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Insurer denied reimbursement of $10M paid in salmonella case

Insurer denied reimbursement of $10M paid in salmonella case

A federal district court has ruled against Starr Indemnity & Liability Co. Inc.’s effort to be reimbursed for $10 million it paid a policyholder in connection with salmonella-contaminated raw chicken.

The U.S. District Court in Portland, Maine, held that Starr Surplus Lines Insurance Co., a unit of New York-based Starr, was not entitled to reimbursement under its policy in part because salmonella is an “inherent and recognized characteristic of raw chicken,” according to Thursday’s ruling in Starr Surplus Lines Insurance Co. v. Mountaire Farms Inc.

In February 2015, Millsboro, Delaware-based Mountaire Farms Inc. contracted with Cincinnati-based AdvancePierre Foods Inc., a Starr policyholder, to deliver 120,000 pounds of fresh, boneless chicken breasts to AdvancePierre’s Portland facility, according to the ruling.

Soon after, consumers in Minnesota and Wisconsin became infected with salmonella enteritidis, which was reported to the U.S. Food Safety Inspection Service.

The service linked the illnesses to AdvancePierre’s raw chicken and issued a public health alert on July 1, 2015, leading the company to begin a recall that eventually included 1,707,494 pounds of chicken, according to the ruling.

AdvancePierre sustained losses of more than $10 million, including damages resulting from the return and destruction of the recalled chicken products, lost sales opportunities, and loss of business and customers, according to the ruling.

Using its computer system, AdvancePierre traced the salmonella’s source to two truckloads of raw chicken parts it had received from Mountaire in February 2015, the ruling said.

Starr paid the $10 million policy limit to AdvancePierre, then filed a subrogation action to recover its payment. Mountaire moved to dismiss the complaint, and the court ruled in the company’s favor.

Mountaire argued salmonella is inherent in raw chicken, and therefore cannot be rendered “defective,” “unfit for its particular purpose” or “unreasonably dangerous,” which are the essential elements of Starr’s claims, said the ruling.

The court agreed. An “average consumer – and certainly a sophisticated commercial consumer such as (AdvancePierre), Starr’s subrogor – should reasonably expect that raw, uncooked chicken is not safe for human consumption,” said the ruling.

It is “commonly known that salmonella occurs naturally in chicken and that raw chicken can only be safely consumed after it is cooked at high temperatures.”

In addition, under the economic loss doctrine, courts do not permit recovery for a defective product’s damage where the injury “is merely the failure of the product to work properly, rather than personal injury,” said the ruling, in quoting an earlier case.

“Because the complaint does not allege facts plausibly identifying other sources of loss in addition to financial losses barred by the economic loss doctrine, Starr has not asserted a viable strict liability claim,” said the court, in granting Mountaire’s motion to dismiss.

In June, Kellogg Co. said it was recalling an estimated 1.3 million cases of its Honey Smacks cereal from more than 30 U.S. states due to the potential for salmonella contamination, in the latest case of U.S. food products possibly tainted by the illness-causing bacteria.






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