New Jersey Court Finds Insurance Contract Ambiguous; Insurer Liable for Tainted Food-Related Claims
A New Jersey Superior Court judge has denied insurers’ request for summary judgment in a case brought by Taco Bell Restaurant franchisees seeking “protection from the consequences of publicity about contaminated food served at restaurants.” In re: Quick Service Mgmt., Inc. v. Underwriters of Lloyds, No. 4861-07 (N.J. Super. Ct., decided June 12, 2009). The court also granted plaintiffs’ motion for partial summary judgment as to coverage.
According to the court, the franchisees specifically sought insurance in 1999 to protect against revenue losses from food contamination outbreaks. They purchased “Food Borne Illness” and “Trade Name Restoration, Loss of Business Income and Incident Response Insurance for Food Borne Illness” policies from defendants. The latter policy, which was in force in 2006-2007, apparently contained an “Aggregate
Supplier Incident Sublimit” of $0, and plaintiffs claimed that no one explained that the sublimit would exclude coverage previously provided under the former policy, which had been discontinued in 2002. “They apparently believed that the Policy would provide reimbursement for revenue losses from reports (true or not) of food borne illness arising out of their restaurant operations.”
An E. coli outbreak in 2006 was traced to food sold at Taco Bell restaurants in the northeast, and the Centers for Disease Control and Prevention traced the source of the contamination to lettuce sold and delivered to the restaurants by other parties. Plaintiffs sought indemnification for lost income following the outbreak, and the insurers refused coverage, relying on the sublimit provision. According to the court, “[a]ny exclusion must be clear,” and where “an insurance policy is less than scrupulously clear, the insurer must provide coverage consistent with a reasonable interpretation of the policy.” The court determined that the franchisees were entitled to coverage under the policy because it was open to interpretation and “an average, reasonable insured would expect coverage for the Outbreak.”
