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CNA must defend package maker in baby food contamination case

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CNA Financial Corp. units must defend a package manufacturer in litigation involving contaminated baby food because of ambiguity over what constitutes “food processing” under the terms of its liability policies, a federal court ruled Friday.

West Bridgewater, Massachusetts-based Cheer Pack North America L.L.C. manufactures and sells flexible pouches with screw caps, according to the ruling by a U.S. District Court in Boston in Cheer Pack North America, LLC v. Valley Forge Insurance Co. and Continental Casualty Co.

Cheer Pack’s pouches are used in a “hot fill” application, in which food is pasteurized after being filled in the pouch and heat-sealed.  It is a corporate affiliate of Westford, Massachusetts-based Gualapack North America Inc. and brokers the sale of Gualapack’s filling equipment used to fill the pouches, according to the ruling.

In 2011, baby food manufacturer Plum PBC, which is based in Emeryville, California, and SunOpta Inc. in Edina, Minnesota, entered into an agreement under which SunOpta agreed to manufacture Plum products in packages made by Cheer Pack and to use filling equipment manufactured by Gualapack, according to the ruling.

In September and October 2013, Plum and SunOpta began receiving complaints from customers that pouches of Plum’s products were bloated or swollen, which is evidence of bacterial growth in the pouches.

SunOpta acknowledged it produced contaminated products for Plum and that the contamination occurred during the cooling process, but denied any responsibility for the contamination, alleging Cheer Pack’s pouches contained a defect that prevented them from maintaining a hermetic seal, which resulted in the contamination, said the ruling.

Plum filed suit against SunOpta and Cheer Pack, and SunOpta filed a cross claim against Cheer Pack.

Cheer Pack then sought defense coverage from its insurers. Cheer Pack had a commercial general lability coverage with Valley Forge Insurance Co. and a commercial umbrella policy with Continental Casualty Co., both of which are units of Chicago-based CNA. The insurers denied coverage, and Cheer Pack filed suit in December 2015.

At issue in the litigation is an exclusion with an exception, said the ruling. Both policies exclude bodily injury property damage arising from the growth or presence of any fungi or microbes. But the exclusion does not apply to claims arising where the policyholder’s business is food processing, said the ruling.

“As the facts of this case illustrate, but for the seal created by its pouches, food contained in those pouches would not be properly preserved and therefore not marketable,” the ruling said.

If food processing “can be defined to include converting food into marketable form, and packaging can be essential to the process by which food is converted into safe and therefore marketable form, then there is a legitimate argument that (at least in some circumstances) ‘food processing’ includes the provision of that packaging,” the ruling said.

“Because ambiguities, particularly those providing exclusions from coverage ‘must be construed against the insurer’ plaintiff’s business may be considered ‘food processing,’ for purposes of coverage under the policy,” said the ruling, in quoting an earlier case and holding the insurers have a duty to defend Cheer Pack.