In a dispute over commercial liability insurance coverage, the Eighth Circuit Court of Appeals has ruled that a trial court erred in deciding, as a matter of law, that a recall of sausage breakfast sandwiches prompted by contamination with monosodium glutamate (MSG) was a covered incident. Hot Stuff Foods, LLC v. Houston Cas. Co., Nos. 14-1192, -1194 (8th Cir., decided November 17, 2014).

When MSG is added to foods, it must be disclosed on the product label. Hot Stuff Foods makes sausage breakfast sandwiches with sausage that does not contain MSG and does not include it on package labels. The company also distributes sausage that contains MSG and learned in January 2011 that some of the MSG sausage was inadvertently used in the breakfast sandwiches. Because the product contained MSG not disclosed on the labels, it was misbranded under federal law. The company promptly reported the situation to Food and Drug Administration and U.S. Department of Agriculture representatives and, following consultation, issued a voluntary recall, which included nearly 200,000 cases of breakfast sandwiches distributed between August 2010 and early January 2011. Approximately 40,000 cases of mislabeled sandwiches remained in commerce during the recall.

Hot Stuff sought indemnification under a malicious product tampering/accidental product contamination policy issued by the defendant, which “denied coverage on the ground that the claim did not involve an ‘Accidental Product Contamination’ as defined in the policy.” Hot Stuff brought this declaratory judgment action to recover its loss. The trial court granted Hot Stuff’s motion for partial summary judgment, ruling that the company was entitled to indemnification of its covered losses, but that the damages required a jury trial. The jury awarded Hot Stuff more than $750,000 for its recall and crisis response expenses and $200,000 for lost gross profit. The insurance carrier appealed the grant of partial summary judgment and the lost gross profit damages award.

The policy at issue defined “accidental product contamination,” in relevant part, as “any accidental . . . contamination . . . or mislabeling . . . provided always that the consumption or use of the Named Insured’s CONTAMINATED PRODUCT(S) has, within 120 days of such consumption or use, either resulted, or may likely result, in: (1) physical symptoms of bodily injury, sickness or disease or death of any person(s) . . . .” The Eighth Circuit disagreed with the district court that the term “may likely result” created an ambiguity and concluded that the lower court improperly read “likely” out of the policy. It also found that “the parties’ summary judgment motions urged erroneous interpretations; [the insurance carrier] argued that ‘may’ should be ignored, while Hot Stuff urged the court to ignore ‘likely.’”

In the Eighth Circuit’s view, the parties by contract “fixed where in the range of product contamination risks coverage should end by choosing a term requiring more than a possibility of physical injury (‘may’), but less than a probability (‘likely’).” The terms are not ambiguous, the court opined, although “the standard may be hard to apply in ambiguous fact situations.” At issue here is “whether the presence of 0.06 to 0.13 grams of undisclosed MSG in the Sausage Breakfast Sandwiches that Hot Stuff distributed and then recalled ‘resulted, or may likely result in’ physical symptoms of injury or illness in any of the persons who consumed those products.” Noting that some sensitive individuals may experience adverse reactions to MSG and discussing a conflict between the parties’ experts, the court determined that the issue “cannot be answered by a summary judgment record that consists of inconclusive government reports and scientific studies and the dueling opinions of experts far removed from the relevant marketplace.”

The court determined that damages need not be retried, but stated that “unless the district court determines on remand that summary judgment is appropriate based on the full trial record, the coverage question must be submitted to a jury.” The court further found no error in the lost gross profits award or the district court’s denial of Hot Stuff’s request for attorney’s fees.