Hunton Retail Law Resource

The CPSC experienced a political shake-up this month when the U.S. Senate confirmed Dana Baiocco as the newest commissioner. In September, President Trump nominated Baiocco, a Republican and former partner at Jones Day, but the Senate did not act on the nomination by the end of the 2017 calendar year. So President Trump resubmitted his nomination of Baiocco in January. On May 22, 2018, the Senate confirmed Baiocco by a vote of 50-45, mostly along party lines. Her seven-year term will run through October of 2024.

Commissioner Baiocco’s confirmation is significant for the CPSC because it shifts the balance of power. Prior to her confirmation, the CPSC had three Democratic commissioners (Marietta Robinson, Robert Adler and Elliot Kaye) and two Republican commissioners (Ann Marie Buerkle and Joe Mohorovic). Commissioner Mohorovic resigned in October, leaving a 3-1 Democratic majority. Although Commissioner Robinson’s term expired in October, the rules permit her to serve up to one year in a “hold-over” position until a replacement is confirmed. Commissioner Baiocco will now replace Commissioner Robinson, creating a 2-2 tie along party lines. This tie fosters political limbo at the CPSC, and results in uncertainty about how the agency will make decisions going forward. Indeed, Acting Chairman Buerkle does not have any tie-breaking authority as chairman. Most observers expect that President Trump will act swiftly to nominate a Republican to fill the fifth commissioner seat and create a 3-2 Republican majority at the CPSC for the first time in over a decade. That said, it would only be speculation to predict how a Republican majority might affect CPSC action going forward since it has been such a long time since that has occurred, and because CPSC-related issues have not been fodder for policy pronouncements by the Trump Administration.

Moving beyond the political news, the CPSC’s focus on recreational off-road vehicles (“ROVs”) and All-Terrain Vehicles (“ATVs”) spilled over into May. Last month, the CPSC approved a $27.25 million civil penalty—the largest in CPSC history. The civil penalty stemmed from a manufacturer’s alleged failure to immediately report defects in two types of ROVs. The same manufacturer also recalled three ROV models last month. This month, a different manufacturer recalled a ROV model. Further, the CPSC recently issued a public service announcement about ATVs in advance of the summer’s riding season. The CPSC predicts that there are about 650 deaths per year involving ATVs and nearly one-third of them are related to incidents from riding ATVs on paved surfaces. Accordingly, the public service announcement is aimed at encouraging consumers to keep ATVs off of paved roads, even if local laws permit it.

Attorneys from Hunton Andrews Kurth LLP’s Insurance Coverage practice group weigh in on a recent product contamination insurance coverage dispute.

On May 11, 2018, nutritional supplement manufacturer Lake Country Foods, Inc., (“LCF”) filed an insurance coverage complaint seeking to enforce its rights under a product contamination policy issued by Houston Casualty Company (“HCC”) arising from a salmonella contamination incident. In October 2017, LCF alleges that it discovered the presence of salmonella in large quantities of powdered whey protein processed in its Oconomowoc, Wisconsin, facility between late-September and early-October 2017. LCF could not sell the contaminated whey product and was forced to issue refunds to its customers.

LCF provided notice of the production contamination to HCC, which initially accepted the claim and paid approximately $1.2 million toward LCF’s losses. LCF continued to incur losses in excess of $1.2 million after receipt of HCC’s initial payment. In April 2018, LCF alleges that HCC “reversed course and not only declined to reimburse LCF for its full insured losses, but also demanded return of the $1.2 million” it had already paid. In support of its coverage reversal, HCC cited to positive tests for salmonella that LCF received before the HCC policy incepted on March 10, 2017, which excluded coverage for the claim.

LCF does not dispute the accuracy of the prior test results, but rather contends in the coverage lawsuit that the positive test results were “isolated to a floor area [that] would not impact LCF’s product, which passes through an enclosed system.” LCF highlights that it continued to process supplement products for nearly a year after the initial test results without issue, and attributes the Fall 2017 salmonella contamination to construction work at LCF’s facilities several months earlier. Under these circumstances, the complaint alleges that “the test results cited by HCC did not give LCF reason to expect a production contamination event” and, therefore, “as of the inception date of the HCC Policy, LCF had no knowledge of any circumstance that may lead to insured losses.”

LCF asserts a breach of the insurance contract and seeks a declaration permitting LCF to keep the $1.2 million already paid by HCC and requiring HCC to provide coverage for the production contamination claim. The case is Lake Country Foods, Inc. v. Houston Casualty Co., No. 18-CV-734 (E.D. Wis. filed May 11, 2018).

Total Recalls: 24

Hazards: Fire/Burn/Shock (7); Injury (3); Laceration (3); Choke (3); Fall (2); Entrapment (2); Violation of Federal Flammability Standard (1); Strangulation (1); Carbon Monoxide (1); Explosion (1)

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