Dickie McCamey Lawyers Obtain Rescission of $25M Product Contamination Policy For Client In Coverage Dispute

PITTSBURGH, Feb. 1 – Dickie McCamey lawyers Robert Marino and Dave Ziegler along with lawyers from Choate, Hall & Steward have successfully obtained rescission of a $25 million dollar surplus Product Contamination Insurance (PCI) policy issued by Starr Surplus Lines Inc. Co . to H.J. Heinz.  The ruling  relieves the insurer of reimbursing Heinz for expenses arising out of the furnishing of lead-contaminated baby food.

Applying New York law, U.S. District Judge Arthur Schwab ruled earlier this week that the omission of multiple significant prior contamination claims from Heinz’ loss histories in the application for coverage was material, thereby entitling Starr to rescission of the policies.  Schwab found testimony from Starr’s underwriters and executives that the unreported losses were material to insuring Heinz’ risk credible.

The Court, with the consent of counsel, empaneled an advisory jury to assist with fact finding, and while it agreed with most of the jury’s findings,  it departed and disagreed with that portion of the advisory jury verdict which found that Heinz had adequately proved Starr had waived the right to assert Heinz’ material misrepresentations as to prior losses.  Schwab wrote:

While Starr was not “perfect” in its assessment and underwriting practices, perfection is not the standard.  Instead, this Court finds that Starr acted more than reasonably under the circumstances.  Specifically, the Court finds that Starr’s expert was credible, and that Starr’s underwriters lacked sufficient knowledge of Heinz’ misrepresentations or omissions.

The Court rejected Heinz’ claims that Starr engaged in post-claim underwriting, and that Starr should have conducted further investigation during the underwriting process about prior losses, including delving into information about Heinz’ prior losses from sources other than the application, including applications for other coverages, and prior news coverage of Heinz contamination claims.

While Schwab conceded the equitable remedy of rescission ab initio was an extreme one, he ruled that Starr met its burden of proving entitlement to the equitable remedy.  Dickie McCamey’s attorneys worked as co-counsel in the case with Attorneys Bob Frank, John Nadas, Matt Arnould and others at Choate Hall & Stewart in the representation of Starr.

H.J. Heinz Company v. Starr Surplus Lines Ins. Co., (W.D. Pa., Feb. 1, 2016)(Schwab, J.).

Editor’s Note:  Judge Schwab’s opinion makes it fairly clear that an insurer does not have a reasonable duty to either 1.) presume an applicant is omitting information; or 2. ) investigate items which do not appear on the application.

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Insured’s Failure To Disclose Prior Pathogen Losses Results In Dismissal of Coverage, Bad Faith Claims

SANTA CLARA, Jan. 14 – An intermediate state appeals court in California has affirmed dismissal of coverage, negligence,  and bad faith claims by a geranium grower against excess insurer  Great American Insurance Co., finding the trial court acted properly in granting rescission ab initio of the policy because the insured omitted material facts from a loss history on the policy application.

The court ruled that the grower omitted from the policy application’s loss runs and loss histories prior pathogenic outbreak issues experienced by the grower, and that such failure to disclose was material to Great American’s agreement to issue a policy insuring against such losses.   The appeals panel further held that under California law, including the statutory scheme for rescission of insurance policies,  the trial court acted properly within its “broad equitable discretion to fashion appropriate remedies so as to establish equity between the parties.”

The Court also found that the grower “substantially contributed” to the delay in the investigation of the contaminant outbreak claims, dismissing all contract, bad faith, and negligent claims and affirming judgment in favor of the insurer.

Goldsmith Seeds v. Great Am. Ins. Co., (Jan. 14, 2016, Cal. Sixth App. Dist)