Despite Often Presumed Limitations, Policyholders May Have General Liability Coverage for Supply Chain-Related Breaches of Contract and Damages That Result in Recall

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The Eighth Circuit recently confirmed that the all-too-common conceptions that breaches of contract and damages that result in recall are never covered by general liability insurance are, in fact, misconceptions.

In Netherlands Insurance Co. v. Main Street Ingredients, LLC, 2014 WL 1012793 (8th Cir. Mar. 18, 2014), the policyholder, Main Street Ingredients, LLC (“Main Street”) had purchased dried milk from Plainview Milk Products Cooperative (“Plainview”) and sold it to Malt-O-Meal Company (“Malt-O-Meal”) for Malt-O-Meal to incorporate into its instant oatmeal product. Two years after the sale, the FDA determined that the dried milk had been manufactured in unsanitary conditions and therefore was “adulterated” under the Federal Food, Drug, and Cosmetic Act. As a result, Plainview recalled the dried milk, and Malt-O-Meal recalled the instant oatmeal that contained the dried milk. Malt-O-Meal then sued Main Street (the policyholder) for strict liability and breach of contract. The court in the underlying action granted summary judgment for Main Street on the strict liability claim, and the parties settled the breach of contract claims.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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