Hot Stuff Foods, LLC v. Houston Casualty Company
771 F.3d 1071
| 8th Cir. | 2014Background
- Hot Stuff Foods manufactured Sausage Breakfast Sandwiches in Minnesota labeled as containing no MSG, but inadvertently used MSG-containing sausage from a Sioux Falls facility for products distributed Aug 2010–Jan 2011; about 193,507 cases recalled and ~40,000 remained in commerce.
- The recalled sandwiches were labeled in violation of 21 U.S.C. § 343(a)(1) (misbranding); agencies designated the recall Class III (no expected adverse health consequences).
- Hot Stuff sought coverage under a Malicious Product Tampering / Accidental Product Contamination policy from Houston Casualty Company (HCC); policy covered contamination that "resulted, or may likely result" in physical symptoms within 120 days.
- HCC denied coverage; Hot Stuff sued for declaratory relief. District court granted Hot Stuff partial summary judgment on coverage, and after trial a jury awarded recall/crisis costs ($755,268.07) and $200,000 lost gross profit.
- On appeal, the Eighth Circuit reversed the grant of summary judgment on coverage (holding the phrase "may likely result" requires more than mere possibility), affirmed the sufficiency of the lost gross profit award, and affirmed denial of attorney’s fees.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Meaning of "may likely result" in coverage phrase | "May likely" means only a possibility or slight chance of harm—ambiguity resolved for insured | It requires a probability—insurer argued higher likelihood threshold | Court: Phrase requires more than mere possibility but less than probability ("reasonably likely"); not ambiguous; district court erred in construing as mere possibility |
| Whether summary judgment on coverage was proper | Hot Stuff: experts show MSG could cause symptoms in some persons, so coverage as a matter of law | HCC: scientific evidence shows no likely harm; coverage question requires more than possibility | Court: factual dispute exists (conflicting expert evidence, lack of reported illnesses), so coverage is a jury question; reverse summary judgment and remand |
| Sufficiency of evidence for $200,000 lost gross profit | Hot Stuff: president provided reasonable business-based lost-profit estimates for recalled and new products; projections routinely prepared and historically reliable | HCC: testimony was lay/opinion, speculative, time-adjustments and causation tenuous | Court: Viewed in light most favorable to verdict, evidence was competent and for jury to weigh; verdict upheld |
| Award of attorney's fees under S.D. Codified Laws § 58-12-3 | Hot Stuff: HCC’s denial and failure to pay undisputed recall amount after adverse summary judgment was vexatious | HCC: reasonable, good-faith dispute over coverage and damages; entitled to litigate | Court: No clear error in denying fees; insurer’s defense not vexatious given unresolved coverage question and disputed damages |
Key Cases Cited
- Patterson v. Mutual of Omaha Ins. Co., 743 F.3d 1160 (8th Cir.) (standard of review for insurance contract interpretation)
- Tri-City Assocs., L.P. v. Belmont, Inc., 845 N.W.2d 911 (S.D.) (contract terms construed in context and avoid rendering words meaningless)
- Opperman v. Heritage Mut. Ins. Co., 566 N.W.2d 487 (S.D.) (reasonable interpretation of insurance terms; "sudden and accidental" analysis)
- Olson v. Aldren, 170 N.W.2d 891 (S.D.) (any reasonable method of estimating prospective profits is acceptable; damages for lost profits for jury determination)
- IBP, Inc. v. National Union Fire Ins. Co. of Pittsburgh, PA, 299 F. Supp. 2d 1024 (D.S.D.) (coverage questions presenting factual disputes may be submitted to a jury)