or temporary workers.
The Product Withdrawal Coverage
Form also covers certain product withdrawal liability expenses when another
party has paid expenses for the withdrawal
of the insured's product and then demands
reimbursement from the named insured.
Even with the sistership exclusion in
place and with the availability of separate
coverage for product withdrawal, some
courts have interpreted that the CGL policy provides coverage for product recall
Instant milk recalled
In The Netherlands Ins. Co. v. Main
Street Ingredients, LLC, [Civil No. 11–
533(DSD/FLN), 2013 WL 101876 (D.
Minn. Jan. 8 2013)], the court, ruling in
favor of the insured, found that damages
for a food recall claim were covered by
the liability policy.
Main Street Ingredients (MSI) purchased instant milk from Plainview Milk
Products Cooperative and resold the milk
to America Cereal Corporation, a subsidiary of Malt-O-Meal Company (MOM).
In 2009, the Food and Drug Administration (FDA) detected unsanitary conditions and salmonella at the Plainview
manufacturing facility. As a result, Plainview issued a recall of all instant milk dating back to 2007, including the milk MSI
sold to MOM. As a result, MOM initiated
a recall of its instant oatmeal. At no point,
however, did MSI's instant milk test positive for salmonella.
In 2009, MOM filed a lawsuit against
MSI seeking damages resulting from the
recall. MSI notified Netherlands, its insurer. Netherlands agreed to defend MSI
under a reservation of rights. MSI and
MOM settled the underlying action but
prior to settlement, Netherlands filed an
action seeking a declaration that it had no
duty to defend or indemnify MSI.
The court said that MSI had to demonstrate an occurrence that the loss was
not known prior to the policy period, and
that property damage occurred.
Is that Recall Covered?
It seems that product recalls are always in the news. In late September, for instance, Tyson Foods recalled over 130,000 pounds of chicken nuggets due to possible contamination with
hard plastic. Vehicles and their parts, as well as child safety products
are also frequent recall targets.
Many manufacturers fail to realize that
their commercial general liability (CGL)
insurance policies typically will not cover
any of the costs associated with a product
recall. Although a particular company’s
insurance coverage depends on the language in its individual policies, the standard unendorsed CGL policy specifically
excludes many costs and expenses related
to the recall of defective products.
Under CGL policies, insurers are re-
quired to “pay those sums that the in-
sured becomes legally obligated to pay
as damages because of ‘bodily injury’ or
‘property damage,’” and have the “duty to
defend the insured against any ‘suit’ seek-
ing those damages.”
The standard recall exclusion, also
known as the “sistership” exclusion, pro-
vides that the policy will not cover dam-
ages claimed for any loss, cost or expense
incurred by the insured or others for the
loss of use, withdrawal, recall, inspection,
repair, replacement, adjustment, removal
or disposal of your product, your work,
or impaired property if withdrawn or
recalled from the market or from use by
any person or organization because of a
known or suspected defect, deficiency,
inadequacy or dangerous condition in it.
The Insurance Services Office offers
the Product Withdrawal Coverage Form
to address the product recall exclusion on
the CGL form. The form pays for product
withdrawal expenses, such as the cost of
replacing the insured's product or repairing the defect in it, notification costs, and
the costs to hire independent contractors