From spinach to pet food, peanut butter to seafood, tires to toothpaste and most recently children's toys, there have been an extraordinary number of food and product recalls in recent months. The litigation stemming from these recent product and food safety failures presents a number of important insurance questions under general liability policies. These include questions about the scope of the products-operations hazard, whether non-products coverage is implicated by new theories advanced by the plaintiffs' bar, whether "no injury" claims for economic harm can be shoehorned into coverage, and whether the many class action claims seeking medical monitoring for potential bodily injury will be covered under general liability policies. In the context of the lead paint toy recalls, the meaning of lead paint exclusions may also be at issue. In addition, as with traditional products liability litigation, the effect of the sistership, insured's own product, and impaired property exclusions will also be important in determining the extent to which general liability coverages may respond to the new wave of food and product safety litigation.

Scope of Products Hazard/Completed Operations Coverage

Product liability coverage is designed to protect a company from product-related tort lawsuits, not economic injury to the manufacturer. Accordingly, it does not cover the costs to the policyholder of a product recall, such as recall transportation expenses, consultant fees, lost profits and rehabilitation costs. It does respond to a broad range of product-related claims -- both commercial claims among companies in the supply chain and consumer claims by or on behalf of the purchasing public. With respect to commercial claims, there can be significant claims where one company's product physically injures another's and additional insured issues where a company's coverage extends to other entities with whom the insured has ongoing business relationships. With respect to consumer product safety suits, third-party claims based on a defective, dangerous or inadequate product should fall squarely within the products hazard coverage. However, creative plaintiffs' lawyers have introduced a variety of new claims that may test the scope of products coverage. Policyholders may argue that the new wave of consumer food and product safety cases implicate not only products liability limits, but non-products limits of general liability coverage, as well.

Non-Products Coverage Exposures

Most courts addressing the scope of products coverage have found that a wide variety of claims involving manufacturing defects fall within the products coverage, even if they include allegations of conduct beyond the manufacture and sale of the product alone. For instance, Fibreboard Corp. v. Hartford Accident & Indemnity Co., 20 Cal. Rptr. 2d 376 (Ct. App. 1993), found that claims for failure to warn, breach of warranties and misrepresentation fell within the products hazard coverage part. This is significant because the aggregate limits applicable to claims falling within the products hazard are an important component of the policy. Recent rulings in cases such as In re Wallace & Gale Co., 385 F.2d 829 (4th Cir. 2004), and Continental Casualty Co. v. Employers Insurance Co. of Wausau, No. 601037/03 (N.Y. Sup Ct., N.Y. County May 8, 2007) (Keasbey), however, have awakened policyholder advocates to arguments seeking to implicate separate non-products coverage that is not subject to an aggregate limit in order to dramatically expand the coverage available to a policyholder facing massive liability from a hazardous product. Accordingly, insurers must now anticipate that similar efforts to expand the available coverage will be made in other instances of large dollar exposure. This might be done either to tap dual coverage parts or to attempt to trigger obligations under general liability policies that did not include a products liability coverage part.

In the recent controversy over contaminated pet food sold by Menu Foods and over lead-paint-coated toys sold by Mattel, there are some claims that policyholder advocates may latch on to for these purposes. For instance, there are substantial complaints about how product recalls were conducted by Menu Foods and Mattel, including suggestions that the companies did not act promptly to protect the public once problems were known. See, e.g., "Safety Agency, Mattel Clash Over Disclosures," Wall Street Journal, Sept. 4, 2007, at A1. Will claims of additional injury taking place while a company delays reporting a hazard constitute product liability claims or non-product claims (since they arguably "arise out of" conduct separate from the manufacture and sale of the defective product itself)? Similarly, some of the suits allege false and misleading advertising by Mattel, for instance, in promoting as safe for children's use toys with hidden hazards. Could these allegations implicate non-products coverage? Although some courts have held that product liability coverage encompasses claims of false advertising where a product's defect is precisely what made the advertising false, there is little case law on point. These are important questions that could dramatically expand the scope of insurers' exposure.

"No Injury" Claims

Another phenomenon in the recent product safety cases is the use of so-called "no injury" claims, particularly in class actions suits. These claims seek to recover for the economic damage of purchasing a product that is defective. Plaintiffs' attorneys have increasingly used the "no injury" claim to avoid difficulties in class certification that would be presented by individualized injury. Some of the newest product and food safety claims—for instance, the suit involving "fortified" eggs1 and at least one of the Mattel toy suits2—are or include "no injury" claims. These unjust enrichment claims present interesting coverage issues: can insurers properly deny coverage for them as mere complaints of economic harm, not involving actual property damage or bodily injury? For pure "no injury" suits, the answer should be "yes." Mixed claims, particularly unjust enrichment claims combined with medical monitoring claims, may be more difficult to evaluate.

The recent rulings in Nokia, Inc. v. Zurich American Insurance Co., 202 S.W.3d 384 (Tex. App. 2006), appeal pending, No. 06-1030 (Tex.) and Samsung Electronics America, Inc. v. Federal Insurance Co., 202 S.W.3d 372 (Tex. App. Aug 21, 2006), appeal pending, No. 06-1040 (Tex.), illustrate the difficulty of determining when a complaint constitutes a suit seeking damages for bodily injury or property damage. Those cases found that there was no coverage for an underlying suit alleging misrepresentation in violation of consumer protection statutes and unjust enrichment. On the other hand, the courts concluded that suits seeking headsets allegedly required to render cell phones safe and to protect consumers from biological injury to cells from radio frequency radiation were suits seeking "damages" (the cost of a headset) due to "bodily injury" (sub-cellular harm). The intermediate appellate courts refused to treat these suits as claims for mere economic loss, even though the class actions sought only the cost of headsets and class membership was predicated only on being a past or future purchaser of a cell phone without a headset, not any specific bodily harm. The coverage issues posed by these two cell phone cases are now pending before the Texas Supreme Court on appeal.

Medical Monitoring Funds

In a number of the new class action suits, plaintiffs' attorneys seek to recover the cost of periodic medical examinations to monitor for and detect conditions that can be caused by exposure to lead paint or other toxic substances. The elements of medical monitoring claims generally are the following: evidence of exposure to a toxic substance, the potential for injury from that exposure and the need for early detection and treatment of any resulting illness or condition. Unlike future medical expense cases (which allow recovery for future costs to treat a current injury), some medical monitoring claims allow plaintiffs to recover monitoring costs without showing any present physical injury.3 There is surprisingly little case law on whether such claims trigger a duty to defend or indemnify under "bodily injury" coverages.

HPF, LLC v. General Star Indemnity Co., 788 N.E.2d 753 (Ill. App. Ct. 2003), a 2003 Illinois intermediate appellate ruling, addressed a claim seeking coverage for medical monitoring costs and found no coverage. In HPF, the plaintiffs had sought medical monitoring as one form of relief in a suit based on allegedly improper labeling, distributing and promoting "Herbal Phen-Fen" as an obesity treatment in violation of California law. The case concerned HPF alleged steps to mislead the public that its "Herbal Phen-Fen" products were proven safe and effective for the treatment of obesity, when in fact they were not. The complaint did not seek damages for any sickness or injury cased by HPF's products. The court concluded that the medical monitoring claim, without more, did not meet the policy's requirement that a claim be based upon "bodily injury."

A 2001 federal district court ruling took a different approach to coverage for medical monitoring claims in Burt Rigid Box, Inc. v. Travelers Property Casualty Corp., 126 F.Supp.2d 596 (W.D.N.Y. 2001). That court, relying at least in part on the broader standard for determining the duty to defend, held that the insurer was obligated to defend a suit seeking a fund for future medical testing to detect cancers as a result of hazardous waste exposures. The claim alleged a higher risk of developing cancer and was "predicated on the plaintiffs' diminished physical capacity to resist such illnesses," the court found. It therefore held that the suit contained allegations of "bodily injury" sufficient to trigger the duty to defend.4 The different outcomes in HPF and Burt Rigid Box underscore how critical the allegations made in each case can be to deciding whether coverage is triggered for a medical monitoring claim.5

Sistership, Insured's Product and Impaired Property

Several "business risks" exclusions come into play in most product liability suits. These include the sistership provision, which bars coverage for the costs of a product recall, (e.g., the costs of withdrawing unsold goods when a potential product defect is discovered). In addition, the insured's own product exclusion eliminates coverage for failure to produce a product as specified (breach of contract or economic loss to the manufacturer) but preserves coverage for damage to the property of a third party or for third-party bodily injury.

Further, there is an exclusion for damage to "impaired property," which is defined as "tangible property other than 'your product'. . . that cannot be used or is less useful because. . . it incorporates 'your product'. . . that is known or thought to be defective, deficient, inadequate or dangerous." Most general liability policies exclude "impaired property" from coverage if it has not been physically injured and the damage arises out of a defect in the policyholder's product. If the "impaired property" is physically injured, however, coverage may exist. This caveat—restoring coverage where an impaired product is physically injured—has resulted in substantial controversy and coverage in commercial claims among companies in the product manufacturing stream. These issues will also be presented in the newest surge of food and product claims. Is "Veggie Booty" physically injured by the incorporation of contaminated spices?6 Are toys physically injured when coated with lead paint?7 Issues such as these show that the new suits over product and food safety are almost certain to revisit the meaning and scope of the business risk exclusions.

Conclusion

As insurers brace for a new wave of suits stemming from food and product safety failures, there should be a growing awareness that these widespread issues will not simply mean that a large number of policyholders will be seeking defense and indemnity under product liability coverage. Instead, due to new plaintiffs' class action tactics in tort cases generally and policyholder strategies drawn from suits over asbestos liabilities in particular, insurers will face difficult questions about the parameters of coverage for these suits and strong challenges to fundamental coverage limitations such as the application of products aggregates and the requirement of actual third-party bodily injury or property damage to trigger any liability coverage at all.