Hunton Retail Law Resource

The CPSC has recently focused its enforcement efforts on children’s products.  Fisher-Price recalled two of its infant sleep products—Rock ‘n Glide Soothers and Soothe ‘n Play Gliders—after four infant deaths were reported involving the first product.  All four infants were placed in the products unrestrained on their backs and were later found on their stomachs deceased.  This news comes after the CPSC’s actions last month to approve a new federal standard for infant sleep products and to recall two more products related to infant sleep.

The CPSC and a distributor recently issued a warning and recall for another children’s product:  youth ATVs.  These products do not meet the CPSC’s mandatory safety standards.  Specifically, the ATVs exceed mandatory maximum speed limits for youth ATVs, posing a risk of a high-speed crash that could lead to serious injury or death.  The CPSC issued the same warning for another brand of youth ATVs a few months earlier.

The CPSC appears destined for significant leadership changes in the coming months.  President Biden recently nominated two individuals to serve at the agency.  The first is Alexander Hoehn-Sarie, who President Biden nominated to serve as CPSC Chair.  Hoehn-Sarie currently serves as the Chief Counsel for Communications and Consumer Protection for the U.S. House of Representatives Committee on Energy & Commerce.  The second is Mary Boyle, who President Biden nominated to serve as a CPSC Commissioner.  Boyle currently serves as the Executive Director of the CPSC.  With the nominations officially made, it is now the U.S. Senate’s turn to decide whether to hold confirmation hearings and confirm these nominees.

Lawyers from Hunton Andrews Kurth LLP’s insurance coverage practice provide an update on a recent recall-related insurance coverage dispute below:

From tainted pumpkin seeds to damaged cheese, we frequently discuss insurance claims involving policyholders seeking to recover direct recall expenses or to defend against claims by customers affected by contaminated or recalled products.  However, contamination events and ensuing recalls can lead to a variety of other claims that implicate a number of other coverages, including liability coverage for claims against officers and directors addressing the company’s internal contamination risk and safety policies and procedures.  In Discover Property & Casualty Insurance Co. v. Blue Bell Creameries USA, Inc. (W.D. Tex. June 3, 2021), two Travelers entities sued ice cream manufacturer Blue Bell and ten of its officers and directors, arguing that the insurers do not have an obligation to provide coverage for a shareholder lawsuit asserting claims that the officers and directors breached their fiduciary duties by failing to prevent or control a 2015 Listeria outbreak that resulted in a nationwide recall of ice cream products.

The individual defendants were alleged to have knowingly and intentionally disregarded contamination risk and safety compliance, even after learning of prior Listeria contamination in testing dating back to 2013.  The shareholder suit named Blue Bell as a nominal defendant and sought declaratory relief, an award of damages to Blue Bell, disgorgement and cancellation of the defendants’ stock in Blue Bell, and an order for the company to implement policies and procedures to maintain adequate operational controls.

Blue Bell sought coverage for the shareholder suit under a number of commercial general liability policies issued by Travelers, arguing that the suit seeks damages because of “bodily injury.”  The insurers denied coverage on the grounds that:  (i) the shareholders seek equitable and other relief, not damages because of “bodily injury,” resulting from a breach of fiduciary duty; (ii) the suit does not seek to hold any of the directors or officers legally liable for damages; (iii) any “bodily injury” was not caused by an “occurrence” due to the defendants’ alleged intentional, non-accidental conduct; and (iv) the claim is subject to a number of exclusions governing, among other things, “expected or intended injury,” “contractual liability,” “recall of products,” “impaired property,” and “knowing violation of rights of another.”  In their declaratory judgment complaint, the insurers seek a declaration that they have no duty to defend or indemnify the individual insureds sued in the shareholder suit and demand an award of attorneys’ fees and costs arising from the coverage action.

The Blue Bell suit is interesting, not because the insurers denied coverage, but because the policyholder sought coverage for a derivative lawsuit against the company’s officers and directors under a commercial general liability policy several years after the suit was initially filed.  Travelers asserts that the general liability policies expressly exclude the kinds of intended injury, willful misconduct, impaired property, and product recalls at issue in the shareholder suit.  Derivative suits are more often covered under the company’s D&O liability policy, in part due to the frequent limitations in general liability policies like those referenced in the insurers’ declaratory judgment action.

The underlying shareholder Listeria suit was settled for $60 million in April 2020 shortly before trial.  The insurers emphasize in their suit that the policyholder did not assert a claim for coverage under the general liability until April 2021—over three years after the shareholders asserted their claims and approximately a year after the case settled—which suggests that the delayed notice may have been due to a portion of the settlement being uninsured by D&O or other liability policies affording coverage for the shareholder litigation.  We will continue to monitor the case for further developments.

Total Recalls: 13

Hazards:  Violation of federal standard (5); Fire/Burn/Shock (4); Fall (1); Crash (1); Choke (1); suffocation (1)