Foster Poultry Farms: Concerns For Contaminated Products Insurers

Author:Mr Jason McNerlin
Profession:Clyde & Co
 
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On 9 October 2015, summary judgment was ordered against insurers in the coverage case of Foster Poultry Farms v Certain Underwriters at Lloyd's. This decision of a Californian district court, applying New York law, deserves the attention of all those involved in Contaminated Products insurance underwriting and claims.

Background

The background facts are widely-known, and can be summarised simply. In 2013, Foster Farms ("Foster") became implicated in an outbreak involving Salmonella Heidelberg, one of over 2,500 Salmonella serotypes. More than a dozen US states were affected. Later, on 7 October 2013, the US Food Safety and Inspection Service ("FSIS") served a Notice of Intended Enforcement on Foster, referring to concerns about Foster's inadequate Salmonella control, as well as various sanitation issues. There followed various measures, including a phase of intensified Salmonella sampling of Foster's consumer-ready packaged chicken.

On 6 December 2013, FSIS issued a Letter of Concern to Foster, highlighting that current levels of positive results were still high, including in "products related to ... outbreak clusters associated with ... Salmonella Heidelberg". This letter also remarked on a high number of sanitation issues, and asserted some of them "may directly or indirectly contribute" to Salmonella. The numerous sanitation issues included live cockroaches.

Cockroaches were observed again on 28 December and 7 January 2014. On 8 January, there was a further sighting, and this provoked a Notice of Suspension the same day. The Notice referred to "egregious insanitary conditions", allegedly demonstrating that Foster had "failed to prevent conditions that could lead to insanitary conditions, where products may have been rendered adulterated and/or injurious to health." The Notice also asserted that "cockroaches and other pests can transmit ... bacteria ... increasing the chances of product contamination rendering the product unsafe".

The facility resumed operations on 22 January 2014, but Foster was not permitted to sell 1.3 million pounds of chicken, which had been produced on 7 and 8 January. Foster incurred substantial losses, and claimed under its Product Contamination policy for losses including over USD 8 million in loss of profits, and more than USD 4 million for increased cost of working. It also claimed against its pest control consultant.

Insurers declined the claim on multiple grounds, including (for Accidental Contamination) lack of evidence...

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