(Updates with details from the lawsuit, court documents)
By P.J. Huffstutter
CHICAGO, July 9 Foster Farms and its London
insurers are facing off over the definition of "product recall"
as the poultry producer seeks payment of $14.2 million in claims
arising from a government-mandated shutdown of one of its
plants, court documents show.
The company sued a group of Lloyd's of London
underwriters in June, arguing the closure and resulting product
losses constituted a recall under the terms of its insurance
Foster Farms, one of the largest chicken producers in the
United States, filed an amended complaint last Thursday in U.S.
district court in Fresno, California, saying three insurance
underwriters at Lloyd's acted improperly when they rejected its
claims for the production stoppages in January.
The insurers said the Foster Farms policy covered economic
losses when the company called back its products from customers,
not when the company destroyed products that it had not yet
shipped to customers, documents in the case show.
But Foster Farms argues that the insurers are inaccurately
basing their decision on an ambiguous and "exceedingly narrow
definition of the word 'recall'," according to the complaint.
The claims are against XL Syndicate, Ark Syndicate and
Syndicate 1206, jointly referred to as "the London insurers,"
according to the complaint.
The three underwriters operate on the 326-year-old Lloyd's
of London insurance market, a collection of about 90 competing
insurers housed in a landmark building in the heart of London's
"We don't confirm or comment on clients or claims," XL
Insurance said in a statement. Lloyd's of London and the other
two underwriters could not be reached for comment.
ANOTHER INSURANCE CLAIM POSSIBLE
At issue is a Jan. 8 decision by the U.S. Department of
Agriculture's Food Safety and Inspection Service (FSIS) to issue
a notice of suspension of Foster's facility in Livingston,
California, after it found cockroaches at the site.
The FSIS told Foster Farms to take a series of corrective
actions, including disposing of 1.3 million pounds of chicken
products, according to the amended complaint. The company said
Foster Farms, which had paid a premium of nearly $600,000
for a 12-month product contamination policy, then filed $14.2
million in claims for the lost products and other costs incurred
from the stoppage.
But according to internal emails, letters and other court
documents filed in the case, the insurers rejected the claims
because Foster Farms did not initiate a recall of its chicken,
either from retailer shelves or from customers' warehouses.
"We agree that 'recall' is not defined within our policy,
however to attempt to expand the definition of this word beyond
the common meaning is clearly misguided and we do not agree that
any ambiguity exists," Jonathan Kelly, an XL Group claims
manager, said in a letter to Foster Farms' legal team.
In the midst of the legal dispute, Foster Farmers says it is
considering filing a new insurance claim related to its
voluntary recall last week of an undisclosed amount of
contaminated chicken linked to a major salmonella outbreak.
The company said it initiated the recall "in the fullest
interest of food safety."
The case is Foster Poultry Farms Inc v. Certain Underwriters
at Lloyd's, London, U.S. District Court, Eastern District of
California, No. 14-cv-00953.
(Reporting By P.J. Huffstutter in Chicago; additional reporting
by Richa Naidu in Bangalore; Editing by Steve Orlofsky and Ross