Hunton Retail Law Resource

With the arrival of 2018, President Trump resubmitted his nominations for CPSC leadership vacancies to the Senate. In 2017, Trump nominated Commissioner Ann Marie Buerkle to serve as CPSC Chair and Dana Baiocco to serve as a commissioner replacing Democrat Commissioner Marietta Robinson, whose term expired. But, under Senate rules, nominations not acted on are returned to the President. At the end of the Senate’s 2017 session, this meant that roughly 120 nominations were returned to Trump. Both nominees—Buerkle and Baiocco—are expected to receive Senate confirmation this year.

The CPSC is taking a proactive step in offering $1.1M in pool safety grants to assist state and local jurisdictions in reducing deaths and injuries from drowning and drain entrapment incidents in pools and spas. This step continues the CPSC’s concerted effort to combat fatalities involving children and swimming pools. As we reported last spring, a recent study showed that drownings among children ages one through four have decreased 17 percent since the CPSC launched a Pool Safety public education campaign in 2010. But drowning is still the leading cause of unintentional death among this age group, which is a vulnerable population.

January was relatively quiet on the recall front with only 18 recalls. Four of these recalls are noteworthy. The recall of lithium-ion batteries was a reoccurring theme in 2017 due to their tendency to overheat and catch fire. This month, a retailer again recalled these batteries for laptops and mobile workstations, which is a further indication that lithium-ion batteries continue to pose risks to consumers. Likewise, furniture tip-overs were another 2017 theme that reappeared this month when two manufacturers recalled TVs and Murphy bed kits due to their proclivity to tip-over. Finally, in August 2017, the CPSC issued a safety alert providing guidance to businesses on the dangers posed by fidget spinners. Recently, a manufacturer recalled fidget spinner keychains because its center post can fall out, posing a choking hazard. This is the first CPSC recall involving fidget spinners since they became the nation’s hottest toy in the summer of 2017.

Attorneys from Hunton & Williams LLP’s Insurance Coverage practice group weigh in regarding recent insurance coverage issues involving product recall claims.

The new year has brought several new recall-related coverage lawsuits.

In Associated Milk Producers Inc. v. Ace European Group Ltd., No. 17-cv-5579 (D. Minn. removed Dec. 28, 2017), a dairy cooperative (“AMPI”) filed a complaint alleging that two insurers wrongfully denied coverage for more than $13 million in losses related to recalling millions of pounds of damaged cheese products. The lawsuit alleges that, beginning in October 2017, the cheese produced at AMPI’s manufacturing facilities in Blair, Wisconsin, became damaged after equipment at a local water treatment plant failed and contaminated the water supply servicing AMPI’s facilities. AMPI noticed the claim under its product contamination equipment breakdown policies, and its insurers refused to provide coverage. AMPI filed a coverage lawsuit requesting a declaratory judgment that the insurers owe coverage for the loss, as well as seeking various damages related to the insurers’ breach of the insurance policies, including the value of cheese put on hold as a result of the contamination incident, storage costs and related expenses, consequential damages and interest.

In Pinnacle Foods Inc. v. Lloyd’s Syndicate XLC 2003, No. 17-cv-1244 (W.D. Tenn. filed Dec. 22, 2017), Pinnacle Foods, which owns the Aunt Jemima brand breakfast foods, filed a lawsuit against two Lloyd’s insurers alleging that the insurers breached their policies by refusing to reimburse product recall and business interruption costs arising from a product contamination incident. Following inspections of Pinnacle’s Jackson, Tennessee, manufacturing plant in April 2017, the FDA informed Pinnacle that its test results were “presumptively positive” for listeria. As a result of the unfavorable test results, Pinnacle recalled the affected products and provided notice under its production contamination policy with two Lloyd’s insurers. Pinnacle sought coverage for various covered losses, including pre-recall expenses, recall expenses, business interruption losses and fees and costs of crisis consultants. The insurers denied coverage, and Pinnacle filed a coverage lawsuit seeking a declaratory judgment that its recall claims are covered under the policy and contending that the insurers breached their obligations under the policy to reimburse loss associated with the claim. In addition to the various losses covered under the policy, Pinnacle seeks to recover consequential damages sustained as a result of the insurers’ breach, including lost executive time, lost earnings and attorneys’ fees and expenses in prosecuting the insurance claim.

In Otsuka America, Inc. v. Crum & Forster Specialty Insurance Co., No. 650463/2018 (N.Y. Sup. Ct. filed Jan. 30, 2018), the parent company of vitamin maker, Pharmavite, filed a lawsuit alleging that the insurer denied benefits under a product recall insurance policy related to loss incurred by Pharmavite in connection with the withdrawal, destruction and disposal of tainted products. In June 2016, Pharmavite was forced to recall a number of dietary supplement products produced at its Opelika, Alabama, facility following testing protocol issues discovered during an FDA audit. Pharmavite provided notice of the recall claim to its insurer, who disclaimed coverage. Pharmavite is seeking a declaratory judgment that the policy provides coverage for various losses sustained as a result of the recall and asserts a breach of contract claim against the insurer for failing to reimburse covered loss under the policy. The complaint alleges that Pharmavite suffered substantial monetary losses, including costs associated with the withdrawal, destruction and disposal of adulterated products, lost profits, increased operating costs and other expenses associated with the recall and third-party liabilities.

Total Recalls: 18

Hazards: Fire/Burn/Shock (6); Fall (2); Choke (2); Tip-Over (2); Impact (1); Mold Exposure (1); Suffocation (1); Violation of Federal Standard (2); Injury (1).

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