Fresh Express’ Recall Policy Does Not Cover Spinach Recall Absent Actual Contamination

THE SCOOP

The food industry will remember 2006 as the year of the North American E. coli outbreak caused by fresh-bagged spinach.  The FDA issued the broadest advisory in its history regarding a commodity, advising consumers not to eat bagged spinach and recommending that spinach processors take steps to recall the product.  Thereafter, the FDA limited the advisory to spinach grown in certain countries, and ultimately to spinach from certain contaminated ranches identified as the source of the contamination.  The initial Alert, however, resulted in a media frenzy and loss of public confidence in the spinach industry, necessitating – in some companies opinions – the complete withdrawal of spinach from the market and the halting of harvesting and processing of spinach products.  Not surprisingly, some insurance coverage issues remain unresolved.

THE FOOD FIGHT

In Fresh Express Inc. v. Beazley Syndicate, the California Court of Appeals recently tackled some of these insurance issues.  199 Cal. App. 4th 1038 (Cal. Ct. App. 6th App. Dist. 2011).  Fresh Express Incorporated, the nation’s largest bagged spinach producer, sought coverage under its “TotalRecall+” insurance policy for significant loss of business income arising out of the recall, despite the fact that its product was not contaminated.  After Beazley denied Fresh Express’s claim, litigation ensued.  At trial, Fresh Express won a $12 million verdict, representing the policy’s limits for accidental contamination coverage.

The California appellate court reversed the trial court ruling in September 2011 and ruled that Beazley had no obligation to provide accidental contamination coverage.  Specifically, the court ruled that Fresh Express’s claim for lost profits was not a direct result of an error by Fresh Express and therefore did not constitute an “Insured Event” under the plain language of the policy.  the appellate court found no nexus between Fresh Express’s “errors” and the E. coli outbreak/FDA advisory.  Simply, the E. coli outbreak was not an insured event.

Fresh Express appealed the decision, but on January 11, 2011, the Supreme Court of California denied Fresh Express’ petition for review.

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Cozen O’Connor has a national team of attorneys experienced in handling food contamination and product recall coverage matters related to first-party, third-party and specialty policies. The firm also developed a Food, Beverage & Nutritional Products Industry Team to provide advice and counsel to a wide range of companies connected directly and indirectly to the food and beverage industry.
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