By Jeffrey S. Weinstein and Sara F. Lilling
In Starr Surplus Lines Insurance Company v. Mountaire Farms Inc., 2018 WL 3676839 (D. Me. Aug. 2, 2018) (applying Maine law), the U.S. District Court for the District of Maine dismissed an insurer’s subrogation action for failure to state a claim upon which relief may be granted, in a case involving raw chicken products “contaminated” with Salmonella.
Plaintiff Starr Surplus Lines Insurance Company alleged that defendant Mountaire Farms Inc. delivered raw chicken products contaminated with Salmonella bacteria to customer AdvancePierre Foods, Inc. (“AP”), which resulted in a recall of more than 1.7 million pounds of AP’s products, and a 10 million dollar insurance payout by Starr to AP under a product contamination policy. AP used the raw chicken parts in “ready-to-cook” chicken dishes for retail. After individuals became infected with Salmonella, the illnesses were linked to AP’s chicken products, and were then traced back to raw chicken parts that AP received from Mountaire.
In the subrogation action against Mountaire, Starr sought to recover all payments it made to AP in connection with the recall of its insured’s products. Mountaire moved to dismiss Starr’s Complaint on the ground that Starr’s claims for breach of merchantability, breach of fitness for a particular purpose, and strict liability were all deficient, because it is “widely known” that Salmonella is inherent in raw chicken and is eliminated through cooking. Thus, as Mountaire argued, Salmonella cannot render the chicken “defective,” “unfit for its particular purpose,” or “unreasonably dangerous,” which are essential elements to each of Starr’s claims under Maine law.
The Court noted that Maine courts have applied both the traditional “foreign-natural” test and the “reasonable expectations” test to defective food product claims. Under the “foreign-natural” test, a food manufacturer cannot be strictly liable for supplying a product with natural ingredients. Under the “reasonable expectations” test, a food manufacturer will not be liable where the consumer of the product should reasonably expect to find the substance in the product, regardless of whether the substance is a natural ingredient in such product. The Court held that Mountaire prevailed under both tests. The Court held that under the former test, there is no liability for supplying chicken with Salmonella, because Salmonella is a natural ingredient in raw chicken. The Court held that under the latter test, a reasonable consumer, and especially a sophisticated commercial consumer like AP, should reasonably expect that raw, improperly cooked, or improperly handled chicken would not be safe for human consumption.
The case, currently pending on appeal in the First Circuit, raises some interesting questions about how contaminated products insurers may evaluate coverage for food contamination claims involving products that contain harmful but expected pathogens, like Salmonella in raw chicken. Contaminated products policies are often triggered by an “accidental contamination,” which generally requires the introduction of a foreign substance during the manufacture, preparation, or production of an insured product, provided that the consumption or use of the insured’s products has resulted in or would result in bodily injury and/or property damage to products other than those of the insured. Products that contain Salmonella, for example, typically fall within the parameters of coverage. But if the harmful substance is determined to be a naturally occurring “ingredient” to a product, or a reasonable consumer would expect that a harmful substance would be in a product, can the product be considered “contaminated”?
Moreover, if the product could be considered “contaminated,” when would such “contamination” be deemed to have occurred? Would it be during the manufacture, preparation, or production of an insured’s products, as typically required for coverage under a contaminated products policy, or would the “contamination” be deemed to have occurred prior to any such manufacture preparation, or production, thus falling outside the coverage parameters?
Does this decision have the potential to change how contaminated products policies are worded, or rated? Perhaps if the Salmonella contamination here happened because of a failure of the supplier or the insured (for instance, in refrigerating or other handling the product) the court would have viewed this incident differently. But if the claim is simply that Salmonella naturally occurs in raw chicken, how will insurers react? Most contaminated products insurers would consider Salmonella to be a contaminant in an insured’s finished product. Moreover, because this decision calls into question the viability of a subrogation action against a supplier whose product naturally contains, or could reasonably be expected to contain, a pathogen, will insurers look harder at adding exclusions for handling raw products, to avoid having to pay claims premised on the presence of “reasonably expected” pathogens, thereby putting the risk of loss on the insured, rather than on the insurer to pay such a claim without a viable prospect of subrogation? Or would certain pathogens (like Salmonella) become excluded completely, or become covered by endorsement only (for a higher premium), because the insurer would be unable to seek subrogation against a supplier?
The Starr Surplus v. Mountaire Farms decision raises some difficult questions, which makes it worthy to follow as it makes its way through the courts.