Why it matters: H.J. Heinz Company triumphed in a discovery dispute over Starr Surplus Lines Insurance as part of a coverage case over losses for contaminated Heinz baby cereal that was sold in China. Starr balked at paying an estimated $30 million for the costs associated with the recall and tried to rescind the applicable policy, arguing that Heinz omitted material information from its application. In response, Heinz asked for information from Starr's underwriting files related to other product contamination policies sold by the insurer to policyholders with similar annual sales. A Pennsylvania federal court judge granted the request, ordering Starr to produce other policyholders' applications, the applicant's loss history information, information that the insurer obtained during the underwriting process about the applicant, premiums charged, and any analysis conducted by Starr on whether to issue the policy or set the premiums. Heinz was entitled to the information because it is "the main mechanism" to defend against Starr's claim and test what the insurer considered "material" when underwriting a policy, the judge wrote.

Detailed discussion:

In 2014, H.J. Heinz Company recalled infant food sold in China after regulators found levels of lead in excess of the allowable amount. To cover the costs of the recall and destruction of the products, the company turned to Starr Surplus Lines Insurance Company pursuant to a product contamination policy. When Starr balked, Heinz filed suit in Pennsylvania federal court seeking coverage for damages estimated north of $30 million.

Starr responded by attempting to rescind the policy, arguing that Heinz omitted material information from its application. Heinz countered with a motion to compel. The policyholder requested that Starr produce:

"All underwriting files relating to Product Contamination insurance policies that You sold to policyholders with annual sales exceeding $8 billion, other than Heinz, in 2014 (including policy applications submitted to You, loss information provided to You, dollar amounts of premiums charged by You, and Product Contamination insurance policies issued by You). You may redact the name of the policyholders."

Starr objected, calling the request overly broad and unduly burdensome. The parties tried to settle the issue themselves, holding at least three meetings. After negotiating, Heinz narrowed its request from the entire underwriting file to:

"(1) the application of the insured, as required by Starr (can be redacted as to any identifying information, we mainly want the form of the application); (2) the loss history page (again, can redact any identifying information as to the insured, the prior losses, we want the form used, the dates of prior losses required and the amounts of the prior losses); (3) the page or pages in the file that identifies the 'subjectives' required of the insured by Starr during the underwriting of the polic(ies) (redacted if needed but generally the 'subjectives' appear generic, without any identifying information); (4) the amount of premium charged for the respective policies; and (5) any analysis Starr conducted in deciding to issue the policy or set the premium."

At an impasse, the parties turned to the court. Finding that the information was essential to Heinz's case, U.S. District Court Judge Arthur J. Schwab granted the motion to compel.

The court did not think production of the requested information would complicate the case, was unduly burdensome, would violate the privacy of third-party insureds, or was not focused enough on similar policies.

"At this early stage, the Court finds that Heinz is entitled discovery that may reveal information that is relevant to combat Starr's position on rescission; the main mechanism to do so is through examining other comparable policies issued by Starr and associated risks," the court wrote.

The requested production was appropriate in terms of the narrow issue of rescission and materiality, the court said. "The requested documents are also appropriately limited in scope, being that the request is confined to a specific set of potential policies (product contamination policies sold by Starr), involving a comparable amount (annual sales in excess of $8 billion), and limited to a temporal period (2014)."

Because the request allowed for redaction and other safeguards, the confidential information of third-party insureds should remain safe, the court said. Mindful of discovery expenses, "Heinz's request is proportional to the amount in dispute in this litigation," Judge Schwab added.

To read the order in H.J. Heinz Company v. Starr Surplus Lines Insurance, click here.