Land O'Lakes, Inc. v. Daniel Ratajczak, Jr.
870 F.3d 650
7th Cir.2017Background
- Packerland Whey Products added urea (nonprotein nitrogen) to its Whey Protein Concentrate from 2006–2012, inflating Kjeldahl-based protein measures; Land O’Lakes bought the concentrate for animal feed and later discovered the adulteration.
- The Ratajczaks owned and ran Packerland; they sold the company in May 2012, remained employees, continued the practice, and settled with the buyer for ~$10 million in December 2012 after the buyer learned of the adulteration.
- Land O’Lakes sued the Ratajczaks asserting breach of contract, fraud, and RICO treble damages; breach was settled and fraud abandoned on appeal, leaving only the RICO claim.
- Packerland’s commercial liability insurers refused defense/indemnity for the Land O’Lakes suit, arguing no covered "occurrence" (policy defined as an "accident"); the Ratajczaks’ personal insurer (Beazley) refused indemnity for the $10M settlement, citing policy exclusions, a $1.5M contractual cap, and lack of consent to settlement.
- The district court granted summary judgment for defendants/insurers; the Seventh Circuit affirmed on three main points: Land O’Lakes failed to prove RICO injury; insurers owed no coverage because adulteration was deliberate (not an "occurrence"); and Beazley had no obligation to indemnify due to the contractual cap/deductible and the Ratajczaks’ unapproved settlement.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Land O’Lakes proved injury under RICO (18 U.S.C. §1964) | Land O’Lakes claimed economic injury from buying adulterated product (testing costs, potential customer claims, lost sales/pricing effects) | Ratajczaks argued Land O’Lakes offered no quantifiable, non-speculative proof of actual loss from the alleged scheme | Court: No. Land O’Lakes presented only unquantified/testing costs and speculative future claims; summary judgment for defendants affirmed |
| Whether Packerland’s insurers must defend/indemnify under policies requiring an "occurrence" (an "accident") | Ratajczaks: some alleged misconduct may be reckless rather than intentional, so coverage could attach for accidental consequences | Insurers: adulteration was deliberate fraud, not an accidental "occurrence," so policies do not cover it | Court: No coverage. Deliberate adulteration and its intended effects are not accidental; insurers need not defend/indemnify |
| Whether Beazley must indemnify the Ratajczaks for the $10M settlement under their seller-warranty policy | Ratajczaks: settlement resolves buyer’s claims potentially implicating covered non-fraudulent warranty breaches (including possible Fundamental Representations); Beazley is bound despite not consenting | Beazley: policy excludes fraud, caps uncategorized warranty breaches at $1.5M (matching retention), and requires insurer consent to settlements; Ratajczaks failed to notify/obtain consent | Court: No indemnity. Settlement addressed fraud and uncapped categories were not clearly pled; deductible matched contractual cap, and Ratajczaks settled without timely notice or Beazley consent, relieving Beazley of obligation |
| Whether insurer’s refusal to indemnify is barred by state law prejudice doctrine or public policy | Ratajczaks: Wisconsin law requires proof of prejudice and may limit insurer control over settlments; insurer’s denial is therefore invalid | Beazley: policy selected New York law; under New York, insurer control/consent provisions are enforceable and prejudice need not be shown | Court: New York law governs; insurer’s consent requirement and denial are valid; Ratajczaks cannot avoid contractual choice-of-law |
Key Cases Cited
- Carter v. Berger, 777 F.2d 1173 (7th Cir.) (RICO plaintiffs given margin in proving loss but still must show non-speculative injury)
- Vigilant Ins. Co. v. Bear Stearns Cos., 10 N.Y.3d 170 (N.Y. 2008) (insurers may contractually require and control settlement consent)
- Gerrard Realty Corp. v. American States Ins. Co., 89 Wis.2d 130 (Wis.) (addressing insurer notice/prejudice principles in Wisconsin)
AFFIRMED