Court Finds Insurer Must Cover Foster Farms’ Salmonella Losses

A California federal court has granted Foster Farms’ request for declaratory
judgment finding that Lloyd’s of London must cover $14 million in
costs related to a Salmonella outbreak linked to Foster Farms’ chicken
processing facilities. Foster Poultry Farms Inc. v. Certain Underwriters
at Lloyd’s London, No. 14-0446 (E.D. Cal., order entered October 9,
2015).

Foster Farms’ policy with the insurer included coverage for “Accidental
Contamination,” requiring the company to show (i) “an error in the
production of its chicken product” and (ii) that consumption of the
product “‘would ‘lead to’ bodily injury.” Lloyd’s challenged Foster Farms’
showing of the latter requirement, arguing the destroyed products were
not actually contaminated with Salmonella. The court concluded the
company had shown the products were contaminated because at the time
the U.S. Department of Agriculture’s Food and Safety Inspection Service
issued its Notice of Suspension, Foster Farms’ products had tested positive
for Salmonella for six months, and three of eight samples taken the
day of the notice were contaminated. “The average insured reading the
Policy would not reasonably expect that to receive coverage in the event
its product was contaminated, it would have to prove that each and every
one of its products would cause harm if consumed; a reasonable probability
of such harm occurring would be sufficient,” the court said.

“It would also be unreasonable to imply that a product must first be
put into commerce and injure somebody before the policy will provide
coverage,” the court found. “The parties could not have reasonably interpreted
the policy to encourage a producer to sell goods that have been
deemed unfit for consumption, risking the public welfare and subjecting
itself to civil liability and criminal prosecution.”

Issue 581