Raising “Cane” in Labeling Claims


Class action plaintiffs again allege that the labeling on Chobani’s Greek yogurt violates FDA regulations and misleads consumers, even though a federal court in California dismissed a similar labeling class action earlier this year.  The New York complaint filed in federal court highlights the various ways plaintiffs scrutinize food and beverage labels in these actions that allege a product is not as healthy or natural as advertised.

In Stoltz et al. v. Chobani (No. 1:14-cv-03827), the purported class action plaintiffs allege that Chobani violates FDA regulations and misleads consumers into thinking its yogurt is healthy even though it is “glorified junk food.”  The plaintiffs allege that Chobani accomplishes this by listing “evaporated cane juice” instead of “sugar” in its list of ingredients, by featuring “0%” on its label without context, and even by referring to its product as “Greek.”

“Evaporated Cane Juice” or “Sugar”

The plaintiffs allege that Chobani wrongfully lists “evaporated cane juice” rather than sugar as an ingredient.  This allegation is not novel, and as with similar claims in prior lawsuits, these plaintiffs contend that evaporated cane juice is not the “common or usual name.”  Therefore, the plaintiffs contend, Chobani mislabels its yogurt in violation of the Food, Drug & Cosmetic Act.  Plaintiffs argue that Chobani “should say they sweeten their products with plain old sugar.”

To support these claims, plaintiffs cite to the FDA’s draft guidance wherein the agency stated that referring to sweeteners as “evaporated cane juice” is misleading.  However the agency has yet to issue formal guidance on the matter, having just closed the public comment period in May.  Chobani may argue, among other defenses, that the court should defer to the FDA and dismiss these claims under the doctrine of primary jurisdiction.  We have previously written about other plaintiffs’ errant reliance on this draft guidance, and about the split in whether courts will defer to the FDA’s regulation in this context.

In February, Chobani defeated similar class action allegations, but that victory does not necessarily mean the yogurt manufacturer will enjoy similar success here.  In the appropriately-named Kane et al. v. Chobani (No. 5:12-cv-02425) the U.S. District Court for the Northern District of California—the plaintiff-friendly “food court”—dismissed claims alleging that Chobani mislead its customers by listing “evaporated cane juice” instead of “sugar” as an ingredient.  However, the court emphasized that the plaintiffs’ pleadings failed to adequately allege reliance despite multiple opportunities to do so.  Should the court here find that these pleadings are not similarly flawed, it would decide any dispositive motions on different merits.

“0%” What?

These plaintiffs also allege that Chobani misleads consumers by prominently featuring “0%” on its labels without saying to what “0%” refers.  In actuality, this figure refers to the percentage of milk fat in the yogurt.  However the plaintiffs here allege that the yogurt maker intentionally showcases “0%” without context in order to “piggy-back” on the zero calorie marketing efforts of diet products such as Coke Zero and Pepsi Max, which contain zero calories.  The same plaintiffs simultaneously filed suit against Fage (Stoltz et al. v. Fage [No. 1:14-cv-03826]), one of Chobani’s competitors, with similar “0%” allegations.

Chobani Is Not “Greek” Enough

Not only do plaintiffs allege that Chobani mislabels its yogurt with “evaporated cane juice” and “0%” but they also contend that Chobani’s Greek yogurt is not even “Greek.”  Unconvinced by Chobani’s website explanation of the manufacturing process and qualities of a Greek yogurt, the plaintiffs charge that “Chobani” is derived from the Turkish language, its founder and CEO lives and opened his yogurt plant in New York.  Moreover, they allege that Chobani’s yogurt is not made in Greece and is not made by Greek nationals.

These suits demonstrate that plaintiffs’ attorneys continue to scrutinize food labels and file class actions alleging that a multitude of terms violate FDA regulations and mislead consumers.  Food and beverage manufacturers need to carefully ensure their labels comply with FDA regulations.  These manufacturers should scrutinize their labels to ensure that a “reasonable consumer” will not be misled, and that all claims on the packaging are defensible.  Regardless of whether the labels include “evaporated cane juice,” “all natural,” or other similar content, plaintiffs will latch on to any errors or omissions.  The same holds true when marketing through social media like Facebook and Twitter because even seemingly innocuous posts may serve fodder for plaintiffs when the posts are about these commonly-litigated issues.


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Posted in "All Natural", Class Action, Evaporated Sugar Cane, False Advertising, Food and Drug Administration, Food Drug and Cosmetic Act, Food Manufacturer, Labeling Claims, Preemption, Sugar Substitutes

State GMO Labeling Laws: Friend or Foe?

Despite Vermont’s passage of its GMO labeling law and other states’ consideration of similar statutes, food manufacturers continue to support uniform federal legislation over the hodgepodge state-by-state approach that is developing. Pessimists among us might say that the FDA has been too slow to act and the war has already been lost. A careful review of Vermont’s labeling law, however, reveals that the proverbial glass may, in fact, be half full – at least to manufacturers of products that contain small amounts of GMO ingredients.

Vermont’s groundbreaking law provides that “a manufacturer of a food produced entirely or in part from genetic engineering shall not label the product on the package, in signage, or in advertising as ‘natural, ‘naturally made,’ ‘naturally grown,’ ‘all natural,’ or any words of similar import that would have a tendency to mislead a consumer.” The law, however, contains an exclusion for foods that contain GMO materials that, in the aggregate, do not account for more than 0.9% of the total weight of the processed food. Thus, Vermont’s GMO labeling law may actually provide food manufacturers with a powerful weapon, inasmuch as it seemingly authorizes the use of phrases such as “all natural” when the products at issue contain nominal amounts of GMO ingredients – 0.9% or less.

Tenacious plaintiffs’ lawyers, of course, will argue that the Vermont statute does not in any circumstance authorize the use of the phrase “all natural” but, rather, merely exempts products containing 0.9% or less GMO ingredients from its labeling requirement. Stay tuned, as the foregoing will likely be one of many battlegrounds surrounding Vermont’s statute.

Another half-filled glass lies in California’s GMO labeling bill known as S.B. 1381, which cleared the California Senate Appropriations Committee on May 23, 2014. If passed, the bill will require manufacturers to label certain foods containing GMOs. Like Vermont’s statute, the bill contains a number of exceptions, one of which is for packaged food in which the materials produced through genetic engineering account for 0.9% or less of the total weight. Although the California bill as presently drafted does not contain language that explicitly authorizes the use of phrases such as “all natural” on labels of  products containing nominal amounts of GMOs, it may nevertheless become a valuable weapon in opposing false labeling suits since it establishes a threshold level below which  products need not bear GMO labeling. More importantly, an argument can be made that a reasonable consumer would not expect products labeled as “all natural” to be GMO-free but, rather, to contain 0.9% or less GMO material.

It should be noted that prior attempts to impose GMO labeling legislation in California failed in the face of stiff opposition from industry. Maine and Connecticut have passed GMO labeling laws with similar threshold limits. Those laws, however, are not yet in effect.

Stay tuned. Tomorrow may be a sunny day or perhaps it will rain. It all depends upon your perspective.

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Posted in "All Natural", Class Action, Food and Drug Administration, Food Manufacturer, Genetically Modified Organism, GMO, High Fructose Corn Syrup, Labeling Claims, Regulation

Here We Go Again: Primary Jurisdiction and Deference to FDA

We have been here before:  in an attempt to capitalize on the ambiguities and uncertainties in product labeling, the plaintiffs’ bar focuses on phrases and ingredients for which there is little FDA guidance.  Last year, the industry saw many lawsuits relating to whether a food product which contained genetically modified organisms (GMOs) could be labeled as all natural. Some courts, such as in Cox v. Gruma Corp., No. 12:-cv-6502, 2013 WL 3828800 (N.D. Cal. July 11, 2013), concluded that the question was better answered by FDA and deferred to FDA’s expertise.  Other courts, however, declined to defer to FDA’s authority, reasoning that the issue of whether a label is misleading is within the courts’ experience. See In re Frito-Lay North America, Inc. All Natural Litigation, No. 12-MD-2413, 2013 WL 4647512 (E.D.N.Y. Aug. 29, 2013).   To the dismay of the courts and industry, on January 6, 2014, FDA issued a letter stating it would not decide whether a product containing GMOs could be labeled as “all natural.”

The industry is once again facing this trifecta–an onslaught of suits on a similar issue, ambiguities in FDA’s view on the subject, and a split in authority regarding whether to defer to FDA’s expertise. Once again attempting to exploit uncertainties in FDA’s regulations, plaintiffs are focusing on attacking products’ ingredient lists.  Currently in the spotlight is manufacturers’ use of the term “evaporated cane juice.”  Plaintiffs allege that food and beverage products listed as having evaporated cane juice as an ingredient are mislabeled because, per FDA and Food, Drug & Cosmetic Act regulations, an ingredient is to be listed by its “common or usual name.”  21 C.F.R. 101.4(a)(1). The plaintiffs claim evaporated cane juice is nothing more than sugar.

Attempting to find support from FDA, plaintiffs have referred to FDA’s 2009 draft guidance, entitled “Guidance for Industry: Ingredients Declared as Evaporated Cane Juice.”  The purpose of the draft guidance was to advise the industry of its view that evaporated can juice “is not the common or usual name of any type of sweetener, including dried cane syrup, and to assist manufacturers in appropriately labeling products that contain sweeteners derived from sugar cane syrup.”  It is clear from the face of that document, though, that it is intended to be only a draft, not to be implemented, and not final.

Similar to what the industry saw with respect to primary jurisdiction arguments made with “all natural” claims in 2013, courts are similarly split with respect to whether deference should be given to FDA regarding the use of “evaporated cane juice.”  Recently, on May 20, 2014, Judge Seeborg of the United States District Court for the Northern District of California acknowledged the split in authority within that district.  See Swearingen v. Yucatan Foods, L.P., No. C 13-3544 (N.D. Cal May 20, 2014).  Judge Seeborg noted that, in the last two months alone, there have been at least two cases which have been dismissed pursuant to the primary jurisdiction doctrine, two which have been stayed pursuant to the doctrine, and four which have rejected the application of this defense in evaporated cane juice cases.

This time, however, there is optimism that FDA will provide guidance on the issue.  This renewed sense of hope comes from FDA’s recent indication of its intent to provide formal guidance.  On March 4, 2014, FDA reopened its comment period for its 2009 draft guidance.  For a period of 60 days, FDA was accepting “additional data and information to better understand the basic nature and characterizing properties of the ingredient, the methods of producing it, and the differences between this ingredient and other sweeteners.”  Through the official notice in the Federal Register, 79 Fed. Reg. 12507 (Mar. 5, 2014), FDA acknowledged that it did not reach any final decision on the common or usual name for evaporated cane juice.  FDA further noted that “[a]fter reviewing the comments received, [it] intend[s] to revise the draft guidance, if appropriate, and issue it in final form.”

With dozens of evaporated cane juice cases pending around the country, FDA’s final guidance on the issue will have a significant impact on the food industry.  Those manufacturers who list evaporated cane juice as an ingredient will want to pay close attention to FDA’s anticipated guidance so that their product labeling conforms with FDA regulations and to help immunize themselves from one of these similar suits.  Those of us here at the Food Recall Monitor are watching this issue closely and will provide up-to-date analyses as it becomes available.

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Posted in Class Action, Evaporated Sugar Cane, False Advertising, Food and Drug Administration, Food Manufacturer, Genetically Modified Organism, GMO, Labeling Claims

Leading the Charge: Vermont Mandates GMO Labeling by 2016

While some states have passed GMO-labeling laws which contain a triggering-clause before they go into effect, Vermont has officially become the first state to pass a law, without any triggering-clause, requiring food manufacturers to label food as containing genetically modified organisms (“GMOs”). On May 8, 2014, Vermont Governor Peter Shumlin signed into law a bill which “proposes to provide that food is misbranded if it is entirely or partially produced with genetic engineering and it is not labeled as genetically engineered.”

The new labeling requirements go into effect on July 1, 2016. Food products require certain labels if they: 1) are offered for retail sale in Vermont; and 2) are entirely or partially produced with genetic engineering (which is a defined term under the new law). Vermont’s law requires the following labeling, depending on the nature of the food:

  • if the genetically-engineered food is a packaged raw agricultural commodity, the label must read “produced with genetic engineering”;
  • if the genetically-engineered food is a raw agricultural commodity which is not separately packaged, the retailer must post a label near the food which reads “produced with genetic engineering”;
  • if processed food contains any product or products of genetic engineering, the label must read “partially produced with genetic engineering”; “may be produced with genetic engineering”; or “produced with genetic engineering.”

The new law also prohibits food products produced, in whole or in part, from genetic engineering from being labeled or advertised as “natural,” “naturally made,” “naturally grown,” “all natural,” or any similar words which may mislead a consumer. The law does provide for several exemptions from its labeling requirements, including when the genetically engineered materials in processed foods account for less than 0.9 percent of the product’s total weight.

Challenges to the Vermont law are expected. In fact, the new law establishes a special fund to allow the state to pay costs or liabilities incurred in implementing and administrating the law. Food manufacturers and retailers, however, are admonished to closely examine these new labeling requirements. If challenges are unsuccessful, those who violate the law can face a fine up to $1,000 per day, per product, which is mislabeled.

If food manufacturers sell products in Vermont, it is encouraged that they examine their packages and ingredients to determine whether changes may have to be made before the July 1, 2016 deadline. Cozen O’Connor’s Food and Beverage Industry Team is available to guide manufacturers through the implementation of this new law.

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Posted in "All Natural", Class Action, Drug and Cosmetic Act, Food Manufacturer, Genetically Modified Organism, GMO, High Fructose Corn Syrup, Labeling Claims, Preemption, Regulation

New York State Takes Another Step Toward GMO Food Labeling Requirement

New York State has come one step closer to joining other states seeking to require manufacturers to label foods that contain genetically modified organisms (GMOs). A-3525, a bill sponsored by New York Assemblywoman Linda Rosenthal (D), was first introduced in January 2013 and was approved by the state Assembly’s Committee on Consumer Affairs and Protection yesterday.

And although A-3525 and its companion bill, S-3835, have many hurdles to clear, other states have moved far more quickly in seeking to implement their own GMO labeling laws. For example, it is anticipated that Vermont Governor Peter Shumlin will sign a bill into law today, making Vermont the first state to require food manufacturers to label products containing GMOs. We anticipate that the law, which will not go into effect for another two years, will face significant legal opposition. Other states, such as Connecticut and Maine, have already passed their own labeling laws, however, they will not become effective until after a certain number of states pass similar laws.

These initiatives occur in the backdrop of a sea of class action lawsuits brought by consumers claiming that their “natural” products are mislabeled because they contain GMOs. To this point, the FDA has declined to define the term “natural” and whether a product containing GMOs may be labeled as such.

Opponents of state mandated food labeling requirements, such as the Coalition for Safe and Affordable Food, have consistently pointed to the safety and benefits of GMOs and argued for the need for a federal solution rather than a “50-state patchwork of GMO labeling laws [that] would mislead consumers, raise the price of groceries for American families and do nothing to ensure food safety.”http://coalitionforsafeaffordablefood.org/support-federal-solution.

Cozen O’Connor represents food producers in claims involving product labeling.

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Posted in "All Natural", False Advertising, Genetically Modified Organism, GMO, Labeling Claims

Cozen O’Connor to Attend Snack Food Association’s Legislative Summit

http://www.foodrecallmonitor.com/files/2014/03/Corn1.jpgCozen O’Connor has been at the forefront of defending consumer class action lawsuits involving food and beverage labeling for years.  On April 9th and 10th we will be taking the fight from the courtroom to Capitol Hill at the Snack Food Association’s (SFA) Legislative Summit in Washington, D.C.  Please join us in supporting SFA’s position on the labeling of products containing GMO’s.

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Posted in "All Natural", Class Action, Food and Drug Administration, Food Drug and Cosmetic Act, Food Manufacturer, Nutrition Labeling and Education Act

Putting the IP in IPAs

As the Super Bowl approaches, you may be thinking about beer: either deciding what to drink during the big game or wondering if a beer commercial will once again be the best ad.  Beer companies are frequently noted for their creativity in naming and marketing their suds.  This creativity has to be protected, however, and recent intellectual property disputes of all kinds have been brewing.

Exit 6

Exit 6 brewery set social media abuzz with their very public marketing dispute with Starbucks.  The small St. Louis brewery had been serving a blended drink consisting of a splash of Founders Breakfast Stout in a glass of Exit 6’s own Vanilla crème ale.  Exit 6 deemed the creation a “Frappicino,” after customers compared the combination to a Starbucks Frappuccino, the coffee giant’s trademarked blended coffee beverage.  The brewery’s owner, Jeff Britton, explained the spelling difference was merely because they were “poor spelers.”

Starbucks did not see the humor in the drink’s name.  After discovering customers drinking “Frappicinos” on the beer-centric app Untappd, the chain sent Britton a cease and desist letter.  It claimed the name would cause dilution of the Starbucks brand and confusion among beer and coffee drinkers.

Britton responded with a $6 royalty check, based on the three beers that were logged on Untappd.  He posted a sarcastic apology on Exit 6’s Facebook account, referring to his concoction as “the F word” throughout the letter:

[W]e meant no deception, confusion, or mistaking in the naming of the beer F Word.  We never thought that our beer drinking customers would have thought the alcoholic beverage coming out of the tap would have actually been coffee from one of the many, many, many stores located a few blocks away.  I guess that with there being a Starbucks on every corner in every block in every city that some people may think they could get a Starbucks at a local bar.  So that was our mistake.

Exit 6’s creative response earned national media attention, fermenting free publicity from the would-be marketing dispute.

“Hold My Beer and Watch This”

Exit 6 was not the only brewer to end an IP conflict quickly.  Anheuser Busch, America’s first national beer brand, recently settled a legal dispute arising from the online ad campaign, “Hold my beer and watch this.”  The campaign featured a series of videos where characters ask someone to hold their beer before doing something amazing or unusual, like a grandmother faking her own death.

The video stunts did not impress Montana-based Big Sky Brewing Company, which claimed that it featured that exact phrase on the can of its IPAs since 2004, and that it trademarked its use in 2009.  Following a cease and desist letter, Big Sky filed suit for trademark infringement in December of last year, seeking to permanently enjoin Anheuser Busch from using the phrase, as well as disgorgement of profits.  Anheuser Busch contended that the phrase was too common to be protected by trademark.  However, the InBev-owned brewery took down the contested videos from its YouTube page, and Big Sky dropped its suit, ending the month-long litigation.

The case was Big Sky Brewing Co. v. Anheuser-Busch LLC, No. 9: 13-cv-00307-DWM (D. Mon. 2013).

Other Disputes

These beverage producers were able to quickly resolve these conflicts.  Other trademark disputes can be protracted, as with Anheuser Busch’s more than century-long dispute with a Czech brewery over the Budweiser name.  Parties can also avoid litigation with compromise, as Avery Brewing and Russian River Brewing did.  The two alehouses each created a Belgian-style ale named Salvation.  Instead of duking it out in court or forcing one to drop the name, the two decided to combine the beers and formed a “Collaboration, Not Litigation” ale with the best qualities of each.

The craft beer business is quickly growing in the United States, where the market for “small, independent, traditional” breweries expanded over fifteen percent from 2012-2013.  Increasingly, traditionally smaller craft breweries are selling their suds in multiple states.  With this influx of business and expanding interstate reach, breweries will inevitably repeat names, tag lines, and marketing efforts, if not always intentionally.  These cases underscore the importance of vigilant brand protection for manufacturers of all sizes.  Cozen O’Connor’s Intellectual Property Department will monitor and report on developments in these kinds of actions.

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Posted in Brand Protection, Craft Beer, Food Manufacturer, Intellectual Property, Trademark

7th Circuit: Nothing “Loko” About Denying Defense Based on Liquor Liability Exclusion

In Netherlands Insurance Company v. Phusion Projects, the Seventh Circuit Court of Appeals ruled that the insurer of the makers of Four Loko has no duty to defend it in lawsuits alleging the alcoholic beverage caused serious injury and death.  The court affirmed the Northern District Court of Illinois’ determination that the liquor liability exclusion precludes defense coverage for suits alleging harm caused by intoxication.

Phusion Projects, Inc. and Phusion Projects, LLC (“Phusion”) manufacture and distribute Four Loko, a sweet malt liquor beverage.  Originally an alcoholic energy drink, its name came from its four active ingredients—alcohol, caffeine, taurine, and guarana.  However following a storm of controversy and legal embattlements culminating in an FDA warning letter, Phusion removed the energy ingredients from Four Loko.

In 2010, five plaintiffs filed suit in separate court actions against Phusion.  Although they waged a variety of legal theories and claims, these suits alleged that consumption of Four Loko resulted in serious injury or death.  Phusion notified its insurer, seeking coverage under its CGL and commercial umbrella policies.  Its insurer filed for declaratory judgment that it had no duty to defend, asserting that the Liquor Liability Exclusion precluded coverage for the underlying claims because they involved injury caused by intoxication.  Phusion counterclaimed, and each side moved for summary judgment.

The underlying suits assert a variety of claims and legal theories, and all allege that Four Loko caused or contributed

to serious injuries or deaths.  The parents of a Florida State sophomore alleged that their son shot and killed himself after drinking multiple cans of Four Loko and not being able to fall asleep for 30 hours.  The parents of a 15-year-old alleged that their son experienced a paranoid episode, ultimately resulting in a car striking and killing him after he ran in traffic.  In separate actions, two other plaintiffs allege that their underage friend drove recklessly after drinking four cans of Four Loko, causing one plaintiff to lose her hand, and another to be permanently disfigured.

The Liquor Liability Exclusion, identical in the CGL and commercial umbrella policies, excludes coverage for:

“Bodily injury” or “property damage” for which any insured may be held liable by reason of:
(1) Causing or contributing to the intoxication of any person;
(2) The furnishing of alcoholic beverages to a person under the legal drinking age or under the influence of alcohol; or
(3) Any statute, ordinance or regulation relating to the sale, gift, distribution, or use of alcoholic beverages.
This exclusion applies only if you are in the business of manufacturing, distributing, selling, serving, or furnishing alcoholic beverages.

The court rejected Phusion’s argument that the district court read the exclusion too broadly in ruling that it applied by its plain language.  Phusion contended that the phrase, “by reason of,” applied more narrowly than “arising out of,” and that it required a “direct, causal relationship” between Phusion’s products and the alleged harm.  The appellate court disagreed, reasoning that case law did not support Phusion’s position, and that the district court rightly determined the exclusion was clear and unambiguous.

The court also rejected Phusion’s arguments that the insurer had a duty to defend because the underlying suits alleged additional wrongdoing, such as adding energy stimulants to its drinks.  In so doing, the court distinguished this case from dram shop cases where courts have found similar exclusions inapplicable because of the insured’s additional negligent acts after the point of consumption.  Instead, the court analogized to Northbrook,  an Illinois supreme court case holding that an automobile exclusion precluded defense coverage for lawsuits arising from a collision between a school bus and a train.  Northbrook held that allegations of inadequate planning, inadequate inspection, and a failure to warn simply rephrased the fact that the injuries arose from the operation of a motor vehicle and therefore the exclusion applied.

This court also looked to an Arizona federal court decision that ruled an identically-worded liquor liability exclusion barred defense coverage for a lawsuit alleging that the insured’s negligent hiring and supervision during a Red Bull “Flugtag” event caused a patron’s intoxication and subsequent car crash.  That court concluded that these secondary negligence claims were not divorced from the serving of alcohol, but rather were “inextricably intertwined.”

Finally, this court disagreed with Phusion’s assertions that the underlying cases are “stimulant liability cases” and that adding stimulants to Four Loko constitutes a wrong outside of the Liquor Liabilty Exclusion.  The court disagreed, noting that “none of the claims against Phusion are distinct from Phusion’s act of furnishing alcohol.

This court did not address the duty to indemnify as it was not ripe for consideration.

This decision indicates that liquor liability exclusions are enforceable when the underlying complaints fail to allege a cause wholly independent from intoxication, even when plaintiffs allege additional wrongdoing.  For manufacturers, buying insurance that covers your major risks is of obvious importance.

The case is Neth. Ins. Co. v. Phusion Projects, Inc., 2013 U.S. App. LEXIS 24908 (7th Cir. Ill. Dec. 16, 2013).

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Posted in Duty to Defend, Food and Drug Administration, Food Manufacturer, Food Safety, Insurance Coverage, Liability Policy, Liquor Liability Exclusion, Policy Exclusions, Public Health

Michigan Appeals Court Rules Against Coverage for Uncontaminated but Seized Cheese

A Michigan appellate court recently ruled that a commercial property insurer properly denied coverage for the cost of cheese seized by the government that could not be returned to market.  In this unpublished opinion, the three-judge panel upheld the trial court’s determination that the insurer properly relied on the first party policy’s Governmental Action and Loss of Market exclusions in denying coverage.

This dispute arises from a 2009 recall of Torres Hillsdale County cheese feared to be contaminated with listeria.  Prior to the recall, the Michigan Department of Agriculture discovered the presence of listeria and ordered Torres to halt cheese shipments until confirmed listeria-free.  Torres shipped some of the cheese regardless, necessitating a March recall that expanded into June of that year.

Torres sought coverage for uncontaminated cheese that expired due to the government’s seizure.  The insurer denied coverage, relying on three exclusions.  The Governmental Action exclusion barred coverage for loss caused by “[s]eizure or destruction of property by order of government authority.”  The Loss of Market exclusion barred coverage for losses resulting from “[d]elay, loss of use or loss of market.”  Finally, the Acts or Decisions exclusion barred coverage for losses resulting from “[a]cts or decisions, including the failure to act or decide, of any person, group, organization or governmental body.”

Torres sued its insurer for breach of contract and violation of the Michigan Uniform Trade Practices Act, alleging that the exclusions were inapplicable and were “trumped” by a general condition stating that “[a]ny act or neglect of any person other than you beyond your direction or control will not affect this insurance.”

In upholding the trial court’s grant of summary judgment for the insurer, this appellate court determined that the expired cheese constituted “Covered Property” and seemed to assume that “direct physical loss” or “damage” occurred.  However the court also held that the policy precluded coverage by the clear language of the exclusions because the insured’s pleadings claimed that the government’s seizure solely caused Torres’ losses.

The court rejected the insured’s arguments that the general condition “trumped” the exclusions and instead reasoned that specific policy provisions generally override general policy provisions.  Therefore the exclusions applied.

This court did not expressly consider if the government’s seizure resulting in the cheese’s expiration constituted “direct physical loss” or “damage.”  Nor did it consider the applicability of a virus or bacteria exclusion—if any.

While the Torres decision provides guidance as to how a court may treat coverage for non-contaminated products rendered worthless because of a recall, these issues are often determined jurisdictionally and depend heavily on the facts at hand, as well as the precise policy language implicated.

The case is Torres Hillsdale Country Cheese v. Auto-Owners Ins. Co., 2013 Mich. App. LEXIS 1547, 2013 WL 5450284 (Mich. Ct. App. Oct. 1, 2013).

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Posted in Acts or Decisions Exclusion, Commercial Property Insurance, Contamination, Food Manufacturer, Food Recall, Food Safety, Governmental Action Exclusion, Insurance Coverage, Listeria, Loss of Market Exclusion

Seeking Contribution for Coverage Costs Associated with Historic 2011 Listeria Outbreak

Continental Western Insurance Company (“CWIC”) recently filed suit against Colony Insurance Company in Colorado federal court seeking declaratory relief and contribution for Colony’s alleged failure to share in defense and indemnity costs in connection with the deadly 2011 listeria outbreak.  Should the two insurers fully litigate this case, it may be instructive in determining when a food contamination incident triggers a CGL policy CWIC’s complaint is filed under docket no. 1:13-cv-1425.

Common-insured Pepper Equipment Corporation faces liability for selling allegedly inappropriate agricultural packaging equipment to Colorado-based Jensen Farms, which sold listeria-tainted cantaloupes.  Government reports suggest that the 2011 listeria outbreak was the “deadliest foodborne illness outbreak in over 25 years.”  The Centers for Disease Control and Prevention (“CDC”) reported that the cantaloupe infected 146 people in 28 states and resulted in 30 deaths.

Claimants filed personal injury and wrongful death suits against Jensen and Pepper based on the outbreak.  Jensen filed for Chapter 11 bankruptcy, and both Pepper and CWIC agreed to participate in the bankruptcy claim resolution to secure settlements, releases and other resolutions.  CWIC alleges that it incurred $1.35 million in an effort to “obtain the most value to Pepper for the finite amount of indemnity money potentially available.”  CWIC alleges that at least some of the claims trigger Colony’s duties to defend or indemnify Pepper, and that Colony wrongfully refused to defend claims or participate in the claim resolution process and other outside proceedings, despite the notice, tender and demand for coverage.  CWIC seeks full reimbursement or contribution for Colony’s proportional share of the defense and indemnity costs.

While various factors will determine Colony’s exposure, the issue of trigger is particularly relevant.  CWIC’s policy provided coverage from September 14, 2010 to September 14, 2011, while Colony’s policy provided coverage for September 14, 2011 to September 14, 2012.  Pepper sold the equipment to Jensen in May of 2011, and Jensen distributed the contaminated cantaloupes between July 10, 2011 and September 10, 2011, according to the CDC report.  Cantaloupes have a shelf life of about two weeks, and the incubation period for the listeria bacteria can be greater than a month, meaning some customers first became sick as late as October 27, 2011.

While reports suggest that the underlying parties will reach a settlement of their litigation within the next six months, the coverage issues in dispute may linger well beyond this date, as the insurers  tackle the trigger of coverage, the scope of Colony’s duty to defend, multiple claimants seeking to recover limited insurance proceeds, and allocation, among other issues.  The Food Recall Monitor will continue to monitor the ongoing coverage litigation and provide updates as they occur.

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Posted in Contamination, Contribution, Duty to Defend, Duty to Idemnify, Food Recall, Food Safety, Insurance Coverage, Liability Policy, Listeria, Occurrence, Trigger of Coverage
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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