A California federal court has granted Foster Farms’ request for declaratory judgment finding that Lloyd’s of London must cover $14 million in costs related to a Salmonella outbreak linked to Foster Farms’ chicken processing facilities. Foster Poultry Farms Inc. v. Certain Underwriters at Lloyd’s London, No. 14-0446 (E.D. Cal., order entered October 9, 2015).
Foster Farms’ policy with the insurer included coverage for “Accidental Contamination,” requiring the company to show (i) “an error in the production of its chicken product” and (ii) that consumption of the product “‘would ‘lead to’ bodily injury.” Lloyd’s challenged Foster Farms’ showing of the latter requirement, arguing the destroyed products were not actually contaminated with Salmonella. The court concluded the company had shown the products were contaminated because at the time the U.S. Department of Agriculture’s Food and Safety Inspection Service issued its Notice of Suspension, Foster Farms’ products had tested positive for Salmonella for six months, and three of eight samples taken the day of the notice were contaminated. “The average insured reading the Policy would not reasonably expect that to receive coverage in the event its product was contaminated, it would have to prove that each and every one of its products would cause harm if consumed; a reasonable probability of such harm occurring would be sufficient,” the court said.
“It would also be unreasonable to imply that a product must first be put into commerce and injure somebody before the policy will provide coverage,” the court found. “The parties could not have reasonably interpreted the policy to encourage a producer to sell goods that have been deemed unfit for consumption, risking the public welfare and subjecting itself to civil liability and criminal prosecution.”