Insured Seeking Defense and Indemnity Forced to “Go Fish” After Failing to Satisfy Policy’s Condition Precedent

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In Petco Animal Supplies Stores, Inc. v. Insurance Co. of North America, ___ F.3d ___, 2013 WL 3942889 (8th Cir. Aug. 1, 2013) (Minn.), Meiko Pet Corporation, a Taiwan company, purchased a products liability insurance policy from ICNA which extended coverage to Meiko’s vendors, including PETCO and its subsidiaries. In 2007, an aquarium heater, manufactured by Meiko and sold by Petco, started a fire at a Medtronic, Inc. plant. Medtronic sued Petco, from whom it had purchased the heater, seeking approximately $1.8 million in damages. Petco tendered the defense of the action to ICNA, but ICNA denied the claim, causing PETCO to seek a declaration that it was entitled to defense costs and indemnity in the Medtronic action.

The ICNA policy contained a condition precedent that stated: “It is warranted, and a condition precedent to recovery hereunder, that Air Pumps, Heater, Filters, Heating Stone, Heated Mat, Heated Bowl and Heated Bucket Heater are UL/CSA approved and/or complied with the mandatory and/or voluntary safety standards of importing countries.” The aquarium heater that started the fire was not “UL/CSA approved,” so ICNA was required to defend and indemnify PETCO only if the heater complied with “the mandatory and/or voluntary safety standards” of the United States, the importing country. The U.S. Court of Appeals for the Eighth Circuit upheld summary judgment in favor of ICNA on the basis that PETCO failed to identify any mandatory or voluntary safety standard with which the heater complied.

PETCO argued that the phrase “voluntary safety standards” was ambiguous and reasonably could be interpreted to mean “optional.” The Eighth Circuit reasoned that such an interpretation would mean that the standard would be satisfied irrespective of whether one chooses to comply with it, because it would be “optional.” The Eighth Circuit found that such a reading would render the warranty clause of the policy superfluous. Petco alternatively argued that the heater complied with the mandatory standards of the United States because the Customs authorities would have seized the heater if it did not comply with the government’s mandatory safety standards. The Eighth Circuit held that, although Customs authorities did not seize the heater, it does not follow that the heater necessarily complied with mandatory safety standards of the United States.

Because Petco failed to identify any mandatory or voluntary safety standards with which the heater complied, it did not satisfy the condition precedent under the ICNA policy, and coverage was precluded as a matter of law.

 

Topics:  Condition Precedent, Denial of Benefits, Indemnification, Insureds, Insurers, Safety Precautions

Published In: General Business Updates, Insurance Updates

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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