoving party].” Id. at 252. The standard of review for crossmotions for summary judgment does not differ from the standard applied when a motion is filed
by only one party to the litigation. Taft Broad. Co. v. United States, 929 F.2d 240, 248 (6th Cir.
1991).
The fact that both parties have moved for summary judgment does
not mean that the court must grant judgment as a matter of law for
one side or the other; summary judgment in favor of either party is
not proper if disputes remain as to material facts []. Rather, the
court must evaluate each party’s motion on its own merits, taking
care in each instance to draw all reasonable inferences against the
party whose motion is under consideration.
Id. (quoting Mingus Constructors, Inc. v. United States, 812 F.2d 1387, 1391 (Fed. Cir. 1987)).
III.
ANALYSIS
A. Policy Interpretation
Under Ohio law,2 the interpretation of an insurance contract is a question of law. United
Nat’l Ins. Co. v. SST Fitness Corp., 182 F.3d 447, 449 (6th Cir. 1999); Lager v. Miller–Gonzalez,
120 Ohio St. 3d 47, 896 N.E.2d 666, 669 (2008). “In interpreting the insurance policy, ‘words
and phrases used in an insurance policy must be given their natural and commonly accepted
meaning.’” United Nat’l Ins. Co., 182 F.3d at 449-50 (quoting United States Fidelity & Guar.
Co. v. Lightning Rod Mut. Ins. Co., 80 Ohio St. 3d 584, 687 N.E.2d 717, 719 (1997)). “The
mere absence of a definition in an insurance contract does not make the meaning of the term
ambiguous.” Nationwide Mut. Fire Ins. Co. v. Guman Bros. Farm, 73 Ohio St. 3d 107, 108, 652
N.E.2d 684, 686 (1995). “However, if provisions are susceptible of more than one interpretation,
they must be construed strictly against the insurer and liberally in favor of the insured.”
2
The parties agree that Ohio law applies to the declaratory judgment and breach of contract
claims.
6
Schwartz Manes Ruby and Slovin, L.P.A. v. Monitor Liability Managers, LLC, 483 F. App’x 241,
244 (6th Cir. 2012) (citing Westfield Ins. Co. v. Hunter, 128 Ohio St. 3d 540, 948 N.E.2d 931,
935 (2011)).
B. The Policy
In July of 2008, Houston Casualty issued to Wornick a Malicious Product
Tampering/Accidental Product Contamination Insurance Policy (the “Policy”). Compl. Ex. A,
Doc. 1-1 at Page ID # 14. The Policy covered the period from July 10, 2008 to July 10, 2009.
Id. The Policy states that “[t]he Company agrees to indemnify the Named Insured for LOSS
resulting directly from an ACCIDENTAL PRODUCT CONTAMINATION first discovered by
the Named Insured during the Policy Period.” Id. at Page ID # 17.
The Policy defines “Accidental Product Contamination” as
(1) Any accidental or unintentional contamination, impairment or mislabeling
(including mislabeling of instructions for use) during the manufacture,
blending, mixing, compounding, packaging, labeling, preparation, production
or processing (or storage on the premises of the Named Insured), of the
Named Insured’s PRODUCTS3 (including their components), or PUBLICITY
implying such, or
(2) Fault in design specification or performance of the Named Insured’s
PRODUCT(S)
provided always that the consumption or use of the Named Insured’s
CONTAMINATED PRODUCT(S)4 has, within 120 days of such consumption or
use, either resulted, or may likely result, in: (1) physical symptoms of bodily
3
The Policy defines Products as “[a]ll goods or products (finished or in process), including all
ingredients or components thereof, manufactured, distributed, handled by the Named Insured (or
manufactured by a contract manufacturer for the Named Insured) and which are (or will be)
available for sale by the Named Insured.” Id. at Page ID # 19. The parties do not dispute the
meaning of the word Products
4
Contaminated Product(s) are “[t]he Named Insured’s PRODUCT(S) which have been the
subject of an ACCIDENTAL PRODUCT CONTAMINATION – excluding any in-ground crops,
land and/or livestock.” Id. at Page ID # 20. The parties do not dispute the meaning of the term
Contaminated Product.
7
injury, sickness or disease or death of any person(s) and/or (2) physical damage to
(or destruction of) tangible property, including animals and/or livestock – other
than PRODUCT(S) of the Named Insured.
Id. at Page ID # 19. Also relevant here, the Policy defines “Publicity” as
The reporting of an actual or alleged ACCIDENTAL PRODUCT
CONTAMINATION during the Policy Period in local, regional or national media
(including but not limited to radio, television, newspapers, magazines or the
Internet) or any governmental publication where the Named Insured’s
PRODUCT(S) and the Named Insured are specifically named.
Id. at Page ID # 20.
C. Coverage Issues Under the Policy
Both parties move for summary judgment on the coverage issues (encompassing both the
declaratory judgment and breach of contract claims). The crux of the coverage issues is the
interpretation of Accidental Product Contamination as it is defined in the Policy. Specifically,
the parties’ motions require the Court to parse through the definition of Accidental Product
Contamination in order to resolve the following issues: (i) did the recall of dairy shake packets
qualify as a “contamination”; (ii) did the recall of dairy shake packets constitute an
“impairment”; (iii) did the inclusion of recalled dairy shake packets in the MREs amount to a
“fault in design specification or performance”; and (iv) did the Government’s “Do Not
Consume” orders and the DLA report trigger the Policy’s Publicity coverage. Additionally, even
if Wornick can show contamination, impairment, fault in design specification, or publicity, the
Policy also requires a showing that the “consumption or use of the [MREs] has . . . either
resulted, or may likely result, in . . . physical symptoms of bodily injury, sickness or disease or
death . . . .” Id. at Page ID # 19. Because both parties have moved for summary judgment, the
Court must determine whether disputes remain as to material issues of fact on the coverage
issues.
8
i.
Contamination
To recover under the Policy, Wornick must prove that it suffered an Accidental Product
Contamination. Again, the Policy defines Accidental Product Contamination as follows:
(1) Any accidental or unintentional contamination, impairment or
mislabeling (including mislabeling of instructions for use) during the
manufacture, blending, mixing, compounding, packaging, labeling,
preparation, production or processing (or storage on the premises of
the Named Insured), of the Named Insured’s PRODUCTS (including
their components), or PUBLICITY implying such, or
(2) Fault in design specification or performance of the Named Insured’s
PRODUCT(S)
provided always that the consumption or use of the Named Insured’s
CONTAMINATED PRODUCT(S) has, within 120 days of such consumption or
use, either resulted, or may likely result, in: (1) physical symptoms of bodily
injury, sickness or disease or death of any person(s) and/or (2) physical damage to
(or destruction of) tangible property, including animals and/or livestock – other
than PRODUCT(S) of the Named Insured.
Id. at Page ID # 19 (emphasis added). The Policy does not define the term “contamination.”
The parties offer differing interpretations.
Wornick suggests a broad definition of the term, citing Merriam-Webster, which defines
“contaminate” as “to soil, stain, corrupt, or infect by contact or association.” Webster’s Third
New International Dictionary 491 (1993). According to Wornick, the MREs were “corrupted by
association” (i.e., contaminated) because they contained dairy shake packets that were subject to
a recall.
Houston Casualty’s argument, by contrast, is premised on the position that a recall of a
product’s ingredients, alone, does not qualify as a contamination. Reading the Policy as a whole,
Houston Casualty argues, there must be an “actual contamination” (i.e., “a test positive for
salmonella”) of the insured’s product to trigger coverage.
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For the reasons that follow, the Court finds that Wornick did not suffer a “contamination”
under the terms of the Policy. The Policy does not define “contamination,” so the Court will
construe the term in accordance with its “natural and commonly accepted meaning.” See United
Nat. Ins. Co., 182 F.3d at 449–50. “To ascertain the common meanings of terms or phrases not
defined in the language of contracts, Ohio courts routinely turn to dictionaries.” Textileather
Corp. v. GenCorp Inc., 697 F.3d 378, 382 (6th Cir. 2012). “Contamination” and the verb
“contaminate” have slightly different meanings, depending on which dictionary is consulted.
Significantly, all but one consulted by the Court define “contamination” in terms of a product’s
contact or mixture with a pollutant. For example, Black’s Law Dictionary defines
“contamination” as the “[c]ondition of impurity resulting from mixture or contact with foreign
substance.” Black’s Law Dictionary 318 (6th ed. 1990). The Oxford English Dictionary defines
“contaminate” as “to render impure by contact or mixture; to corrupt, defile, pollute, sully, taint,
infect.” Oxford English Dictionary (2d ed. 1989). See also, e.g., American Heritage Dictionary
of the English Language (3d ed. 1992) (defining “contaminate” as “[t]o make impure or unclean
by contact of mixture.”); Webster’s II New College Dictionary (2001) (same). Merriam-Webster
provides the broadest definition, defining “contaminate” as “[t]o soil, stain, corrupt or infect by
contact or association” or “to render unfit for use by the introduction of unwholesome or
undesirable elements.” Webster’s Third New International Dictionary 491 (1993).
These multiple dictionary definitions of “contamination” (or “contaminate”) must be
construed in a manner that is consistent with the term’s use in the Policy. Considering the
language of the Policy as a whole, the Court is persuaded for two reasons that the term
“contamination” does not encompass a product that is “corrupted by association,” as Wornick
suggests, but requires that the product be soiled, stained, corrupted, infected, or otherwise
10
rendered impure by contact or mixture. See Webster’s Third New International Dictionary 491
(1993); Black’s Law Dictionary 318 (6th ed. 1990); Oxford English Dictionary (2nd ed. 1989).
Language within the definition of Accidental Product Contamination reinforces this
interpretation. First, the Policy requires that the contamination occur during the “manufacture,
blending, mixing, compounding, packaging, labeling, preparation, production or processing” of
the insured’s product (or its ingredients or components).5 This requirement suggests that the
product must come in contact with some sort of substance or foreign object.
Second, in light of the Policy’s requirement that the consumption or use of the product
has “resulted, or may likely result in . . . physical symptoms of bodily injury, sickness or disease
or death,” Doc. 1-1 at Page ID # 19, it is natural to interpret the term “contamination” is
interpreted to mean that the product has come in contact with some sort of contaminate.
Wornick’s interpretation of the term contamination, which would permit corruption by
association, does not fit within the broader definition of Accidental Product Contamination,
which requires a risk of bodily injury, sickness or disease.
In sum, the language of the Policy does not allow for Wornick’s broad interpretation.
In the Policy at issue, the term “contamination” requires that the insured’s product be soiled,
stained, corrupted, infected, or otherwise made impure by contact or mixture. There is no
evidence before the Court that Wornick’s products (including their ingredients or components)
5
Use of the language “ingredients or components” indicates that the Policy covers instances
where the insured incorporates a contaminated ingredient into the insured’s product. However,
that phrase is not helpful to Wornick because it is undisputed that (1) salmonella contamination
was only found in one lot of dairy shake packets (Lot #9133) and (2) none of the product in Lot
#9133 was sold to Wornick. See Wornick’s Response to Proposed Undisputed Facts, Doc. 24-1
at Page ID # 653-54. Thus, Wornick did not incorporate a contaminated ingredient into the
MREs.
11
came into contact with salmonella. As such, the MREs have not been “contaminated” within the
meaning of the Policy.
ii.
Impairment
Wornick also argues that the recall of dairy shake packets allows for a finding that the
MREs fall within the scope of the Policy because they have been “impaired” under the terms of
the Policy. The Court disagrees.
Accidental Product Contamination is
(1) Any accidental or unintentional contamination, impairment or
mislabeling (including mislabeling of instructions for use) during the
manufacture, blending, mixing, compounding, packaging, labeling,
preparation, production or processing (or storage on the premises of
the Named Insured), of the Named Insured’s PRODUCTS (including
their components), or PUBLICITY implying such, or
(2) Fault in design specification or performance of the Named Insured’s
PRODUCT(S)
provided always that the consumption or use of the Named Insured’s
CONTAMINATED PRODUCT(S) has, within 120 days of such consumption or
use, either resulted, or may likely result, in: (1) physical symptoms of bodily
injury, sickness or disease or death of any person(s) and/or (2) physical damage to
(or destruction of) tangible property, including animals and/or livestock – other
than PRODUCT(S) of the Named Insured.
Id. at Page ID # 19 (emphasis added). As with the term “contamination,” the Policy does not
define “impairment.” Again, the parties offer differing interpretations.
Wornick argues that the Court should define the term broadly to include circumstances
that diminish the product’s value. Wornick’s position is that the contamination of dairy shake
packets constitutes an impairment under the Policy because the MREs’ value was diminished as
a result of the subsequent recall of dairy shake packets. Houston Casualty argues that Wornick’s
12
broad interpretation of the term disregards the context of the Policy and that “impairment”
should be defined in terms of a defect or flaw in the product itself.
Houston Casualty relies heavily on Ruiz Food Prods., Inc. v. Catlin Underwriting U.S.,
Inc., et al., No. 1:11-cv-00889, 2012 WL 4050001 (E.D. Cal. Sept. 13, 2012), wherein the
District Court interpreted the term “impairment” in the context of an accidental product
contamination policy under strikingly similar circumstances. Ruiz produces frozen Mexican
food products for distribution. Id. at *1. One of Ruiz’s products, the Tornado (a ready-to-eat
beef product similar to a burrito), contains a beef spice mix; the beef spice mix contains
hydrolyzed vegetable protein (“HVP”). Id. HVP is manufactured by another company, Basic
Food Flavors (“Basic”). Id. Basic issued a recall for its HVP products after the FDA detected
salmonella on Basic’s food processing equipment and in a lot of finished HVP. Id. Ruiz then
issued a recall of its Tornado products because it incorporated HVP that was subject to the recall.
Id. at *2. After extensive testing, no salmonella was found in any of Ruiz’s Tornado products.
Id.
Ruiz submitted a claim under an accidental contamination policy issued by Catlin.
Similar to the policy at issue here, the Ruiz policy provided coverage for “any accidental or
unintentional contamination, impairment or mislabeling of an Insured product(s) . . . .” Id.
Catlin denied coverage for the claim after discovering that Ruiz’s Tornado product was not
actually contaminated with salmonella. Id. at *3. Ruiz argued that the recall of HVP, which
then required the recall of its Tornado product, constituted an “impairment” for purposes of the
policy. The court disagreed, finding that “impairment must be to the product itself, and not as a
result of the collateral circumstances surrounding the product.” Id. at *10. Citing Black’s Law
Dictionary, the court determined that “[t]he mere potential contamination of Ruiz’ ingredients
13
does not result in an ‘Insured product’ being ‘damaged, weakened or diminished,’ and also does
not result in a ‘diminish[ed] value’ of the product itself.’” Id. The court further stated:
The Policy is a “Product Contamination Insurance Policy” and is
not a recall insurance policy. The Policy covered the product.
Some defect in the product itself is required to trigger coverage . . .
The “potential” of a defect in a product does not “impair” the
product itself. Any interpretation of “impairment” to incorporate
“recall,” without a concomitant taint in the product, is a strained
and unreasonable interpretation.
Id.
The Court agrees with the reasoning in Ruiz. Construing the Policy as a whole, it is clear
that neither the recall of dairy shake packets nor the inclusion in the MREs of diary shake
packets that would later be subject to a recall constitute an “impairment” as that term is used in
the definition of Accidental Product Contamination in this specific policy. Rather, “impairment”
should be interpreted more narrowly to mean damaged, weakened, or diminished due to a defect
or flaw in the product itself. Black’s Law Dictionary defines the noun “impairment” as: “[t]he
fact or state of being damaged, weakened, or diminished.” Black’s Law Dictionary (9th ed.
2009). The verb “impair” means “[t]o diminish the value of (property or a property right).” Id.
See also Webster’s Third New International Dictionary 1131 (1993) (“diminish in quality, value,
excellence, or strength.”). But, as with the term “contamination,” “impairment” must be read in
the context of the Policy. The “impairment” must occur “during the manufacture, blending,
mixing, compounding, packaging, labeling, preparation, production or processing” of the
insured’s product and the “impairment” must have “resulted, or may likely result in . . . physical
symptoms of bodily injury, sickness or disease or death.” Doc. 1-1 at Page ID # 19. As in Ruiz,
these two requirements indicate “that the impairment must be to the product itself, and not as a
result of the collateral circumstances surrounding the product.” 2012 WL 4050001 at *10. In a
14
vacuum, the term impairment could encompass anything that diminished the value of the
insured’s product; however, the term is not reasonably susceptible to this meaning when read in
the context of the Policy as a whole. Accordingly, the Court finds that the MREs were not
“impaired” within the meaning of the Policy.
iii.
Fault in Design Specification or Performance
A “fault in design specification or performance” of the MREs also could amount to an
Accidental Product Contamination under the Policy, so long as the “consumption or use of the
[MREs] . . . [has] resulted, or may likely result in . . . physical symptoms of bodily injury,
sickness or disease or death.” The Policy, Doc. 1-1 at Page ID # 19.
Wornick argues that the MREs failed to meet design specifications as a result of the
contamination incident and subsequent recalls of NFDM and dairy shake packets. That is, in its
contract with the Government, Wornick warranted that the MREs were “free from defects in
material or workmanship.” See Doc. 22-27 at Page ID # 568. When the NFDM and dairy shake
packets were recalled, the Government “determined that the MREs did not meet this
requirement” and required Wornick to rework approximately 700,000 cases of MREs. Wornick
Mot., Doc. 22-29 at Page ID # 605. Thus, Wornick claims that the MREs suffered from a “fault
in design specification” because they were “rejected” by the Government on account of the
recall.
Houston Casualty argues that the MREs did not suffer from a “fault in design
specification or performance” merely because one component of the MREs was recalled and the
Government required Wornick to rework the MREs.
In their cross-motions, responses, and replies, the parties devote four paragraphs to this
argument. Consequently, the evidence related to this argument is sparse and consists of the
15
following: (1) Wornick’s contract with the Government contains a clause warranting that “all
supplies . . . [will] be free from defects in material or workmanship and will conform with all
requirements of this contract” (Clause 52.246-9P35 Warranty of Supplies);6 (2) on July 21, 2009,
the Government informed Wornick of its intent to invoke the Warranty of Supplies clause after
the NFDM and dairy shake packet recalls;7 (3) on September 2, 2009, the Government invoked
the terms of a different contractual provision (Clause 52.211-9P36 FDA Compliance)8 and
required Wornick to rework a substantial number of MREs;9 (4) in a letter dated September 4,
2009, Wornick’s counsel wrote to the DLA and contested the Government’s invocation of
contractual provisions and remedies, making repeated reference to the “specifications and
performance requirements” for the MREs;10 and (5) included in the Policy’s definition for
Accidental Product Contamination is a “fault in design specification or performance of the
Named Insured’s PRODUCT(S) . . . .”11
The Court finds that the evidence, albeit scant, is sufficient to create a genuine issue of
fact on the question of whether the MREs suffered a fault in design specification or performance
amounting to an Accidental Product Contamination. While the Policy defines Accidental
Product Contamination to include situations where there is a “fault in design specification or
performance,” the Policy does not further define those terms. Doc. 1-1 at Page ID # 19. The
record indicates that the contract between Wornick and the Government contains certain
“specifications” with regard to the MREs and their component parts, though it is unclear what
6
Doc. 22-27 at Page ID # 568 (email containing full text of warranty clause).
Doc. 22-8 at Page ID # 288 (letter dated 9/25/2009).
8
The text of Clause 52.211-9P36 has not been provided to the Court.
9
Doc. 22-11 at Page ID # 300 (letter dated 9/2/2009).
10
Doc. 20-3 at Page ID # 225.
11
Doc. 1-1 at Page ID # 19.
7
16
those specifications require. See Doc. 20-3 at Page ID # 225. The record indicates that the
Government “rejected” the MREs containing recalled dairy shake packets, citing an “FDA
Compliance” clause. Id; Doc. 22-11 at Page ID # 300. The lack of proof with respect to the
“specifications” in the contract between Wornick and the Government, the FDA Compliance
clause in that same contract, and the parties’ intent with respect the phrase “fault in design
specification or performance” in the Policy precludes a finding in favor of either party.
iv.
Publicity
Wornick’s final argument concerning the definition of Accidental Product Contamination
involves the Policy’s publicity coverage. According to the Policy, publicity also can amount to
an Accidental Product Contamination:
ACCIDENTAL PRODUCT CONTAMINATION shall mean:
(1) Any accidental or unintentional contamination, impairment or
mislabeling (including mislabeling of instructions for use) during the
manufacture, blending, mixing, compounding, packaging, labeling,
preparation, production or processing (or storage on the premises of
the Named Insured), of the Named Insured’s PRODUCTS (including
their components), or PUBLICITY implying such, or
(2) Fault in design specification or performance of the Named Insured’s
PRODUCT(S)
provided always that the consumption or use of the Named Insured’s
CONTAMINATED PRODUCT(S) has, within 120 days of such consumption or
use, either resulted, or may likely result, in: (1) physical symptoms of bodily
injury, sickness or disease or death of any person(s) and/or (2) physical damage to
(or destruction of) tangible property, including animals and/or livestock – other
than PRODUCT(S) of the Named Insured.
Doc. 1-1 at Page ID # 19 (emphasis added). The Policy then defines “Publicity” as
The reporting of an actual or alleged ACCIDENTAL PRODUCT
CONTAMINATION during the Policy Period in local, regional or national media
(including but not limited to radio, television, newspapers, magazines or the
17
Internet) or any governmental publication where the Named Insured’s
PRODUCT(S) and the Named Insured are specifically named.
Id. at Page ID # 20 (emphasis added).
Wornick argues that three Government reports triggered the Policy’s publicity
requirement: (1) ALFOODACT 131-2009 (“AFA 131”); (2) ALFOODACT 139-2009 (“AFA
139”); and (3) the DLA report.
Houston Casualty first argues that neither AFA 131, AFA 139, nor the DLA report are
“governmental publications” and, thus, they do not meet the definition of Publicity and therefore
cannot be the foundation for an Accidental Product Contamination. Houston Casualty then
argues that even if AFA 131, AFA 139, and the DLA report are governmental publications,
Wornick still cannot satisfy the “consumption and use” requirement12 in the definition of
Accidental Product Contamination because the MREs did not contain salmonella and, therefore,
posed no actual threat. Finally, Houston Casualty argues that Wornick’s losses did not “result[]
directly” from either AFA 131, AFA 139, or the DLA report, as required by the Policy.13
Contrary to Houston Casualty’s contentions, the record is clear on one point: all three
sources, AFA 131, AFA 139, and the DLA report, are “governmental publications” for purposes
of the definition of Publicity. From there, however, the record is less clear.
12
The phrase requiring “the consumption or use of the Named Insured’s CONTAMINATED
PRODUCT(S) has, within 120 days of such consumption or use, either resulted, or may likely
result, in: (1) physical symptoms of bodily injury, sickness or disease or death of any person(s)
and/or (2) physical damage to (or destruction of) tangible property, including animals and/or
livestock – other than PRODUCT(S) of the Named Insured.” Id. at Page ID # 19.
13
Again, the Policy states that “[t]he Company agrees to indemnity the Named Insured for
LOSS resulting directly from an ACCIDENTAL PRODUCT CONTAMINATION first
discovered by the Named Insured during the Policy Period.” Id. at Page ID # 17 (emphasis
added).
18
Houston Casualty’s argument concerning the “consumption and use” requirement
presents an interesting question that, without more evidence, the Court simply cannot answer.
Houston Casualty is correct that the Policy requires Wornick to prove that “the consumption or
use of the [MREs] has . . . either resulted, or may likely result, in . . . physical symptoms of
bodily injury, sickness or disease or death,” even in the case of a publicity claim. However, the
Court finds this requirement inconsistent with the Policy’s publicity coverage. The Policy
provides coverage for situations where losses result from publicity implying that an accidental or
unintentional contamination, impairment or mislabeling has occurred. The definition of
Publicity includes “reporting of an actual or alleged” Accidental Product Contamination,
expanding coverage to situations where actual contamination, impairment, or mislabeling has not
yet been demonstrated. Doc. 1-1 at Page ID # 20. If the “consumption and use” provision
requires likely or actual physical symptoms or physical damage in the event that there is merely
publicity that implies contamination of the product, the inclusion of the word “alleged” would be
meaningless. See Affiliated FM Ins. Co. v. Owens–Corning Fiberglas Corp., 16 F.3d 684, 686
(6th Cir.1994) (applying Ohio law) (“In construing a contract, a court . . . must give meaning to
every paragraph, clause, phrase and word, omitting nothing as meaningless, or surplusage[.]”).
Moreover, the Court also finds that material issues of fact exist as to whether or not
Wornick’s losses directly result from the publication of AFA 131, AFA 139, and the DLA report.
Houston Casualty argues that Wornick’s losses stemmed from the Plainview recall and the
Government’s decision to require that Wornick rework the MREs, not from any publication. In
support of this argument, Houston Casualty cites a letter directed to Wornick from the
Government which indicates that the Government took action against Wornick based on the
Plainview recall. See Doc. 22-8 at Page ID # 288. Conversely, the record indicates that at least
19
one of the three publications—AFA 131, which was issued July 1, 2009—was published prior to
the Government’s letter notifying Wornick of its intent to invoke the breach of warranty clause.
See Doc. 22-6 at Page ID # 279 and Doc. 22-8 at Page ID # 288. Thus, a dispute remains as to
whether Wornick’s losses directly result from one of the publications.
D. Bad Faith
Houston Casualty has moved for summary judgment on Wornick’s bad faith claim,
arguing that the bad faith claim should fail for the same reasons that the breach of contract and
declaratory judgment claims should fail—namely, that there is no coverage under the Policy.
Because the Court is denying both summary judgment motions on the substantive coverage
claims (Counts I and II), the Court concludes that it is more prudent to deny summary judgment
as to the bad faith claim until the breach of contract and declaratory judgment claims can be
resolved.
IV.
CONCLUSION
In sum, while the Court finds that the MREs have not been “contaminated” or
“impaired” within the meaning of the Policy, issues of fact remain as to:
(1) whether the MREs suffered a fault in design specification or performance amounting
to an Accidental Product Contamination;
(2) whether AFA 131, AFA 139, and/or the DLA report provide a basis for coverage
under the Policy’s Publicity coverage; and
(3) whether Houston Casualty acted in bad faith in denying Wornick’s claims.
20
The Court DENIES both Houston Casualty’s Motion for Summary Judgment (Doc. 20)
and Wornick’s Motion for Partial Summary Judgment (Doc. 22).
IT IS SO ORDERED.
S/Susan J. Dlott______________
Chief Judge Susan J. Dlott
United States District Court
21
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