Federal Court Dismisses Insurance Coverage Action in Tainted Baby Formula Case
A federal court in Virginia has issued an order dismissing without prejudice claims filed against two insurers by a company that makes baby formula; the parties stipulated to the dismissal after similar litigation concluded with a defense verdict following trial in state court. PBM Nutritionals, LLC v. Arch Ins. Co., No. 09-194 (E.D. Va., order entered March 23, 2011). The matter reportedly involves the failure of a hot-water supply system that leached melamine and other filtration materials into eight days’ worth of formula production, contaminating $6 million in baby formula.
The manufacturer has apparently recovered $2 million under a contamination policy issued by one of its insurers, but lost its bid to recover under other policies that contained “perils excluded” clauses and pollution/contamination endorsements. The perils-excluded clauses deny coverage for damages resulting from a pollutant discharge unless the discharge is caused by a “peril” insured against. The insurers relied on contamination endorsements that exclude all pollution-related losses except in the case of fire, lighting or explosion. Still, the manufacturer, which has appealed the state court judgment to the Virginia Supreme Court, contends that inconsistencies between the clauses and endorsements render the insurers liable for coverage. According to the manufacturer, contamination from the loss of the filters qualified as an exception to the perils-excluded clause. The trial court disagreed, finding that the endorsements modified the clause and controlled the coverage issue. See Law360, March 23, 2011.
