The Hartford Asks Court To Clarify Liability In Peanut Salmonella Cases

Source of Article: http://www.courant.com/business/hc-peanut0206.artfeb06,0,2325987.story

| The Hartford Courant

February 6, 2009

The peanut processor at the center of the nation's deadly salmonella outbreak could be in an even stickier mess because its insurer The Hartford has rushed to court to limit what it might have to pay on lawsuits.

Hartford Casualty Insurance Co., part of The Hartford Financial Services Group, is asking a federal court in Virginia to determine what its responsibility is on three years of policies it issued to Peanut Corp. of America.

The Lynchburg, Va.-based peanut processor makes peanut butter and peanut paste, which is used in baked goods and other foods.

The salmonella bacteria outbreak has sickened about 575 people nationwide, and at least eight have died. Connecticut's Department of Public Health said nine cases of illness here may be associated with Peanut Corp. products.

The Hartford could be on the hook for up to $31 million in claims under the liability insurance policies at issue if it gets only unfavorable court rulings. It might cost the insurer millions more in legal costs, depending on how the policies were written.

Rather than wait to be sued by its customer, Peanut Corp., The Hartford asked U.S. District Court for western Virginia this week for a declaratory judgment on the policy dispute.

Peanut Corp. could face hundreds of millions of dollars in claims of various kinds, said Bill Marler, a Seattle trial lawyer specializing in food-borne illness lawsuits. Only three suits had been filed by Thursday afternoon on behalf of salmonella victims two of them by Marler but more are expected. The peanut company will also face massive claims from businesses for the cost of food recalls and lost profits, he said.

With the company facing all that and a federal criminal investigation, "it does seem a bit like The Hartford is kicking their insured under the bus at a time when they probably need a little support," Marler said.

Insurance coverage disputes between businesses and their liability insurers often surface in court, especially in big cases such as asbestos injury claims. But Marler said insurance disputes in contaminated food cases are usually fought "behind closed doors."

The Hartford wouldn't discuss details of the peanut dispute or legal strategy. Company spokesman David Snowden would only say, "We are seeking a declaratory judgment from the court to determine the extent of our obligation to the Peanut Corp. of America under our policies of insurance. We believe this will help clarify the claims process."

The Hartford's court filing says, "An actual controversy exists between Hartford and PCA as to whether one or more of the terms, conditions, exclusions and limitations limit, exclude or nullify coverage under the policies for one or more of the salmonella claims."

A Peanut Corp. spokesperson did not return calls for comment Thursday.

The Hartford may have moved quickly into court to determine whether it will have to pay to defend Peanut Corp. against suits, said Peter Kochenburger, executive director of the University of Connecticut's Insurance Law Center. The costs of defense, which can be huge in such a case, are typically in addition to what a general liability policy promises to pay on claims, he said.

Liability policies may promise to pay a certain amount overall, but might have sublimits on certain kinds of claims, so The Hartford might want the court to iron out such issues, Kochenburger said.

Marler speculated that The Hartford may try to avoid some claims if its policies excluded intentional bad acts, though he said such exclusions are more common in professional liability policies than in general commercial liability insurance. Previous news reports have said products that initially tested positive for salmonella were shipped by Peanut Corp. after they were retested and got a negative result.

By Thursday, companies had recalled 1,313 products containing peanut products, making it one of the largest U.S. food recalls ever, The Associated Press reported. The ever-growing list of companies recalling products includes Starbucks, Hershey, Nestle, Kellogg, Walgreens, Sarah Lee and Stop & Shop. The Stew Leonard's food store chain said Thursday it recalled five trail mixes.Peanut Corp. expanded its recall Jan. 28 to all peanut products produced at its Blakely, Ga., plant since Jan. 1, 2007.

 

 

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