The media is currently buzzing with a seemingly endless stream of revelations regarding recalls of defective products and tainted food, many involving products from China.1 As David Armstrong and Sabine Muscat of the San Francisco Chronicle recently stated, "[t]he stakes are high" because "[t]here are billions of dollars in U.S. investment in China, rich contracts between U.S. corporations and Chinese contractors to produce goods for export, and the health and safety of millions of consumers in the balance."2
A recent article in Business Insurance included the following timeline of recalls of products that occurred this year:
March 16: Menu Foods Inc. of Streetsville, Ontario, recalls 60 million cans and packages of pet food over concerns that the product poses a serious health threat to animals. Eventually, several U.S. pet food makers recall thousands of products contaminated in China with melamine, an organic compound used in plastics and flame-resistant materials.
May 23: Hong Chang Corp. of Santa Fe Springs, Calif., recalls 282 22-lb. boxes of monkfish, which originated in China and were distributed in California, Hawaii and Illinois, because the product may contain a deadly toxin.
June 1: The U.S. Food and Drug Administration issues an import alert and warns consumers not to use any toothpaste manufactured in China because it may contain a poisonous chemical used in antifreeze and as a solvent. Companies later issue voluntary recalls.
June 13: RC2 Corp. of Oak Brook, Ill., voluntarily recalls 1.5 million Thomas & Friends wooden toy trains because a factory in China coated them with lead paint.
June 25: The National Highway Traffic Safety Administration orders tiny importer Foreign Tire Sales Inc. of Union, N.J., to recall up to 450,000 light truck tires made in China since 2002 because a defect could cause dangerous tread separation.
June 28: After an outbreak of 60 salmonella cases, mostly in toddlers in 19 states, Robert's American Gourmet Food Inc. of Sea Cliff, N.Y., recalls its Veggie Booty snack food. Later, the salmonella is traced to a spice supplier in China, and the recall is expanded to the company's Super Veggie Tings Crunchy Corn Sticks.
Aug. 2: Mattel Inc. of El Segundo, Calif., recalls 83 Fisher-Price toy products, a total of 967,000 items made in China, because they are finished with lead paint.
This onslaught of recalls and product issues has continued since early August, with Mattel and its affiliates announcing two more recalls of toys including recalls relating to lead paint and/or choking hazards.4 These and other food and product safety issues have already spawned significant litigation.5 The sheer volume of recent adulteration and product recall cases involving food, and the likelihood of litigation brought by consumers injured by tainted food products, has raised the profile of this issue for food growers, manufacturers, and distributors and their insurers. Understanding the potential scope and impact of these situations is imperative for insurers who may be faced with significant exposures involving food and product safety issues. This article therefore reviews some of the newest litigation and the types of underlying claims that may give rise to demands for coverage under general liability, property and specialty coverages.
Interestingly, some food-borne illness outbreaks, such as the e. coli outbreak related to spinach in the fall of 2006, do not always lead to mass tort litigation and class action lawsuits. The FDA and California health authorities determined that the e. coli outbreak sickened 205 people and that three died.6 While litigation was filed on behalf of individuals sickened in the outbreak (or their survivors) in seven states, none of the plaintiffs in these appear to have sought class certification.7 The defendants also appear to have been highly motivated to settle with the families of those who died after consuming the spinach.8 We located one class action suit filed in connection with the e. coli outbreak in an Illinois State Court in Chicago, which was brought by a restauranteur who was forced to discard spinach after the outbreak.9 This case was removed to the United States District Court for the Northern District of Illinois and was voluntarily dismissed by the plaintiff in March 2007.
Many recent food-related recalls, however, have spawned multiple suits, class action claims and multidistrict litigation proceedings (MDLs). For instance, MDL 1845 concerns peanut butter made by ConAgra Foods, Inc., at a plant in Sylvester, Georgia, that was contaminated with salmonella.10 ConAgra ultimately recalled all peanut butter produced at the plant in question from 2004 after an outbreak of salmonella began in August 2006. As of March 7, 2007, the Centers for Disease Control reported that 425 people in 44 states had been infected with salmonella from the peanut butter in question.11
Plaintiffs began filing individual and class action lawsuits in federal and state courts across the country, alleging injury from consumption of the salmonella-tainted peanut butter. As of August 24, 2007, the Judicial Panel on Multidistrict Litigation (JPML) has now transferred 52 pending cases to the United States District Court for the Northern District of Georgia. As noted above, these cases include both individual actions,12 and putative class actions13 These cases are early in the MDL process. No consolidated complaint has been filed and it is unclear whether the plaintiffs will seek to consolidate the actions or whether the cases will remain grouped only for pre-trial proceedings and then be transferred back to their districts of origin for trial as necessary.
The main thrust of these actions is products liability claims against ConAgra based on its widespread distribution of contaminated peanut butter and the resulting bodily injuries. Some of the complaints, however, raise additional issues, such as potential plant contamination remediation issues (based on allegations of salmonella contamination at the Sylvester, Georgia plant, leading to recall of tainted peanut butter) and third-party liability issues (based on allegations against supermakets). These further claims may pose some insurance coverage questions outside traditional products hazard and products recall coverages.
Another pending MDL is MDL 1850, which concerns the contaminated pet food produced by Menu Foods.14 As of August 24, 2007, the Judicial Panel on Multidistrict Litigation (JPML) has now transferred 65 pending cases to the United States District Court for the District of New Jersey. As with MDL 1845, these cases are early in the MDL process. No consolidated complaint has been filed and it is unclear whether the plaintiffs will seek to consolidate the actions or whether the cases will remain grouped only for pre-trial proceedings and then be transferred back to their districts of origin for trial as necessary. The majority of the Menu Foods cases seek relief on products liability causes of action for damages flowing from the plaintiffs' purchase, and their pets' consumption, of pet food tainted with wheat gluten containing the toxic chemical melamine, which resulted in death or serious injury for the pets. The complaints in these actions also raise claims such as: (1) emotional distress to owners; (2) medical monitoring for animals that survived exposure but require continuing care; (3) allegations of misconduct in defendants' announcement of and conduct relating to the recall; (4) unjust enrichment/reimbursement claims (particularly for sales made during the period between defendants' purported knowledge of the contamination and the recall announcement); and (5) punitive damages.15
Press reports also suggest that numerous similar cases are likely to be filed in state courts around the country.16 In addition, at least one class action has been filed against a Chinese supplier of the ingredient that tainted some of the recalled pet food.17 Similarly, one of the complaints in the MDL (Tinker) names the American supplier of the tainted ingredient as a codefendant, and a U.S. pet food manufacturer has sued its U.S. supplier for allegedly providing tainted ingredients.18 These cases against suppliers highlight potentially grave problems where the supply chain that results in placing a given food product on the market becomes convoluted via outsourcing.19
The first two lead-paint related-recalls have resulted in a spate of putative class action suits filed in jurisdictions across the country in response to the recall of toys that include lead paint applied by Chinese manufacturers or suppliers.20 These suits seek, inter alia, establishment of medical monitoring funds to defray the cost to parents of monitoring their children for the possible development of future disease based on their ownership of recalled toys.21 A recent article in the Wall Street Journal indicated that "because the plaintiffs lawyers don't have evidence of physical harm, the suits demand that the companies pay for medical tests for children through what are known as medical-monitoring funds."22 Some of the suits only seek to recoup the cost of a medical monitoring regime,23 while others seek both medical monitoring costs and other relief. For instance, the Shoukry complaint filed in the United States District Court for the Southern District of New York alleges that "as a result of Defendants and other members of the Defendant Class's deceptive and unfair trade practices, Plaintiff and the other Plaintiff Class members suffered monetary losses, i.e., the purchase price of the products, which themselves are unfit for their intended purpose, and further can be expected to suffer in the future the cost of medical monitoring necessitated by the exposure of their children to the lead paint in Defendants' products."24 It seeks recovery, inter alia, on theories of violation of state deceptive and unfair trade practices law, breach of implied warranty, strict liability and unjust enrichment.25
Other recent product-related suits, as noted in a recent National Law Journal article, reflect "an increasing number of class actions under state consumer-protection laws in conjunction with, or in place of, traditional personal injury class actions."26 This trend is apparently an outgrowth of a perception in the plaintiffs' bar that traditional putative class actions based on actual injury "have become too difficult to certify in recent years."27 In this regard, the National Law Journal recently quoted the lead plaintiffs counsel in the In re Bluetooth case as stating that "[w]hat we are seeking is purely economic injury, the return of their purchase price."28 In another example, a putative class action was recently filed on behalf of all consumers who purchased eggs fortified with certain types of nutrients, seeking redress of alleged "economic injuries" caused by the egg producer's alleged misrepresentations as to the health benefits of its eggs.29 This action seeks relief under consumer protection statutes, as well as equitable remedies, such as disgorgement for alleged unjust enrichment.
The creative of the plaintiffs' bar is hard at work in formulating and asserting a wider variety of claims as a result of recent food and product safety failures. The different types of claims asserted present a range of liability exposures for defendants and insurance issues for their carriers