National Union Fire Insurance v. Ready Pac Foods, Inc.
2011 U.S. Dist. LEXIS 148959
C.D. Cal.2011Background
- This insurance dispute concerns whether several commercial liability insurers must cover Ready Pac’s liability for Taco Bell’s Lost Patronage Claim arising from a 2006 E. coli outbreak.
- The outbreak occurred in Taco Bell restaurants in the northeastern U.S., likely linked to Ready Pac lettuce.
- Taco Bell filed suit in L.A. Superior Court against Ready Pac alleging various damages; Taco Bell franchises claim property damage, bodily injury, and lost patronage.
- National Union issued a primary policy to Ready Pac; St. Paul issued an excess policy following form to National Union; American Guarantee issued a third-layer excess policy following form.
- Movants seek partial summary judgment on coverage for Taco Bell’s Lost Patronage Claim, arguing it is not covered under the policies.
- Taco Bell intervenes and contends the three policies provide coverage for the Lost Patronage Claim.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Lost Patronage is covered as damages 'because of' bodily injury or property damage | Taco Bell: yes, loss ties to bodily injury/property damage | Movants: no, purely economic loss not tied to covered damage | Not covered under the policies |
| Whether follow-form excess policies extend coverage where underlying is non-covered | Policies follow form to underlying National Union policy | Coverage limited to what underlying policy covers; economic loss excluded | Follow-form not extend coverage to purely economic losses; no coverage for Lost Patronage |
| Whether California law governs policy interpretation and precludes coverage for economic loss | California law governs; Geddes line remains controlling for economic losses not tied to property damage |
Key Cases Cited
- Geddes & Smith, Inc. v. St. Paul Mercury Indem. Co., 51 Cal.2d 558 (1959) (lost profits not recoverable as property damage under CGL policy; establishes line for economic losses)
- Geddes & Smith, Inc. v. St. Paul Mercury Indem. Co. (Geddes II), 63 Cal.2d 602 (1965) (expenses to ameliorate damage may be covered; intangibles recoverable only as measure of property damage)
- Hogan v. Midland Nat. Ins. Co., 3 Cal.3d 553 (1970) (lost profits not recoverable; damages for intangibles limited to measure of damage to property)
- AIU Ins. Co. v. Superior Court, 51 Cal.3d 807 (1990) (intangible losses recoverable if they measure damages to property; CERCLA-like context; controls on coverage scope)
- Montrose Chemical Corp. v. Superior Court, 6 Cal.4th 287 (1993) (distinguishes environmental contamination as property damage; intangible economic injuries generally not within CGL coverage)