Thruway Produce, Inc. v. Massachusetts Bay Insurance
114 F. Supp. 3d 81
W.D.N.Y.2015Background
- Thruway Produce supplied apples to Milnot (Beech‑Nut); apples were later found contaminated with rodenticide and incorporated into Milnot baby food, prompting a recall and suit by Milnot alleging breach of contract and warranties.
- Milnot sought at least $1,522,122 for recall costs, disposal and other losses; liability on contract/warranty claims was partly decided against Thruway in the underlying action.
- Thruway tendered the claim to Massachusetts Bay Insurance, which issued a Primary CGL policy and an Excess/Umbrella policy covering June 30, 2005–June 30, 2006.
- Insurer paid a limited $50,000 under a product‑recall endorsement but later denied broader defense/indemnity; both parties moved for summary judgment in this declaratory‑judgment action.
- Policies cover "property damage" caused by an "occurrence" (defined as an "accident") but include exclusions for "your product," "your work," "impaired property," and a recall exclusion (with limited covered recall expense in the Primary endorsement).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Duty to defend — whether Milnot's claims arise from an "occurrence" | The contamination was unintended and therefore an "accident"/"occurrence" triggering coverage | A defective product breach/contract claim is not an "occurrence" when damage is to the insured's own product | Court: Held for Plaintiff — contamination that damaged third‑party baby food was an "occurrence" as a matter of law |
| Duty to defend — whether losses are "property damage" | Damage to Milnot's baby food (into which tainted apples were incorporated) is physical property damage | Alleged losses are economic; not property damage | Court: Held for Plaintiff — incorporation caused physical damage; claims implicate "property damage" |
| Applicability of recall exclusion | Plaintiff: recall was of Milnot's finished product, not Thruway's apples; exclusion does not bar coverage | Defendant: recall exclusion (and product/work/impaired property exclusions) precludes coverage for recall and related costs | Court: Held for Plaintiff on summary judgment stage — insurer did not show the allegations fall solely within exclusions; recall exclusion not established as matter of law |
| Duty to indemnify (final liability/payment) | Thruway seeks declaration of indemnity for all Milnot damages | Insurer seeks judgment there is no indemnity obligation (exclusions/definitions) | Court: No final ruling — indemnity is deferred until damages are resolved in underlying action (not ripe) |
Key Cases Cited
- Aetna Cas. & Sur. Co. v. Gen. Time Corp., 704 F.2d 80 (2d Cir. 1983) (construing "occurrence" as an unexpected accident from insured's perspective)
- Sturges Mfg. Co. v. Utica Mut. Ins. Co., 37 N.Y.2d 69 (N.Y. 1975) (Court of Appeals: unexpected product failure that damages other property can be an "occurrence")
- Chubb Ins. Co. v. Hartford Fire Ins. Co., 229 F.3d 1135 (2d Cir. 2000) (affirming duty to defend where insured's product, incorporated into another product, caused damage)
- Jakobson Shipyard, Inc. v. Aetna Cas. & Sur. Co., 961 F.2d 387 (2d Cir. 1992) (no occurrence where only the insured's product/work was damaged)
- J.Z.G. Resources, Inc. v. King, 987 F.2d 98 (2d Cir. 1993) (distinguishing faulty workmanship claims from consequential third‑party property damage)
- Stonewall Ins. Co. v. Asbestos Claims Mgmt. Corp., 73 F.3d 1178 (2d Cir. 1995) (distinguishing "property damage" from pure economic loss)