Personal Injury Law

When A Food Borne Illness Insurance $0 Sublimit Does Not Mean $0 Of Coverage

By Kenneth Odza

Restaurant owners recently scored a victory against an insurer, who was looking to limit its exposure for lost sales from the fallout from a food-borne illness outbreak. Middlesex, New Jersey Superior Court Judge Lewis Paley ruled in favor of restaurant franchise owners suing for coverage under a Trade Name Restoration, Loss of Business Income and Incident Response Insurance for Food Borne Illness ('TNR') policy to compensate for lost sales from a well-publicized E. coli outbreak associated with their national franchise name.

While a victory, the policy language was problematic for the restaurant owners. The case is a good case study why food sellers need to be vigilant in their review of insurance as it relates to food-borne illness.

The outbreak was associated with lettuce supplied to certain franchises. The TNR insurance policy, issued by Lloyd's of London and Professional Liability Insurance Services ('PLIS' or 'Underwriters'), included a 'Sublimit' for 'losses . . . from the operations of any product supplier. . . .' The declarations page for the policy listed the sublimit as '$0.'

PLIS denied coverage on the basis of the $0 supplier's sublimit.

Despite the $0 sublimit, the court still found in favor of the restaurant owners, concluding that 'an average, reasonable insured would expect coverage for the outbreak.'  The court latched onto the term "product supplier," finding ambiguity.  The court reasoned that the lettuce supplier may not have been a 'product supplier' because 'a reasonable insured would conclude that an ‘ingredient' is a component of a product, not the product itself.'

The court also appeared disturbed that the franchise owners previously maintained through PLIS Food Borne Illness coverage ('FBI'). Evidently, the FBI policy for which PLIS received similar premiums covered lost profits from food-borne illness caused by suppliers. The court found that the 'TNR insurance may differ from FBI insurance, but there is no evidence that the Franchisees were told that earlier coverage was being reduced.' 

The New Jersey court expressed sympathy for the restaurant owners' plea in the face of what the court perceived as a harsh policy limitation.  My experience is that not every court would "stretch" to protect commercial insureds. More important, a restaurant insured should always prefer clear policy language providing the coverage it wants over litigation and a gamble that a court will find ambiguity in a policy that would otherwise seem to preclude the coverage expected.  
 

Full post as published by Food Liability Law Blog on June 29, 2009 (boomark / email).