Fresh Express plans to oppose a California appellate court ruling that has reversed a 2009 trial court’s $12 million judgment in the company’s favor.
At issue is whether Fresh Express was covered by an insurance policy for losses sustained in the 2006 spinach E. coli outbreak, in which its products were ultimately vindicated. The $12 million was the limit on a “Total Recall +” policy issued by the insurers, Beazley at Lloyd’s and QBE Insurance (Europe) Ltd.
In San Jose, the sixth district Court of Appeals of California ruled Sept. 8 against Fresh Express, a subsidiary of Chiquita Brands International.
In the ruling, Judge Nathan Mihara rejected the trial court’s finding that the outbreak triggered benefits to Fresh Express under the policy’s accidental contamination coverage. Instead the court affirmed the insurers’ view that the coverage applied only to contamination accidentally caused by the company itself.
Fresh Express reported losing $18.8 million over three months in late 2006 due to the outbreak. In addition to falling profits that followed a federal advisory on bagged spinach, removal of all product from stores and a subsequent drop in demand, there were losses in other categories, including $4.25 million on other products.
Chiquita spokesman Ed Loyd said the claim will be pursued further.
“Fresh Express intends to seek reconsideration and, if necessary, a review of the (court’s) decision,” Lloyd said.
“If the insurance industry held every insured policyholder to the standard laid out by the court in this decision, it would be unlikely that any coverage protection would be afforded to any produce company that holds a similar recall policy. This result is very unfortunate for our industry as many companies pay large amounts for policies with the good faith belief that there will be coverage under those policies in the event of a recall.”
Fresh Express attorneys argued that all the policy required was for the company to have committed errors serious enough to link it to the outbreak, even though its products were cleared of having caused any illness.
Those errors, according to court records, involved spot purchases of spinach from two sources that violated the company’s own policies. One, grown at Eade Ranch and purchased from Braga Farms, came from a field previously rejected by a Fresh Express food safety auditor because it was within a mile of a cattle yard. The other, bought from Seco Packing and grown by Bloomfield Farms, had not had a pre-harvest food safety audit, according to court records.
Fresh Express did not recall spinach in 2006. A Food and Drug Administration advisory cleared shelves of bagged product, a point Fresh Express raised in resisting a call from Kentucky officials for a voluntary recall when the product was still under suspicion. For the courts, the absence of a recall was not a central issue.
In the end, all Fresh Express suppliers were cleared as health officials traced the outbreak to spinach grown on a single ranch near Hollister, Calif., and processed by Natural Selection Foods, a supplier for Dole.
Mihara found that problematic for the insurance claim.
“No evidence was presented linking (Fresh Express’) losses to its errors,” he wrote in the ruling.