Gilbert LLP Convinces Sixth Circuit to Rule in Favor of Asbestos-Containing Product Manufacturer-Policyholders

By Mark Packman and Krishan Thakker

Comprehensive general liability policies limit the amount the insurer has to pay for each “occurrence”, which is typically defined as an “accident” or “exposure to [injurious] conditions”. Insurers and policyholders frequently battle over the number of occurrences that result from asbestos lawsuits and other toxic-tort claims.

Miriam Smolen, a partner at Gilbert LLP, recently won a significant victory for policyholders, convincing the Sixth Circuit that Ohio law treats each asbestos tort claim against a policyholder as arising from a separate “occurrence” for insurance purposes. See LuK Clutch Sys’s, LLC. v. Century Indem. Co., No. 11-4212 (6th Cir. Oct. 11, 2012), aff’g LuK Clutch Sys., LLC v. Century Indem. Co., 805 F. Supp. 2d 370 (N.D. Ohio 2011). The decision delivers a blow to general liability insurers nationwide on the hotly contested issue of number of occurrences.

LuK Clutch (“LuK”) was sued in hundreds of product liability personal injury actions alleging exposure to asbestos-containing automotive clutch products manufactured by a corporate predecessor of LuK. LuK sought coverage under four commercial general liability policies issued by the defendant- insurers over the period from 1985 to 1987. Each of the policies had a per “occurrence” limit. When the defendant-insurers claimed exhaustion of the policies, LuK brought a declaratory judgment action against defendant-insurers and MTD Products, Inc., a joint owner of LuK’s predecessor, for coverage under the policies.

The insurers argued that there was a single occurrence, namely, LuK’s initial decision to use and manufacture asbestos-containing products, and therefore that no coverage remained under the policies. LuK Clutch, 805 F. Supp. 2d at 371, 380. LuK argued there were multiple occurrences i.e. that each individual claimant’s exposure to asbestos-containing products constitutes a separate occurrence. Id. at 371, 377.

Ruling for LuK, the District Court held that the “occurrence” is the exposure to asbestos fibers, and that each asbestos claim arose from a “separate occurrence.” The district court, in rejecting the insurer’s argument that the decision to manufacture asbestos was a single occurrence, reasoned that it is “difficult to characterize a decision to use asbestos in clutch facings as a condition to which the claimants were exposed.” Id. at 378. Additionally, the court said the definition of the term “occurrence” includes the clause, “which happens during the policy period and which result in personal injury.” Id. Since the claimants’ exposure to LuK’s products occurred during the relevant policy periods, it was possible that this exposure “result[ed] in personal injury” to the claimant. Id. Thus, the court reasoned that “it is impossible that a decision made in the 70s took place in 1985 or 1986 and resulted in personal injury.” Id. (emphasis in original).

The court further found the policies’ “Limits of Liability” provisions did not require a “single occurrence” to result, since the relevant part of that provision stated that “all bodily injury and property damage arising out of continuous or repeated exposure to substantially the same general conditions shall be considered as arising out of one occurrence.” Id. at 373, 380. In addition to analyzing the policies’ language, the court adopted the so-called “cause test,” which holds that the number of occurrences is equal to the number of causes of the policyholder’s tort liability. Id. at 380-381. Accordingly, the court held that each asbestos claim arising from an individual claimant’s “continuous and repeated exposure” to LuK’s asbestos-containing products constituted a separate, “single occurrence.” Id. at 381. Significantly, the court also noted the underlying complaints alleged exposure with differing injuries in different places, at different times, under different circumstances. Id. at 380-381.

The Sixth Circuit, after oral argument, issued a one-sentence order stating “that the judgment of the district court be, and it hereby is, affirmed upon the opinion of the district court for the reasons stated in open court.” LuK Clutch Sys’s, LLC. v. Century Indem. Co., No. 11-4212 (6th Cir. Oct. 11, 2012).


Spilled Milk: District Court Judge Sides with Policyholder in Recall Damages Dispute

By Jonathan Cohen and Aisha Cassis

On January 8, 2013, a Minnesota federal district court granted summary judgment in favor of a policyholder who sought coverage from its commercial general liability insurer for contract damages stemming from the recall of instant milk.  In 2007, the policyholder, Main Street Ingredients (“MSI”), purchased instant milk from Plainview Milk Products Cooperative (“Plainview”).  MSI entered into a contract under which it resold that milk to Malt-O-Meal Company (“MOM”).  MOM incorporated that milk into its instant oatmeal.  In 2009, the Food and Drug Administration detected unsanitary conditions and salmonella at Plainview’s manufacturing facility.  As a result of this, Plainview issued a recall of all instant milk sold from 2007 forward.  This included the milk that MSI sold to MOM that MOM had incorporated into its instant oatmeal products.  That same year, MOM sued MSI and Plainview seeking damages that it had incurred as a result of the recall.  MSI settled with MOM for $1.4 million.  MSI sought both liability and defense costs from its insurer, Netherlands Insurance Company (“Netherlands”), which had defended the claim under a reservation of rights.

On March 2, 2011, Netherlands filed a declaratory judgment action (The Netherlands Insurance Company v. Main Street Ingredients, LLC, et al., No. 11-533, 2013 U.S. Dist. LEXIS 2685 (D. Minn.)), against MSI seeking a declaration that it had no duty to defend or indemnify MSI.  MSI counterclaimed that Netherlands was required to do so.  Both parties moved for summary judgment, and the Court sided with the policyholder on each issue.

First, the Court held that, although the underlying litigation stemmed from a breach of contract dispute, there had been an occurrence under the policy because (i) the contractual liability itself arose from the recall of the instant milk and (ii) there was no evidence in the record suggesting that MSI intended to injure MOM.

Second, the Court held that the known loss provision could not operate to preclude coverage where MSI did not have knowledge of the damage until it received the recall notice from Plainview.  This did not occur prior to Netherlands’s policy period.

Third, the Court found that property damage was present regardless of the fact that the instant milk had never tested positive for salmonella.  Additionally, the Netherlands policy provided coverage not only for property damage, but also for damages incurred because of property damage.  Thus, the damages included costs stemming from MOM’s destroyed inventory, credits and fees to customers, recall freight and additional costs.

Finally, the Court refused to apply the “your product,” “impaired product,” or “recall” exclusions because none of those exclusions barred coverage for damages associated with a third party’s product.  Notably, the Court cited well-established New Jersey case law that establishes the “recall” exclusion “has no applicability when the claim is for property damage claimed to have been suffered by another property owner.” Id. at *18 (citation omitted).

This decision should give food companies further support in seeking coverage for liabilities arising out of product recalls.

Rise in Food Contamination Calls for Proactive Risk Management in 2013

By Jonathan M. Cohen and Emily P. Grim

Despite improvements in food safety over the last two decades, 2012 saw no shortage of recalls due to food contamination.  For example, one Indiana farm recalled all cantaloupes from its 2012 growing season after the fruit was linked to an outbreak of salmonella that killed three and sickened hundreds.  Another salmonella outbreak caused health officials to shut down the Vancouver, Washington branch of a popular Mexican restaurant.

The outbreaks of 2012 were not an anomaly.  Recent studies show that foodborne illness may be on the rise.  According to the Center for Disease Control, approximately 48 million Americans fall ill, 128,000 are hospitalized, and 3,000 die each year due to food contamination.  That means that 15% of Americans can expect to have a foodborne illness annually.  And, a recent study by the U.S. Public Interest Research Group estimates that the number of Americans falling ill or dying from eating tainted food has increased 44% since 2011.

Several new incidents in the last month suggest that this trend will continue in 2013.  In December, the Food and Drug Administration discovered salmonella contamination at the same Indiana farm linked to the August outbreak.  Last week, a national restaurant chain issued a recall of a smoked salmon product after its supplier notified the company of a potential bacteria threat.

This trend highlights the importance of careful risk mitigation plans for food companies at all levels of the supply chain.  To procure the best risk management portfolio for its needs, a company should begin by evaluating its potential exposure with as much specificity as possible.  A company with foreign manufacturers, for example, should not identify its risk merely as “concerns about the supply chain” or “concerns about exposure from foreign manufacturing,” but should break its concern into more specific and detailed aspects of its concerns, such as “concern about shipping interruptions due to weather,” “concerns about interruptions or liabilities arising from pandemics,” or “uncertainty regarding quality control, storage, and expiration dates.”  The more a company breaks down risk into specific and detailed concerns, the better that company can evaluate the protections the company has to avoid or pay for those risks.

Next, companies must identify the best way to transfer their risk, whether via insurance coverage, indemnities, or other mechanisms.  For example, a food manufacturer might seek one or more policies designed to cover the cost of testing and destroying the product, cleaning contaminated equipment, notifying third parties of the recall, and damage to the manufacturer’s reputation.  Depending on their position in the supply chain, certain companies might also seek third-party coverage for potential lawsuits by supermarkets for economic losses or claims by customers sickened by contaminated food.

An effective risk evaluation also should identify legal hurdles that could impede a company from accessing coverage.  Some policies, for instance, contain contamination or microbe exclusions that insurers likely would assert bar coverage for many recall events.  Food companies should be on the look-out for other potential coverage limitations as well, such as limits of liability that could cap a policyholder’s recovery or deductibles that could reduce or eliminate coverage for the types of problems that a food company might confront.  Even in the face of such exclusions or limitations, though, many policyholders may have strong arguments that these provisions do not apply to the specific types of risks or liabilities the company has.  A thorough knowledge of the fast-evolving legal landscape of liability, property, and recall coverage will enable companies to draft the best possible coverage language.

Food contamination may be on the rise, but by performing a comprehensive analysis of risk exposure and potential coverage options, companies can ensure that they have the right protection.

Skirmishes Over Use of Social Media in Litigation Continue to Intensify

By Barry Buchman and Emily Grim

Since our prior two posts on the issue, there have been several developments showing that questions about the proper use of social media in litigation continue to abound.  These developments demonstrate that practitioners who fail to stay on top of the latest developments in this area – both in terms of the potential appropriate and beneficial uses of social media and the potential risks associated with this medium – do so at their peril.

Most recently, a plaintiff in a personal injury case received a reduced award from a jury after the defendant introduced, at trial, certain of the plaintiff’s Twitter messages, which discussed traveling and partying after the car accident at issue.  See Mark Niesse, Twitter Sunk Woman’s Award after Car Crash, N.J. Law Journal (Jan. 2, 2013).  This outcome follows a similar case, in which a judge reduced a monetary judgment awarded to a man who sued over the death of his wife in an accident, after the court learned of a post-accident Facebook photo that showed the man wearing a garter belt on his head and a t-shirt with the phrase “I love hot moms” on it.  See Zach Winnick, Social Media an Ethical Minefield for Lawyers, Law360 (Apr. 13, 2012).

The takeaway from these cases is that attorneys need not only to monitor the social media postings of potential clients before taking a case; they also need to continue vigilant monitoring of posting after the representation begins.  Attorneys also should urge caution to their clients about what they post on social media sites.

Courts also continue to grapple with the extent to which parties can obtain formal discovery of an adverse party’s social media information.  As we noted in our last post on the issue, courts generally have been receptive to such discovery requests.  See Barry Buchman and Emily Grim, Recent Ethics Charges Against Attorneys Demonstrate Need for Full Understanding of “Do’s and Don’ts” of Using Social Media, We’ve Got You Covered – Insurance Law Blog (Sept. 11, 2012) (citation omitted).  But, in a recent decision in an employment discrimination case, a federal magistrate judge ruled that the bulk of the defendant’s request for social media discovery was too broad.  Although the judge granted a portion of the discovery request, the decision did take a narrower view of permissible discovery in this area than certain prior decisions.  See Abigail Rubenstein, Courts Struggle to Lay Out Social Media Discovery Limits, Law360 (Sept. 20, 2012).

Finally, courts continue to crack down on improper juror use of social media during trials.  Just as jurors cannot go to an accident or crime scene during a trial without court supervision, or give interviews about a trial while it is ongoing, jurors likewise cannot conduct online research about a case during trial, or exchange “Tweets” with reporters about it.

The potential negative impact on the judicial system of such improper juror behavior is very significant.  In three recent high profile cases, a juror’s comments about proceedings on Facebook and Twitter put verdicts in jeopardy and generated debate over the best way to protect the impartiality of judicial proceedings in the age of social networking.  See Juror Number One v. Superior Court, 206 Cal. App. 4th 854 (Cal. Ct. App. 2012) (requiring juror to turn over, for private review by the court, comments that he made on Facebook regarding criminal trial in which he had served as juror, after comments were discovered post-verdict); Dimas-Martinez v. State, 2011 WL 6091330, at *16-*17 (Ark. Dec. 8, 2011) (overturning conviction and corresponding death sentence after juror continued to post comments about case on Twitter even after court instructed him to cease such activity); U.S. v. Fumo, 655 F.3d 288, 305 (3d Cir. 2011) (declining to overturn conviction for fraud, tax evasion, and obstruction of justice despite juror’s posts about the anticipated timing of the verdict on Facebook and Twitter, but acknowledging potential for such communications to undermine the impartiality of trial proceedings and encouraging district courts to instruct jurors as to such dangers).

Courts have attempted to crack down on such misconduct by confiscating jurors’ mobile devices at the start of each day, requiring jurors to sign a pledge to refrain from using social media at trial, or, in some cases, imposing fines or removing jurors from the panel.  Most recently, in response to a national survey of federal trial judges showing growing concern regarding juror misuse of social media, the federal judiciary released new model jury instructions explaining the dangers of social media use and prohibiting jurors from communicating about a case via cell phone, email, blogs, or social media sites such as Twitter, Facebook, or YouTube.  Significantly, these model instructions urge jurors to turn in other jurors who disregard these prohibitions.

Likewise, lawyers also can take an active role in identifying and preventing incidents of juror misconduct.  As we discussed in a previous post, ethical and legal authorities agree that a lawyer may view a juror’s publicly-available online content during trial, as long as the juror does not become aware that the lawyer is monitoring them.  See Barry Buchman and Emily Grim, How Far Can Lawyers Go in Researching Jurors on Social Media Sites, We’ve Got You Covered – Insurance Law Blog (July 11, 2012), quoted in Advice to Lawyers: Look But Don’t ‘Friend’ Potential Jurors, Wall Street Journal Law Blog (July 12, 2012).  Indeed, at least one ethics panel has found that if a lawyer learns that a juror is engaging in misconduct, such as tweeting or blogging about the case during trial, the lawyer must promptly bring that information to the court’s attention.  See N.Y. Co. Law. Assoc. Comm. on Prof. Ethics, Formal Op. No. 743 (May 18, 2011).

Companies Need to Review Their Insurance as FDA Announces First Rules Under FSMA

By Jonathan M. Cohen

On January 4, 2013, the Food and Drug Administration (“FDA”) issued the first two rules that will put into effect the Food Safety Modernization Act (“FSMA”), a law passed by Congress in 2011 that is designed to prevent food-borne illness on a nationwide basis.  The FDA has said that both FSMA and its rules are intended to constitute a proactive rather than a reactive approach to food-borne illness.  Both rules will be subject to a 120-day public comment period before they can take effect.

The first proposed rule, the Preventive Controls for Human Food Rule, would require food companies – whether they manufacture, process, pack or store food – to develop formal plans to prevent their products from causing food-borne illness through contamination.

The second proposed rule, the Produce Safety Rule, would require farms that grow, harvest, pack or hold fruits and vegetables to follow science- and risk-based standards for the production and harvesting of produce on farms.  These standards are aimed at preventing contamination in the growing, harvesting, packing, and holding processes.

Although these two new proposed rules are the first ones that the FDA has proposed to implement FSMA, they likely are not the last.  FSMA, which runs for 1,200 pages, covers a wide range of food-related issues.  It provides specific controls and hazards that companies must address.  Although the FDA had not met the deadlines for rolling out rules that FSMA set out, FSMA has many provisions that require FDA rules or regulations for implementation.  In a press release also issued on January 4, 2013, the FDA stated that it soon would propose additional rules, including rules regarding the overseas growth and processing of food products.

Together, FSMA and the two new proposed rules (as well as future rules) can have a significant effect on food companies’ liability risk should a food-borne contamination or recall occur.  Companies at all levels of the food supply chain thus should be aware that FSMA and related rules could change the effectiveness of their current risk management and mitigation strategies.  Because food companies still have time before these two proposed rules will become effective, and before the FDA proposes other rules, now is the time that companies need to review their risk mitigation strategies, including by reviewing their insurance and indemnification agreements, to ensure that they protect themselves in this evolving legal environment.

Ten Things Every Company Needs To Know About Insurance Coverage For Superstorm Sandy

By Richard Shore and Jonathan Cohen

  1. There is a good chance you have coverage.  There is a good chance that affected companies have insurance for some or all of the property damage, loss of profits, and expenses resulting from Superstorm Sandy.
  2. Your policies may cover flood damage.  Many business property policies cover both flood and wind damage, sometimes subject to special terms or limitations.  Even if there are exclusions for flood damage, companies may be able to establish coverage through other covered causes.
  3. Hurricane deductibles should not apply.  Some policies have special deductibles for hurricane-related damage.  Sandy, though, likely was not classified as a “hurricane” when it made landfall, and damages thus may not trigger hurricane-related deductibles.
  4. You may have coverage for losses due to business interruption.  Most business property policies cover losses that occur when a company loses profits due to physical damage to its own facilities.  These policies also often cover extra expenses that businesses incur to mitigate losses, potentially including expense of shifting production form a damaged plant to other facilities.          
  5. You may be covered even absent physical property damage.  Even if your facilities or offices sustained no physical property damage, you may still have coverage under most property policies if (a) your location was shut down by acts of civil authority, (b) you had a sustained inability to enter or leave your facility, or (c) there were interruptions in key services, such as power or phone outages.
  6. You may be covered for the costs of preparing for Superstorm Sandy.  Many property policies provide coverage for costs incurred to prevent or mitigate imminent damage.  Because reasonable steps taken to prepare for and minimize losses may have saved insurers money, insurers should pay for these efforts.
  7. You may need to consider liability insurance as well as property insurance.  Because business interruptions sometimes can result in third-party claims against your company, you may need to seek coverage under your general liability policies, and you should provide prompt notice under those policies if circumstances warrant it. 
  8. Some policies contain strict time requirements.  Many policies contain tight deadlines for complying with certain coverage requirements, including short time frames for providing notice and submitting proofs of loss, and time limits on when you can sue the insurer if there is a dispute.  If necessary, communicate now with your insurer to negotiate an extension or tolling arrangement.
  9. Supply chain losses may be covered.  Many property policies cover lost profits and extra expenses incurred due to interruptions that block a company’s ability to obtain components necessary to make its own product, or its ability to deliver its product to the customer.  Even disruptions at a supplier’s supplier may be sufficient to trigger this “contingent business interruption” coverage.
  10. You should review all of your policies and get help if you need it.  Companies should review all relevant policies to identify potential coverage.  Because there can be many pitfalls in securing insurance coverage for Sandy-related losses, it is best to consult experienced professionals early in the process, including your broker, private claims adjusters, and counsel.

Whether Because of Floods or Droughts, Weather Can Shut Down the Mississippi River and Cause Business Interruptions

By Jonathan Cohen and Barry Buchman

Last year, we wrote an article published in the Corporate Counselor that discussed the coverage consequences of business interruptions caused by unprecedented flooding of the Mississippi River.  In the article, we discussed the fact that the flooding could cause supply chain interruptions, which could result in very large losses to companies that lost access to suppliers or could not get their products to market.   We also discussed the fact that many companies have insurance coverage for “contingent business interruptions,” which may cover all or part of the losses caused by disruption of river traffic.

Last week, the Washington Post published an article warning of severe economic fallout potentially on the horizon because of the crippling drought that has severely lowered water levels on the Mississippi River.  The article pointed to the fact that the “stubborn draught that has gripped the Midwest for much of the year has left the Mighty Mississippi critically low – and it will get even lower if the Army Corps of Engineers presses ahead with plans to reduce the flow from a Missouri River dam.”  The article raised the specter that a dip in water levels could mean a closure of the Mississippi River, and thus the same types of losses and disruptions that arose from flooding last year.  The Washington Post quoted a senior vice president of the Waterways Council (a public policy organization that represents ports and shipping companies), as saying:  “This could be a major, major impact at crisis level . . . . It is an economic crises that is going to ripple across the nation . . . .”

If the Mississippi River becomes impassable, companies again may need to look to their insurance to ameliorate the financial impact.  The same issues that we discussed in our article last year again will come to the forefront.  As we discussed in our article, companies need to review their policies to determine whether they might have coverage, act quickly to ensure compliance with all time-related policy conditions, prepare to counter the arguments that insurers might raise to evade their coverage obligations, and take care to track losses and damages to enable companies to present their claims effectively.

Jonathan Cohen to Speak at Webinar on Coverage Issues Resulting from Hurricane Sandy on November 27, 2012

This Perrin Conference, The Imperfect Storm: Surfacing Coverage Issues in Sandy’s Wake, will cover the following topics:

  • An overview of the coverages potentially available for covering damages and business interruptions arising from Sandy
  • A guide to a healthy working relationship between insurers and policyholders, including how when to involve insurers, how to identify and quickly resolve disputes, and what to do if faced by an insurer that refuses to pay
  • Practical tips and next steps if your company has incurred Sandy-related losses
  • The need for prompt technical expertise for losses involving specialized plant and machinery, especially where there is a BI element to the potential claim
  • Discussion of potential for ongoing losses even after recovery due to displaced local community

The webinar will take place on Tuesday, November 27 at 2:00 pm EST.  Click here for more information.

Mold, Asbestos, and Raw Sewage – The Toxic Stew that Sandy Left Behind

By Jonathan Cohen and Aisha Cassis

Superstorm Sandy wreaked havoc across the Eastern Seaboard and is predicted to be one of the costliest natural disasters in U.S. history.  New York’s Governor Cuomo estimates that the storm may have had a $50 billion impact on the northeastern states in damage and economic loss.  Particularly because a major Nor’easter followed right on Sandy’s heals, businesses throughout the region suffered significant property damage and lengthy business interruptions.

But Sandy’s wrath may not have ended there.  If Hurricane Katrina is a good model, Sandy’s direct property damage and business interruptions may be exacerbated by future environmental harms that will require costly environmental cleanup well after the flood waters subside.  Companies should be aware they may be able to rely on existing insurance policies to cover these costs.

Secondary hazards from Superstorm Sandy may remain for months after the flood waters have been pumped out.  Numerous communities reported that Sandy caused thousands of gallons of raw sewage to pour out from overwhelmed treatment plans into the Long Island Sound.  The storm also may have affected open-air impoundments that store millions of gallons of toxic fracking waste and sludge.  The humid conditions that Sandy left in many buildings could result in the growth of mold or other environmental risks.  And, asbestos, which previously had been encapsulated in building materials, may deteriorate if the encapsulating materials became wet, causing deterioration that could allow asbestos to become friable and requiring environmental redress.

Companies may have coverage for these costly hazards under one or more of their commercial insurance policies.  These policies may provide coverage for, among other things, the costs of cleaning up the environmental impacts, and/or property damage and business interruption resulting from those impacts.  Companies also may have coverage under general liability or other policies for third-party claims alleging tort liability for environmentally-related property damage.

But watch out – these policies may contain exclusions for certain or all of these hazards, including express and broad exclusions for damage arising from mold, bacteria, and asbestos.  As Sandy is expected to provoke four times the number of insurance claims as last year’s Hurricane Irene, policyholders reasonably should expect that insurers will try to invoke all possible exclusions.  Policyholders should prepare now to counter the insurers’ likely coverage defenses, and they should recognize where they have strong counterarguments.  For example, multiple causes of an accident may trigger coverage even if one of the causes is excluded.  Companies should review their policies carefully, with insurance counsel if needed, and take steps to preserve and pursue all available coverage.

For more information, click here for our alert on Sandy-related coverage issues, or contact Jonathan Cohen at or at (202) 772-2259.

Partner Jonathan Cohen Quoted in Reuters Article on Hurricane Sandy

Jonathan Cohen is quoted in the Reuters article Nor’easter complicates  insurance for Sandy-struck businesses by Ben Berkowitz.

“It gets complicated because policyholders and their insurers are going to have to work out where the different causes of their property damage came from and how that implicates the provisions of the policy,” said Jonathan Cohen, an insurance litigator at Gilbert LLP in Washington.

Click here to read the entire article.