CHICAGO (Reuters) - 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 in June sued a group of Lloyd's of London [LOL.UL]
underwriters, arguing the closure and resulting product losses
constituted a recall under the terms of the company's insurance.
Foster Farms, one of the largest U.S. chicken producers, 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 associated with January
production stoppages mandated by federal regulators.
In essence, the insurers said the Foster Farms policy covered
economic losses when the company pulled back its products from
customers, not when the company destroyed products that it had not
yet shipped to customers, documents in the case show.
While the company has faced sharp criticism from regulators and
public health officials over a 16-month salmonella outbreak that has
sickened hundreds of people, it did not announce a public recall of
its products until last Thursday, according to U.S. Agriculture
Department officials.
Foster Farms' attorney Carmine Zarlenga told Reuters the insurance
litigation has no connection to the voluntary recall.
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 financial district.
Lloyd's of London could not be reached for comment about the case
this week. XL Insurance declined to comment, saying in a statement,
"We don't confirm or comment on clients or claims." The other two
underwriters could not be reached for comment.
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 its chicken products,
according to the amended complaint. The company said it complied.
Foster Farms, which paid more than $612,000 in a 12-month insurance
premium and other associated fees to XL Insurance, 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 pull products from shelves as a result of the
government action.
Foster Farms has repeatedly said its products are safe if properly
handled. It is considering whether to file a new insurance claim for
last week's recall, Zarlenga said.
"You have to give Foster Farms credit for misusing the English
language for their economic advantage," said William Marler, a food
safety attorney who is representing a California man allegedly
sickened by the salmonella outbreak.
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)
