(Article from Insurance Law Alert, April 2024)
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Holding
An Ohio district court ruled that thousands of claims for bodily injury arising from potential salmonella contamination in peanut butter products constituted a single occurrence under general liability policies. J.M. Smucker Co. v. Ace American Ins. Co., 2024 U.S. Dist. LEXIS 53135 (N.D. Ohio Mar. 26, 2024).
Background
Smucker recalled 225 lots of its Jif-brand products due to possible exposure to salmonella. After the recall, Smucker faced thousands of claims from consumers alleging bodily injury from consuming the contaminated products. Smucker sought coverage from ACE, its general liability insurer, for its defense costs under two policies that included a retained limit of $250,000 per occurrence. Smucker argued that the claims arose from a single occurrence, the alleged salmonella outbreak, and that it only had to pay one retained limit before ACE’s duty to reimburse defense costs was triggered. In turn, ACE contended that each claimant’s exposure to the contaminated products was a separate occurrence, and that Smucker had to pay 225 retained limits, or $56,250,000, before coverage was available.
Decision
The court granted partial summary judgment to Smucker, finding that the claims arose from a single occurrence as defined by the policies, and that ACE had to reimburse Smucker for its defense costs once Smucker had paid a single retained limit. The court applied a cause-based test to determine the number of occurrences under the policies, holding that the claims arose from a “singular alleged salmonella outbreak.” The court rejected ACE’s argument that a batching endorsement in the policies required each lot of contaminated products to be treated as a separate occurrence. The court found that the batching endorsement was ambiguous, and that ACE’s interpretation would eviscerate Smucker’s coverage. The court noted that the Delaware Supreme Court, faced with a similar fact pattern, deemed a batching clause ambiguous and construed it in favor of the policyholder. See ConAgra v. Lexington Ins. Co., 21 A.3d 62 (Del. 2011).
Comments
While the court’s decision aligns with certain other decisions holding that claims arising out of the distribution of a defective or contaminated product arise from a single occurrence, the number-of-occurrences determination is a fact-driven one, dependent on specific policy language and the evidentiary record as well as applicable state law. For instance, in cases where contamination arises from several distinct sources or at different locations, courts may conclude that the claims constitute multiple occurrences. Similarly, where underlying claims involve property damage at numerous locations at different points in time due to defective or contaminated products, courts have found multiple occurrences under a cause-based analysis.