The Raw End of the Deal

Update of earlier post

By Jeffrey S. Weinstein and Sara F. Lilling

Sometimes an insurer will get the “raw end” of the deal when it comes to insuring raw chicken products, and the First Circuit has now weighed in on the raw chicken case we reported on in February 2019.

On April 3, 2019, the First Circuit affirmed the decision of the U.S. District Court for the District of Maine in Starr Surplus Lines Ins. Co. v. Mountaire Farms Inc., 2018 WL 3676839 (D. Me. Aug. 2, 2018) (applying Maine law), which dismissed an insurer’s subrogation action against the supplier of raw chicken products for failure to state a claim upon which relief may be granted.  Starr Surplus Lines Ins. Co. v. Mountaire Farms Inc., 2019 WL 1467052 (1st Cir. Apr. 3, 2019). 

Insurer Starr Surplus Lines Insurance Company, as subrogee to chicken manufacturer AdvancePierre Foods, Inc. (“AP”), brought an action against AP’s chicken supplier, Mountaire Farms Inc., seeking to recover the $10 million insurance payout Starr made to AP under a product contamination policy for losses AP incurred when its chicken products were recalled following a Salmonella outbreak.  Starr brought claims against Mountaire for breach of warranty and strict liability under Maine law. 

Mountaire moved to dismiss Starr’s complaint on the ground that Starr’s claims for breach of warranty and strict liability were all deficient, because it is “widely known” that Salmonella is inherent in raw chicken and is eliminated through cooking. 

The District Court concluded that, under Maine law, Salmonella is an inherent, unavoidable, and recognized component of raw chicken that is eliminated by proper cooking methods, that Starr’s complaint failed to allege that the chicken from Mountaire was contaminated with any pathogen other than Salmonella, or that such chicken was “defective.”

On appeal, the First Circuit agreed, noting that “Salmonella Enteritidis is a common form of the salmonella pathogen that can be eliminated by proper cooking,” and the complaint made no allegation that the type of Salmonella found in the chicken could not have been eliminated by proper cooking. Indeed, the First Circuit concluded that chicken containing Salmonella that can be killed by proper cooking is not “defective”, which is an essential element to Starr’s breach of warranty claims.

As we discussed in the previous article “Don’t Count Your Chickens….” this case 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.  Would a raw chicken product be considered “contaminated” with Salmonella if such pathogen can be expected in the product and can be killed off through proper cooking methods? 

If the product were 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?

Will this decision affect how contaminated products policies are worded or rated?  Will the policies have higher premiums or specific exclusions for naturally occurring pathogens?

It will be interesting to see how these issues play out in other scenarios, with raw chicken and other products.

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