Hunton Retail Law Resource

The new year ushered in a series of warnings from the CPSC about inclined infant sleepers posing suffocation risks and dressers posing tip-over risks to consumers. Both products have been under scrutiny by the CPSC over the past year.

In October, the CPSC issued guidance urging consumers to stop using inclined infant sleep products after reports of 1,108 incidents, including 72 infant deaths. Last month, the CPSC continued to raise alarm about inclined infant sleepers by announcing the recalls of more than 165,000 sleepers from four importers due to suffocation risks. The CPSC also warned consumers about the suffocation risks posed by one brand of the inclined infant sleepers. The CPSC urged consumers to stop using the brand’s sleepers immediately.

Furniture tip-overs associated with chests and drawers have been a recent focus of the CPSC. For example, the CPSC in November announced that there were 459 reported tip-over-related deaths involving children 17 years old and younger between 2000 and 2008. This month, the CPSC warned consumers about four-drawer dressers after the manufacturer refused to issue a recall. The CPSC tested the dresser and found it was unstable and prone to tip over. The CPSC also expressed its intent to continue pressing the manufacturer to recall the dressers.

Off-highway vehicles (OHVs), which include all-terrain vehicles and utility task vehicles, also came into focus after three recalls this month due to collision hazards. Relatedly, the Consumer Federation of America issued an analysis of OHV recalls announced by the CPSC over the last decade. The analysis states that there have been 110 OHV recalls with the highest number occurring in the past three years. Most of the recalls were driven by fire (45%), throttle (14%), and steering (10%) hazards. Further, 19 brands were involved in the recalls of almost 1.5 million OHVs that resulted in at least 70 injuries and 2 deaths.

Lawyers from Hunton Andrews Kurth LLP’s insurance coverage practice provide updates on several recent recall insurance disputes:

An insurer providing contaminated products insurance to an international food distributor has filed a declaratory judgment lawsuit in New York state court seeking to bar coverage for a claim arising from a recall of defective cookie butter jars. In Berkley Assurance Company v. Acme Food Sales, Inc., Berkley alleges that a contaminated products insurance policy purchased by food importer, distributor and marketer Acme Food Sales provides no coverage for losses Acme incurred in recalling the defective cookie butter jars. The dispute began when one of Acme’s customers informed Acme that it had discovered certain jars of cookie butter contained defective inner foil seals. Acme notified its supplier of the inner seal issue and was able to trace the affected products to two lots that had been shipped to the customer. Berkley alleges, however, that the manufacturer told Acme that the defect did not present a foods safety hazard.

Berkley also alleges that the cookie butter products were not contaminated; the use of the products did not result in any bodily injury, property damage or adverse publicity; the jars were withdrawn from store shelves less than a week after Acme became aware of the issue. As a result, Berkley argues that Acme failed to satisfy any of the three requirements to trigger the policy’s accidental contamination coverage where: (i) there was no inadvertent or unintentional contamination of the products; (ii) even if there was contamination, there is no evidence that it was during or as a direct result of the products’ manufacturing, packaging or distribution; and (iii)  the products did not result and would not result in any bodily injury, property damage or adverse publicity.

Berkley also asserts that the policy’s government recall coverage does not apply because neither Acme, its supplier, nor the customer had notified or communicated with a government food safety regulatory agency about the affected products. And even if they had been in touch with a government agency about the recall, Berkley states it was not advised that the recall of the cookie butter arose directly from an agency’s determination that the consumption of the products posed an unreasonable risk of serious injury or death, which is required to trigger coverage. Acme’s “voluntary” recall, Berkley argues, precludes coverage under the policy.

We will continue to monitor this dispute for further updates, including Acme’s response to Berkley’s coverage arguments.

The parties in the Kormondy product recall coverage dispute, previously reported on this blog, have reached a settlement, and the pending litigation will be dismissed within the next 30 days. Beef and poultry cooking facility Kormondy Enterprises (formerly National Steak Processors, Inc.) had sued its excess insurer in Oklahoma federal district court for denying its insurance claim arising from several lawsuits relating to a product recall of ready-to-eat chicken products.

The insurer, Great American, filed a motion for summary judgment arguing that the excess policy’s “organic pathogens” endorsement excluded coverage because the recalls were initiated because of possible undercooking and bacterial pathogens. Great American also argued that coverage for the product recalls and resulting state court litigation was excluded under various “business risk” exclusions, including an exclusion for property damage arising out of the insured’s “product,” an exclusion for “impaired property,” and a “recalled product” or “sistership” exclusion, all of which the insurer argued barred coverage for the undercooked, adulterated chicken products. Finally, even if the exclusions did not apply, Great American asserted that the policy did not provide coverage for the underlying breach of warranty claims and was never triggered because Kormondy’s primary insurance has not yet been exhausted.

Shortly after the summary judgment motion was filed, the court entered an order stating that the parties reached a settlement and that the dismissal documents would be filed by March 11, 2020. The Kormondy dispute highlights a number of common exclusions in general liability and excess policies related to products and pathogens that insurers often rely on to deny coverage for any recall-related claims. But as the coverage lawsuit and subsequent settlement show, policyholders frequently have numerous arguments for coverage that can result in recovery for defense and indemnity losses under traditional policies.

Total Recalls: 17

Hazards: Suffocation (4); Fall (3); Collision (3); Fire/Burn/Shock (3); Violation of Federal Standard (2); Laceration (1); Injury (1)