H.J. Heinz Co. v. Starr Surplus Lines Insurance Co.
675 F. App'x 122
| 3rd Cir. | 2017Background
- Heinz applied for accidental contamination insurance from Starr for July 1, 2014–July 1, 2015, submitting an application certified by Heinz’s global insurance director and an attached loss-history spreadsheet.
- Application Question 6e was answered “NO” (regulatory complaints/audits/fines). Question 11a was left unchecked; Heinz attached a loss-history showing only one loss > $5 million over ten years.
- Starr underwriters reviewed the materials and quoted a policy with a $5 million self-insured retention (SIR); Heinz accepted and the policy took effect July 1, 2014.
- Shortly after inception, Heinz reported a lead contamination loss in China and sought coverage. Starr’s investigation revealed an undisclosed pre-inception nitrite loss in China exceeding $10 million, and other omitted large losses; Starr reserved rights and later sought rescission.
- District Court (sitting in Pennsylvania) applied New York law, found Heinz made material misrepresentations, rejected waiver, declared the policy void ab initio, and entered judgment for Starr; Heinz appealed and the Third Circuit affirmed.
Issues
| Issue | Heinz’s Argument | Starr’s Argument | Held |
|---|---|---|---|
| Choice of law governing rescission | Pennsylvania law should govern; service-of-suit endorsement ratified the policy and thus displaced the Policy’s New York choice-of-law clause | Parties contracted for New York law via an express choice-of-law clause; service-of-suit clause does not override that choice | New York law applies; the choice-of-law clause controls and is not nullified by rescission claim |
| Material misrepresentation in application | Disclosures and attachments cured any omission; any underwriter testimony was conclusory | Heinz omitted/affirmatively misrepresented key loss history (multiple > $5M losses); omission is equivalent to misrepresentation | Heinz made material misrepresentations; District Court’s findings upheld and misrepresentations were material |
| Proof standard and reliance | District Court misapplied standard and relieved Starr of proving reliance | Even if higher clear-and-convincing standard applies, Starr proved misrepresentation and relied on Heinz’s application and attachments | Court assumed clear-and-convincing standard and found Starr met it; although District Court erred in not explicitly requiring proof of reliance, the error was harmless because record shows reasonable reliance |
| Waiver / timing of rescission | Starr waived rescission by selling the policy with knowledge or by delaying unreasonably to assert rescission | No clear manifestation of intent to relinquish rescission; investigation period was reasonable and Starr timely sought rescission after learning grounds | District Court’s factual finding of no waiver affirmed; Starr did not waive and investigated for a reasonable period before asserting rescission |
Key Cases Cited
- Hammersmith v. TIG Ins. Co., 480 F.3d 220 (3d Cir.) (standard of appellate review for contract interpretation)
- In re Frescati Shipping Co., 718 F.3d 184 (3d Cir.) (plenary review of legal conclusions)
- VICI Racing LLC v. T-Mobile USA, Inc., 763 F.3d 273 (3d Cir.) (clear-error standard for factual findings)
- Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (U.S. 1941) (federal courts apply forum state choice-of-law rules in diversity cases)
- Century Indem. Co. v. Certain Underwriters at Lloyd’s, 584 F.3d 513 (3d Cir.) (treatment of service-of-suit language in choice-of-law analysis)
- Fid. & Guar. Ins. Underwriters, Inc. v. Jasam Realty Corp., 540 F.3d 133 (2d Cir.) (insurer may rescind for material misrepresentations)
- Avaya Inc. v. Telecom Labs, Inc., 838 F.3d 354 (3d Cir.) (harmless error standard on appeal)
- Meah v. A. Aleem Constr., Inc., 963 N.Y.S.2d 714 (N.Y. App. Div.) (materiality requires proof insurer would not have issued policy on true facts)