Food Protection Trends - October 2011 - (Page 631)

General Interest Paper Food Safety and Spoilage: Courts Favor Reasonable Expectations of Food Companies for Product Loss ROBERT D. CHESLER* and RACHEL B. WRIGHTSON Lowenstein Sandler PC, 64 Livingston Ave., Roseland, NJ 07068, USA INTRODUCTION Reasonable expectations can make a difference in insurance coverage litigation Wakefern Food Corp. v. Liberty Mutual Insurance Co., 406 N.J. Super. 524 (App.Div. 2009) and HoneyBaked Foods, Inc. v. Affiliated FM Insurance Co. Case No. 3:08-cv-01686 (N.D. Ohio Dec. 2, 2010) share some crucial facts. Both concerned food companies; Wakefern is a supermarket, and HoneyBaked a manufacturer of hams. In both cases, the company bought an all-risk first party property insurance policy. Similarly, the court in both cases found that the company, in purchasing all-risk insurance, was most concerned about the risk of food spoilage. Also in both cases, the company suffered a major food spoilage loss that, after a close reading of the insurance policy, the lower court found was not covered under the policy. In Wakefern, the New Jersey Appellate Division then reversed the trial court decision denying coverage and found coverage based on the reasonable expectations doctrine. In HoneyBaked, the Ohio Federal District Court certified to the Ohio Supreme Court the question of whether the reasonable expectations doctrine applied, so that there would be coverage despite the policy’s clear language. The Wakefern and HoneyBaked takeaways are as follows: • An all-risk policy provides coverage for all risks that are not excluded, but the exclusions devour a great deal of the coverage that the insured might expect. • Despite policy language, courts are willing to find coverage when the exclusions cut to the heart of the insurance protection that the insured would reasonably expect. CASE STUDY #1 Wakefern Food Corp. v. Liberty Mutual Insurance Co. Wakefern concerned a supermarket that had an all-risk policy. The court found that spoilage was the biggest risk that the supermarket faced and for which it bought insurance coverage. During the blackout of 2003, the supermarket was without electricity for four days, and a large amount of its food spoiled. Wakefern turned to its all-risk policy for coverage. The insurer disclaimed. Wakefern’s policy covered loss of electrical power, but that coverage was triggered only if the loss was caused by physical damage to the off-site electrical plant. The 2003 blackout, however, was not due to an accident that caused property damage and shut down the power system. Rather, the electrical grid was shut down to prevent damage from occurring. As the insurer’s expert explained, the cause of the blackout was “the de-energizing of transmission lines by the proper operation of protective relay devices.” Id. at 535. The trial court granted summary judgment to the insurer. On appeal, the Appellate Division found that “based on the highly technical analysis in the Final Report, one could certainly argue that the system was not physically damaged.” Id. at 541. However, the court found that the term ‘physical damage’ was ambiguous in the context of the case before it. Applying the basic rules of insurance policy construction, OCTOBER 2011 | FOOD PROTECTION TRENDS 631 http://www.foodprotection.org/files/food-protection-trends/Oct-11-Chesler.pdf

Table of Contents for the Digital Edition of Food Protection Trends - October 2011

Food Protection Trends - October 2011
Table of Contents
Sustaining Members
Food for Thought from Your President
Commentary from the Executive Director
Beliefs and Perceptions of School Foodservice Personnel about Following a HACCP-based Program
Mitigating Cross Contamination in Four Retail Foodservice Sectors
General Interest Paper – Food Safety and Spoilage: Courts Favor Reasonable Expectations of Food Companies for Product Loss
New Members
What’s Happening in Food Safety
Industry Products
Coming Events
Advertising Index
Journal of Food Protection Table of Contents
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Food Protection Trends - October 2011