H.J. Heinz Company v. Starr Surplus Lines Insurance Company

675 Fed. Appx. 122 (3rd Cir. 2017)

Purchase the Printed Copy at bsmsphd.com

Nature of the Case

To access this section all you need to do is click here and register.

Facts

P makes and sells food products worldwide. D is a global insurance company that sells contaminated product insurance that protects food product companies against losses arising from accidental contamination or government-imposed recall of their products. P had this type of insurance from insurers other than D. P’s coverage was subject to a $20 million self-insured retention, commonly referred to as a 'SIR.' P sought proposals for contaminated product insurance, including accidental contamination insurance, for the period covering July 1, 2014 to July 1, 2015. An insurance broker, Aon, acted for P throughout the application process and subsequent purchase of the policy (Policy). Aon emailed P's application for a policy to D which included P's loss history and a certification signed by P. The Application asked specific questions about prior losses and P responded by attaching a spreadsheet detailing P's loss history from 1998 to 2013. The loss history disclosed only one loss over ten years greater than P's requested $5 million SIR. Aon provided D with a loss ratio analysis dated June 5, 2014. The loss ratio analysis projected only one loss in excess of a $5 million SIR over a ten-year period. Two Starr underwriters conducted independent analyses of the materials. They concluded that P's requested $5 million SIR was appropriate. P accepted D's proposal on June 27, and the Policy became effective. Two weeks later, Chinese authorities informed P that baby food it manufactured in China was contaminated with lead. P recalled the product and notified D. D hired two outside firms to investigate P's claimed loss. D found out that, prior to Policy inception, P incurred a loss in excess of $10 million after the discovery of excessive levels of nitrite in baby food manufactured in China. P did not disclose this loss in its Application. D informed P that it was reserving its right to limit or withhold coverage under the Policy. P sued D seeking damages for breach of contract and bad faith and a declaration that D must indemnify P for the China Lead Loss claim. D asserted a counterclaim for rescission based on allegations that P omitted and misrepresented material information in its Application. The parties agreed to litigate D's counterclaim first. The jury found that D proved that P made material misrepresentations of fact in its insurance application, but that D waived its right to assert rescission. The district court agreed with the jury on misrepresentation but disagreed on a waiver. P appealed.