LYNCHBURG, Va.—The insurer for the Georgia peanut processing plant at the heart of a nationwide salmonella outbreak has filed suit to limit its coverage for liability claims arising from the incident.

But what coverage is in place for companies in the distribution chain was unclear last week. Experts say, however, that firms with specialized recall or contamination coverage would be more likely to see their claims paid than those that rely on general liability coverage.

The salmonella outbreak, which authorities said had sickened more than 575 people and may have contributed to eight deaths, has resulted in the recall of more than 1,500 products since mid-January.

Federal authorities traced the outbreak to a Peanut Corp. of America plant in Blakely, Ga., which annually produces 1% of all U.S. peanut products. The plant processed raw peanuts to produce peanut paste and related products used by many processors in ice cream, snacks and baked goods.

In a statement, Lynchburg, Va.-based PCA said it is investigating the situation that occurred despite governmental inspections. At the urging of federal authorities, PCA recalled all products it produced for the past two years.

PCA's general liability insurer, Hartford Casualty Insurance Co., filed suit last week against the manufacturer to determine whether it must pay claims for victims of the salmonella outbreak.

The suit, filed in the U.S. District Court for the Western District of Virginia's Lynchburg Division, states that one or more of the terms, conditions, exclusions or limitations in the policies "exclude or nullify coverage" for PCA for the salmonella claims.

"We are seeking a declaratory judgment from the court to determine the extent of our obligation to the Peanut Corp. of America under our policies of insurance," a spokesman from Hartford said in an e-mail. "We believe this will help clarify the claims process."

The Hartford, Conn.-based insurer, a subsidiary of Hartford Financial Service Group Inc., issued a primary general liability policy and an umbrella policy to PCA.

The general liability policy provides limits of $1 million per occurrence and $2 million in aggregate for bodily injury or property damage included within the "products-completed operations hazard," according to court documents. The umbrella liability policy provides liability limits of $10 million per occurrence and $10 million in aggregate in excess of the underlying insurance for bodily injury or property damage included within the products-completed operations hazard, which relates to liability for products after they have left a policyholder's premises.

The insurer cited two lawsuits filed by individuals that allege they fell ill after consuming peanut butter manufactured by PCA.

PCA said it would not comment on the ongoing investigation, but said in a statement that the company "is second to nobody in its desire to know all the facts."

For the 180 major companies that recalled potentially contaminated products, insurance is available in the market to cover most of the costs associated with the recall and the anticipated decline in the consumption of peanut products generally. But it is not known how many all affected food processors or suppliers actually have comprehensive coverage, experts say.

Major brand name companies likely have comprehensive coverage for the products they recalled, experts say. But smaller food processors or suppliers may not have bought the comparatively expensive coverage.

A few brand name companies may have used an emerging coverage option known as a sponsored global insurance program, which provides broad and uniform protection throughout the supply chain. It was unclear, though, whether such programs would receive claims as a result of the recall.

The number of companies buying recall-related coverage is increasing, though some mistakenly rely on other coverages to respond to recall claims, say brokers and an insurer. General liability policies typically exclude recall-related coverages, they say. Other manufacturers forgo coverage and trust their quality control systems.

The latest recall of peanut products "certainly seems to have gone far into the food chain," said Bernie Steves, senior vp at Colemont Insurance Brokers of Illinois L.L.C., a wholesale broker in Chicago.

The "increased globalization of the food industry" extends or lengthens the breadth of a food product recall, Ann Butterworth, an underwriter for Liberty Mutual Property in Weston, Mass., said in an e-mail.

Arrangements in which major companies use contract manufacturers to produce their products can increase the complexity of managing quality control. "It doesn't create a risk if it's managed well," said Bill Harrison, managing director of Aon Crisis Management Practice, a Somerset, N.J., unit of Aon Corp.

Typically, only product recall and product contamination coverages will respond, experts say. For either to respond, there has to be the potential for third-party property damage claims or bodily injury claims, which usually manifest themselves within 120 days, Mr. Steves said.

Product recall coverage is triggered by a recall and can cover just removal of the product, or its removal and destruction. A more comprehensive policy also would include repair, replacement or refunding of the product. It also may cover some third-party liability coverage. The coverage can vary significantly.

Product contamination coverage is triggered by contamination that is either accidental or malicious, Mr. Steves said. It tends to be broader than product recall for the first party and includes recall expenses, but also can include loss of profits for 12 months after the contamination incident, brand rehabilitation expenses, and crisis consulting expenses.

"It's not the industry standard to purchase product recall and product contamination coverage, but it is becoming much more popular," Mr. Harrison said. Pricing has declined during the past three years and rates are flat.

For both coverages, "it is pretty much a limited marketplace" with a handful of domestic carriers and Lloyd's of London syndicates selling the coverages, Mr. Steves said.

"It's generally seen as a catastrophe-type coverage," so retentions start at $25,000 and premiums start at $15,000; both can rise into seven figures for larger risks, Mr. Steves said.

In recent years, increased publicity about recalls--such as those involving Chinese toys--has encouraged companies of all sizes to purchase these coverages, insurance experts say.

Some brand name companies are sponsoring global insurance programs that allow them to offer uniform recall-related coverages with a large aggregate limit to all of their respective suppliers, Mr. Harrison said. A participating supplier receives a certificate of insurance

"It's more efficient and cost-effective" for both, Mr. Harrison said.

He declined to identify any companies using such policies, which contain confidentiality provisions.

Kraft Foods Inc. began implementing such a program last year, (BI, May 12, 2008), but the Northfield, Ill.-based company said it was not affected by the recent salmonella outbreak.

Regardless of their insurance situation, risk managers can adopt recall programs as well as adopt or review their own quality assurance programs and those of their vendors, Ms. Butterworth said.