H.J. HEINZ COMPANY v. STARR SURPLUS LINES INSURANCE COMPANY
Filing
209
MEMORANDUM ORDER denying 119 Motion for Summary Judgment. Signed by Judge Arthur J. Schwab on 11/13/2015. (eet)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
H.J. HEINZ COMPANY,
Plaintiff/CounterclaimDefendant,
15cv0631
ELECTRONICALLY FILED
v.
STARR SURPLUS LINES INSURANCE
COMPANY,
Defendant/CounterclaimPlaintiff.
Memorandum Order re: Motion for Summary Judgment
This case centers on an insurance coverage dispute between Plaintiff/CounterclaimDefendant, H.J. Heinz Company (“Heinz”), and its insurance provider, Defendant/CounterclaimPlaintiff, Starr Surplus Lines Insurance Company (“Starr”). Pending before this Court is Starr’s
motion for summary judgment (doc. no. 119) regarding its claim for rescission of the insurance
policy which is being decided as “Phase One” of this matter (doc. no. 125). After careful
consideration of the motion (doc. no. 119), response (doc. no. 179), and reply thereto (doc. no.
187), and all supporting documents, Starr’s motion will be DENIED, and Phase One of this
matter shall proceed to trial.
I.
Factual Background
A. Heinz’s Application for Insurance
In their submissions in support of and opposition to this motion, the Parties have set forth
221 paragraphs in their concise statements of material facts (95 from Starr and 126 from Heinz)
and the Parties dispute nearly all of them with citations to record evidence. Doc. Nos. 129; 180;
and 188. The Court has gleaned the following brief factual summary from the Parties’
submissions.
It is undisputed that Heinz submitted an application for insurance through its broker,
Aon, to Starr in late May 2014. Starr Statement of Facts (doc. no. 121 at ¶¶ 9-10); Heinz’s
Response to Starr’s Statement of Facts (doc. no. 180 at ¶¶ 9-10).1 Ian Ascher, Heinz’s Group
Leader of Global Insurance signed the application2 on May 28, 2014. Doc. No. 122, Exh. 6.
Starr points to Heinz’s responses to two questions in the application. Question 6e asked:
Has the Applicant, its premises, products or processes been the
subject of recommendations or complaints made by any
recommendations or complaints made by any regulatory body,
internal or third party audit over the past 12 months or have any
fines or penalties been assessed against the Applicant by any food
or similar regulatory body over the last 3 years. If YES, please
provide details as well as remedial action completed.
Heinz responded, “No.” Question 11a asked:
In the last 10 years has the Applicant experienced a withdrawal,
recall or stock recovery of any products or has the Applicant been
responsible for the costs incurred by a third party in recalling or
withdrawing any products, whether or not Insured or Insurable
under an accidental and malicious contamination policy? If YES,
please complete the attached supplementary loss information sheet.
Heinz did not respond to this question on the application. In the cover email, Heinz’s
Aon broker stated: “We will provide updated loss information under separate cover.” Id. On
June 6, 2014, Aon sent another XL Insurance form3 signed by Ascher on May 28, 2014 which
1
The Court acknowledges Heinz’s reservations that it did not submit an application solely to Starr nor did it use a
Starr application form. Id.
2
Heinz submitted an “XL Insurance” application form (doc. no. 131, Exh. 6) that is similar to, but not identical to its
own insurance application form (doc. no. 131, Exh. 7).
3
The first submission apparently omitted every other page of the application.
included a spreadsheet of the company’s recall losses from 1998 to 2013 and a loss ratio
analysis. Doc. No. 122, Exh. 11.
B. Alleged Misrepresentations
Starr summarizes the misrepresentations allegedly made by Heinz in its application for
insurance as:
1. Heinz suffered four separate accidental contamination losses in
the first half of 2014. None was disclosed to Starr during the
application process.
2. Of the four 2014 events, one was a loss of about $12 million
arising from the production and sale in China of baby cereal
contaminated with levels of Nitrite that greatly exceeded . . .
Chinese Government limits on Nitrite contamination in baby
food. . . .
3. [Three other 2014 losses]: a recall of baby food in Canada
(then estimated to be $600,000-$900,000), a recall of
mislabeled pesto dip in New Zealand (then estimated to be
$57,000), and a recall of canned spaghetti in New Zealand
(then estimated to be $250,000). The Canadian and one or
both of the New Zealand losses followed complaints by the
regulatory authorities in those countries. . . .
4. In 2008, Heinz’s San Diego facility, and product manufactured
in that facility, were found to be contaminated with Listeria. . .
. The facility was closed by order of the United States
Government, twice, and the affected product was destroyed.
The event was identified in the Heinz loss history that was
submitted to Starr, but the “Gross Loss” associated with the
event was said to be a null ($0) loss. In fact, it resulted in a
$12.7 million loss. . . .
5. In July 2013, Heinz was fined by a Chinese food safety agency
for a separate violation of Chinese food safety law. Heinz
disclosed the existence of that 2013 loss, but . . . Heinz did not
disclose the existence of the fine.
Doc. no. 128 at 7-8 (internal citations omitted).
Heinz disputes whether any misrepresentations - - or omissions - - were made in its
application for insurance or in the contemporaneous discussions between its broker, Aon, and
Starr prior to Starr offering and issuing the insurance policy to Heinz. Doc. No. 179 at 2-7.
Heinz also disputes that the four discreet items identified by Starr as misrepresentations were
material. Doc. No. 179 at 8-13.
Heinz counters that Starr had actual notice of the information Starr contends was falsely
represented or withheld during the application process (doc. do. 179 at 4), and also contends that
Starr was on notice that it was receiving information for a defined period - - 1998 to 2013 - - and
that any omission of more recent information was due to Starr’s failure to inquire. Doc. No. 179
at 3.
II.
Standard of Review
A. Summary Judgment Standard
Summary judgment is only proper when there is no genuine issue of material fact in the
case and the moving party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c)(2);
Horn v. Thoratec Corp., 376 F.3d 163, 165 (3d Cir. 2004). In reviewing a motion for summary
judgment, the role of the court is “not to weigh the evidence or to determine the truth of the
matter, but only to determine whether the evidence of record is such that a reasonable jury could
return a verdict for the nonmoving party.” Am. Eagle Outfitters v. Lyle & Scott Ltd., 584 F.3d
575, 581 (3d Cir. 2009). If so, summary judgment will not be granted.
The district court must view all of the facts in the light most favorable to the non-moving
party, who is entitled to “every reasonable inference that can be drawn from the record,” and if
“there is a disagreement about the facts or the proper inferences to be drawn from them, a trial is
required to resolve the conflicting versions of the parties.” Reedy v. Evanson, 615 F.3d 197, 210
(3d Cir. 2010) (quoting Merkle v. Upper Dublin Sch. Dist., 211 F.3d 782, 788 (3d Cir. 2000) and
Peterson v. Lehigh Valley Dist. Council, 676 F.2d 81, 84 (3d Cir. 1982)). A party cannot,
however, defeat a motion for summary judgment by pointing to fragmentary inferences that
could be massaged to support his or her position. 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).
B. Rescission of Insurance Policy Under New York Law
Section 3105 of New York’s Insurance Law sets forth the basic framework for rescission.
N.Y. Ins. Law § 3105. It states in relevant part that:
No misrepresentation shall avoid any contract of insurance or defeat
recovery thereunder unless such misrepresentation was material.
Id. at § 3105(b)(1).
A misrepresentation is a false statement of past or present fact, “made to the insurer . . . at
or before the making of the insurance contract . . .” N.Y. Ins. Law § 3105(a). Under New York
law, both intentional and unintentional misrepresentations will void a contract of insurance if the
misrepresentation is material. See Matter of Liquidation of Union Indem. Ins. Co. of New York,
674 N.E.2d 313, 320 (N.Y. 1996)(specific intent is not required to rescind an insurance policy;
even “an innocent failure to disclose a material fact is sufficient”)(citation omitted); Mutual Ben.
Life Ins. Co. v. JMR Electronics Corp., 848 F.2d 30, 32 (2d Cir. 1988)(even an innocent
misrepresentation will allow rescission).
The test for materiality of a misrepresentation is codified as:
No misrepresentation shall be deemed material unless knowledge
by the insurer of the facts misrepresented would have led to a
refusal by the insurer to make such contract.
N.Y. Ins. Law § 3105(b).
To show that a misrepresentation is material, the insurer must present proof concerning
its underwriting practices with respect to applicants with similar circumstances and establish
that, but for the misrepresentation, it would have not issued the same policy. Schirmer v. Penkert
840 N.Y.S.2d 796, 799 (N.Y. App. 2d. Dept. 2007). Generally, the question of the materiality of
a misrepresentation is an issue of fact. Fidelity and Guar. Ins. Underwriters, Inc. v Jasam Realty
Corp., 540 F.3d 133 (2d Cir. 2008); Cont’l Cas. Co. v. Marshall Granger & Co., LLP, 6 F. Supp.
3d 380, 390 (S.D.N.Y. 2014) (materiality usually must be determined by the fact-finder).
Conclusory statements by insurance company employees that the policy would not have been
issued will not suffice to prove materiality on a motion for summary judgment. Cont’l Cas. Co.
v. Marshall Granger & Co., LLP, 921 F. Supp. 2d 111, 128 (S.D.N.Y. 2013).
In summary, Starr must prove these elements to state a prima facie claim for rescission
under N.Y. Ins. Law § 3105: (1) that Heinz made a false statement of past or present fact at or
before the making of the insurance contract; and (2) that the representation was material in that
Starr relied upon the misrepresentation(s) and would not have issued the policy but for the
misrepresentation(s). N.Y. Ins. Law § 3105; Cont’l Cas. Co., 6 F. Supp. 3d at 390; Schirmer v.
Penkert, 840 N.Y.S.2d 796, 799 (N.Y. App. 2d Dept. 2007).
III.
Discussion
Judging the facts in the light most favorable to Heinz, as the non-moving party, and after
reviewing the summary judgment materials including thousands of pages of appendices, the
Court finds that numerous factual issues preclude a finding of summary judgment in this case on
the Rescission Counterclaim, and the Affirmative Defenses. Moreover, the question of
materiality of the misrepresentations and/or omissions/silence is appropriately to be resolved by
a fact-finder.
Heinz disputes whether any misrepresentations - - or omissions - - were made in its
application for insurance or in the contemporaneous discussions between its broker, Aon, and
Starr prior to Starr offering and issuing the insurance policy to Heinz. Doc. No. 179 at 2-7.
Even assuming arguendo that the four discreet items identified by Starr as misrepresentations are
false “statement[s] as to past or present fact[,]” summary judgment must be denied because the
Parties dispute the materiality of each item and submit voluminous evidence in support of their
respective positions.
For example, Heinz disputes Starr’s assertion that it prepared its own “loss ratio analysis”
prior to issuing the policy, citing metadata evidence that indicates the loss ratio analysis referred
to by Starr as being created by a “rater” program was created on July 28, 2014 - - a month after
the policy was sold. Doc. No. 180 at ¶¶ 48-51. Heinz disputes that Starr utilized the “rater” in
determining whether to issue the policy at all. Doc. No. 180 at ¶¶ 52-55. Starr’s evidence in
support of this assertion is testimony from its lead underwriter. Id. Heinz’s evidence is metadata
from the document. Id. Although Starr argues in its Reply that the metadata evidence does not
show what Heinz contends, Starr is asking the Court to consider the weight and sufficiency of
this evidence in the light most favorable to it, the moving party - - which the Court must not do
on a motion for summary judgment.
Heinz also points to some evidence, including Starr’s own underwriting policies, which
dispute: 1) whether it is usual and customary for underwriters to utilize the most recent loss
information when conducting a loss analysis and whether Starr’s underwriters were acting
consistently with that custom when analyzing Heinz’s loss information (rendering the most
recent loss information immaterial) (doc. no. 180 at ¶¶ 86-93); and 2) whether Starr’s
underwriters actually consider losses which would not be covered under the policy when
determining whether or not to insure, as asserted by Starr. Doc. No. 180 at ¶¶ 95-98.
These disputes are factual and therefore cannot be resolved by the Court on a motion for
summary judgment.
IV.
Conclusion
Judging the facts in the light most favorable to the non-moving party, the Court finds that
summary judgment is precluded on the Rescission Counterclaim (and Affirmative Defenses)
because numerous genuine issues of material facts must be resolved by an advisory jury. See
Mercantile & General Reinsurance Co. v. Colonial Assur. Co., 604 N.Y.S.2d 492 (N.Y.
1993)(counterclaim for rescission based upon material misrepresentation in breach of contract
action is equitable and, therefore, jury’s verdict is advisory on that issue). Specifically, the issue
of whether the misrepresentations, if any, were material, requires factual findings. Jasam Realty
Corp., 540 F.3d 133 (2d Cir. 2013). The Court will use the jury in an advisory capacity to weigh
the differing versions of the factual narratives. Defendant’s motion for summary judgment (doc.
no. 119) is therefore DENIED.
The Parties shall diligently prepare for trial, set for December 14, 2015, after fully
participating in a second mediation session before neutral David White on December 2, 2015 as
set forth in the Court’s Order at Doc. No. 136. To that end, the Parties shall file by November
17, 2015 at 9:00 a.m. a notice of mediation setting forth the date of the mediation, and the names
and titles of the persons with full settlement authority who will be in attendance.
s/ Arthur J. Schwab
Arthur J. Schwab
United States District Judge
cc: All ECF-Counsel of Record
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