In Windsor Food Quality Company, Ltd v. The Underwriters of Lloyds of London, et al. (2015) 2015 Cal.App. LEXIS 195, the California Court of Appeal for the Fourth Appellate District held that a contamination products policy does not cover contaminated ingredients obtained from a supplier and incorporated into the insured manufacturer’s product.

The insured, Windsor Food Quality Company, Ltd. (“Windsor”) manufactured Jose Ole frozen food products using ground beef supplied by Westland/Hallmark Meat Company (“Westland”). The United States Department of Agriculture announced a voluntary recall of all products containing Westland’s ground beef because Westland had used “downer cattle” (non-ambulatory disabled cattle, the use of which is prohibited in human food) that may have been contaminated. Windsor recalled its products which had incorporated Westland ground beef and incurred an approximate $3 million loss.

Windsor tendered the loss to its contamination products insurer, The Underwriters of Lloyds of London (“Lloyds”). Lloyds denied the tender on the grounds that its policy did not cover recalled products. Windsor then sued Lloyds for breach of contract and breach of the implied covenant of good faith and fair dealing. The trial court granted Lloyd’s motion for summary judgment and Windsor appealed.

The policy’s insuring agreement covered “Malicious Product Tampering” to an “Insured Product.” “Insured Products” was defined as “all products including their ingredients and components once incorporated therein of the Insured that are in production or have been manufactured, packaged or distributed by or to the order of the Insured… .” Windsor argued that the frozen food products containing the contaminated beef qualified as an “Insured Product” because the beef was incorporated into Windsor’s final product. The court disagreed, finding no ambiguity and that the plain meaning of the policy required Windsor to prove “there was contamination or tampering with its product during or after manufacture, not before Windsor began the process.”

The decision highlights the distinction between contamination products insurance and recall insurance. The former provides coverage for loss arising out of products contaminated during the insured’s manufacturing process and the latter provides coverage for loss resulting from recalled products regardless of when the alleged contamination to the products occurred.