05
Mar
2013

No Use Denying over Spilled Milk

Food Manufacturing Magazine

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PUBLISHED ON: March 5, 2013

When food companies face loss or liability stemming from product recalls induced by allegations of food contamination, insurance companies often deny coverage on grounds that there was no actual property damage. A second oftencontested question is whether product recall exclusions apply to liability incurred by a company when a customer recalls its product.

A recent decision by a U.S. district court in Minnesota answered both of these questions clearly in favor of the policyholder. In The Netherlands Ins. Co. v. Main Street Ingredients, a supplier provided an ingredient to a food company. It turned out that the ingredient had originally come from a third party and might be contaminated. This forced the food company to recall its product, so it sued the supplier for damages. The supplier’s insurance company denied coverage on several grounds, and lost on every one. Most importantly, the court found that the ingredient had caused covered property damage to the food company’s product, and that a recall exclusion did not apply.