The Eighth Circuit Court of Appeals recently reversed a jury verdict of over $1,000,000 in a food product recall and insurance coverage case based on meaning of “may likely result” in a food product contamination policy. The case, Hot Stuff Foods, LLC v. Houston Cas. Co., — F.3d —, No. 14-1192, (8th Cir. Nov. 17, 2014), arose from Hot Stuff Foods’ (“Hot Stuff”) recall of hundreds of thousands of cases of its breakfast sandwiches which inadvertently contained MSG. Hot Stuff informed the FDA and the USDA of its “misbranding” – failure to list MSG as an ingredient in violation of federal law. Hot Stuff agreed to a Class III recall – the sandwiches “will not cause adverse health consequences” – and sought coverage under its Malicious Product Tampering/Accidental Product Contamination policy issued by Houston Casualty Company (“Houston”). The policy defined “Accidental Product Contamination” as “fault in design specification or performance” of a product provided that the consumption of the contaminated products “either resulted, or may likely result, in … physical symptoms of bodily injury, sickness or disease [in] any persons ….” Houston denied Hot Stuff’s claim. Hot Stuff brought a declaratory judgment action for a determination of coverage and damages for the recall, crisis response expenses and lost gross profit.
The Federal District Court of Sought Dakota, applying that state’s law, granted Hot Stuff’s motion for partial summary judgment and awarded coverage. The district court reasoned the phrase “may likely result” inherently contradicted itself, and created an ambiguity which must be construed against the insurer. Only the “possibility” of illness was therefore required. Because Hot Stuff presented sufficient scientific evidence that the trace amounts of MSG could cause illness, the district court found coverage, and a jury awarded Hot Stuff $755,268 for recall and crisis response expenses and $200,000 for lost gross profit.
The Eight Circuit reversed. The court held both parties interpretations were incorrect – that is, neither the word “may” nor the word “likely” need be read out of the policy – because the phrase “may likely result” is not inherently contradictory. The court held the phrase “may likely result” created a range requiring more than a possibility of physical injury (“may”), but less than a probability (“likely”). The court then ruled that because there was a fact issue concerning whether the MSG-laced breakfast sandwiches “may likely result” in illness, remand for a jury determination was proper.
This case is significant for several reasons. First, the Eight Circuit’s reaffirmance of the rules of interpretation where ambiguities are not be read into insurance policies. Further food product contamination policies are designed for specific risks associated with contaminated products that pose a health risk. The decision also provides a helpful overview of the evolution of food recall policies and regulations.
We will continue to monitor this case on remand and other decisions impacting insurance coverage for food products. If you have any questions about this, or any other matter, please contact Bob Kuderer or Tom Brock.